The Pros and Cons of SBA Loans

Mar 15, 2019 | SBA Loan, Working Capital

When choosing the right financing for your business in Long Island, it’s crucial you weigh the options that are available to you. Remember that the type of financing you choose can impact your business for years to come.

With that said, do you know SBA loans Long Island are a great financing tool for small businesses?

They are, but they are not for everyone.

SBA loans have gained immense popularity among small business owners because of their flexibility, but unfortunately, it has its own share of disadvantages. So, before you apply for an SBA loan, make sure you’re aware of all of the pros and cons.

Pros of SBA Loans

Flexible Terms and Conditions: Almost every small business owner in need of financing can apply for an SBA loan due to their reasonable terms. They have negotiable term lengths, offer restructuring options, charge lower down payments, and have limited interest rates.

Steady Flow of Cash: Small businesses often face cash flow issues throughout the life of their business. SBA loans are a great source to improve cash flow as well as the purchasing of new equipment, and making payroll. Without a steady flow of cash, you’ll definitely have a hard time running your business efficiently.

Additional Working Capital: Every business needs working capital in order to maintain its operations. Most business owners who apply for SBA loans do so in order to obtain additional working capital. The Small Business Administration works with business owners who have difficulty getting approved for financing elsewhere. Once you receive the money, you can immediately use it to fund your business.

Cons of SBA Loans Long Island

Application Difficulties: When you apply for SBA loans, you’re required to submit an extensive amount of paperwork, from cash flow projections to personal financial history. Furthermore, the application process can take months before you get approved, and even after the SBA has reviewed your paperwork, you can still get rejected.

Visit SBA’s Loan Submission Checklist to see whether applying for an SBA loan is worth your time and effort.

Personal Risk Involved: Business owners need to pledge some of their personal assets to secure the loan. This means that if your business can’t repay the loan, lenders have the right to repossess the personal assets you put up as collateral. Plan carefully, and be certain you’re able to make the monthly loan repayments before you apply for an SBA loan.

Comparably High-Interest Rates: SBA loans put a limit on how high their interest rates go, but it’s still relatively expensive compared to other kinds of financing. As of December 2017, the limit for SBA loans greater than $50,000 (with 7+-year amortization) is 25% every year.

In your search for the type of loan best suited to meet the needs of you and your business, it’s vitality important you weigh the pros and cons of every loan source to see how it will affect your business.

If you have a desire to know all of the specific details as they relate to your business, SMB Compass are the experts who can carefully inform and guide you, every step of the way. We have funded thousands of businesses in the United States, and our finance specialists can help you too.


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