Smiling restaurant owner standing at kitchen counter

SBA Loans Explained: How Creative Lending Options Can Turn Business Vision into Reality

Just like individuals making significant purchases or investments such as homes, cars, and education, business owners need loans to start, run, and grow their businesses. But each business and business owner has a unique story and circumstances, and traditional loans are not always the best fit for those needs. That’s where the U.S. Small Business Administration (SBA) comes in.

The SBA provides a wide variety of loans, including loans that help businesses acquire working capital, buy real estate and equipment, expand inventory and staff, and build sales and distribution capability abroad. During fiscal year 2017, in its 7(a) and 504 programs, the SBA loaned over $30 billion through more than 68,000 loans. That same year, these two SBA programs helped women-owned, minority-owned, and veteran-owned businesses get financing totaling over $8 billion, $9 billion, and $1 billion respectively. The SBA website describes the agency and its programs in detail.

SBA Loans: Not Just for Startups

Many business owners don’t consider SBA loans because of common misconceptions about them, for example, that SBA loans are only for new businesses. In fact, they are an important source of financing for established businesses.

For existing businesses, SBA loans can be a better option than traditional bank loans or other sources of financing, like family and friends, crowdsourcing, or venture capital. Some businesses use SBA loans to supplement other types of loans they already have. This is because a more flexible and customized underwriting approach can identify new ways to get business owners the loans they need for projects that traditional loans might not support, such as expansion into global import and export markets.

SBA Loans and Banks

Banks are valuable partners for the SBA because both take a nontraditional, nonstandard approach to evaluating business owners’ financing needs. For example, consider a borrower with cash-flow challenges, who normally wouldn’t qualify for a standard bank business loan. Through the SBA program, a bank might explore projection-based transactions, and ask about future revenue rather than historical revenue to assess a loan request. If a business has cash-flow challenges now, can a loan help the business grow cash flow by increasing its inventory, staff, production capacity, or customer base? Using SBA loans, banks look beyond traditional loan metrics to find creative ways to help businesses reach new levels of success.

Together, SBA loans and banks deliver benefits to all parties involved. Business owners get customized loans structured around their specific needs. Banks make good loans even better by sharing the risk through a partial government guarantee. And local economies benefit from successful and growing businesses creating jobs in the United States and providing goods and services both here and abroad.

SBA Loans in Action

Capital Bank is proud to be an SBA-approved lender, and we understand both the challenges and opportunities these loans present. We have worked with SBA loans for many years and have the expertise to identify new and relevant ways businesses can use SBA loans.

We apply a creative, flexible approach to the full spectrum of SBA loans, including 7a (Standard, Small, and Express), CAPLine, 504, and Export Working Capital Program loans. We work with business owners to craft customized loan solutions that help them grow based on their goals and visions.

Two examples of Capital Bank clients illustrate how lenders work with the SBA to make a difference for well-established businesses that want to take the next step.

An existing client returned to us for more SBA financing, so he could expand his successful fast food franchise by opening a third restaurant. The problem was, the client didn’t have tangible collateral or enough assets to meet our internal credit guidelines for a commercial loan. To make the client’s financing and business cash flow work, the term of the loan had to be lengthened to lower the payments. The SBA offered a 75% guarantee, giving us the security to help our client open his new locations.

In another case, the SBA helped us with a business acquisition. The aging owner of a small restaurant decided to sell the business and retire. His daughter had been working at the restaurant for years and wanted to take over the family business, but she didn’t have the assets needed to buy the business. Because the owner needed the cash from a sale to retire, he couldn’t take installment payments. With the help of the SBA, we secured a loan for the client’s daughter with a 75% guarantee, without tangible collateral or high assets. The owner’s daughter closed the transaction and moved the ownership, keeping the restaurant in the family for another generation.

Strong Partnerships

Working with the SBA, Capital Bank and other lenders act more as an advisor than a lender. This unique and powerful government-backed loan program to help make business owners’ dreams a reality.