SBA Loans vs Alternative Lending: What to Consider in the Coronavirus Pandemic

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SBA Loans vs Alternative Lending What to
Consider in the Coronavirus Pandemic
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The SBA offers a variety of business loans and
resources for small businesses including disaster
loans for businesses to recover from natural
disasters like Coronavirus (COVID-19), funding
for export businesses, women-owned businesses,
minority-owned businesses, and veteran-owned
businesses. The most popular SBA loan programs
include the following
Learn about SBA loans vs alternative lending
options to get the capital your small business
needs in the coronavirus pandemic.
SBA Loans
Merchant Advisors
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SBA 7(a) Loans With SBA 7(a) loans, you can get
cash up to 5 million to be used for any purpose
including for working capital, equipment
purchase, refinance existing debts, and buy real
estate. The SBA 7(a) loans are typically for
established businesses and not for startups.
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SBA Express Loans With SBA Express loans, you
can get cash up to 350,000 with the quick
approval process and a decision within 36 hours.
These loans carry high-interest rates than 7(a)
loans and may take few weeks or a month depending
on the actual lender to approve the loan.
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SBA Microloans SBA Microloans offer cash up to
50,000. As the name suggests these are smaller
loans and are offered by community lenders and
nonprofits. The approval process is quicker and
these loans can be used for startups, buy
equipment or inventory and working capital for
established businesses.
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Resumes of company management
Sales expectations
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SBA Loan Requirements
Competitors analysis
Excellent credit score
The SBA loan process is similar to regular
business loans but the requirements vary based on
the SBA loans and the lenders. Keep in mind that
the SBA does not directly lend the money. 
Instead, they guarantee repayment from an
SBA-approved lender. Generally, the SBA lender
requires the following along with an SBA loan
application to make a decision
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Business debt schedule
Plan on how you will use the loan
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Business Certificate/License
Current financial statements
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Solid business plan
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Legal documents
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Sales expectations
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Collateral and personal guarantee for the loan
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Personal and business income tax returns for the
past three years
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• SBA Loan Considerations

Before you decide to apply for SBA loans,
consider how the loan process works and the loan
terms. If youre unable to repay the loan, you
could end up paying a lot more money than you
initially anticipated. The repayment schedules
for SBA loans are typically longer and based on
how youll plan to use the money. Here is the
repayment schedule for SBA loans based on your
needs The opportunity to use the longer
repayment terms can be a mixed blessing for
cash-strapped businesses. Taking more time to
repay a loan means youll end up paying more over
the term of the loan. Moreover. even if youre
able to secure low interest on an SBA loan, you
could wind up paying more in interest costs.
For short-term needs, the repayment schedule is
seven years
For equipment purchase, the repayment schedule is
10-years
For real estate financing, the repayment schedule
is up to 25 years
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Determine how many loan applications a lender
typically receive annually on average, and how
many of those get approved. In addition to their
staffs experience with SBA loans, you should
also observe the maximum and minimum amounts
theyre willing to approve. When it comes to
funding your small business, there are numerous
business financing options, and you should not
apply with the first lender you connect.

• How to Select an SBA Lender?

When deciding to apply for SBA loans, searching
the right lender is important. Not every lender
offers SBA loans, and of those who do, not offer
the flexibility that you actually need.
Therefore, its vital to carefully scrutinize
lenders when assessing your SBA loan options.

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SBA Loan Qualification
The application process is also tedious and
lengthy. After you submit a loan application, the
lender typically takes weeks or months to make a
decision. This might not be a suitable option if
you need quick funding to cover an emergency or
take advantage of time-sensitive growth
opportunities. Another essential aspect is the
collateral or personal guarantee that you need to
provide for SBA loans. This means putting up your
valuable assets such as cars, property or
accounts at risk to back up your business loan.
SBA loans are the most sought-after loan products
provided youre able to qualify. With extensive
paperwork and strict eligibility criteria,
qualifying for SBA loans is really challenging.
For startups, qualifying for SBA loans may not be
the possible solution as some lenders are
reluctant to offer money to businesses with no or
little credit history. In addition, even if you
have a profitable business but a low credit
score, you might not be able to qualify for it.
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• Pros and Cons of SBA Loans

Access to additional capital
Longer repayment schedules
Access to additional capital
Lower down payments
Lower interest rates thanks to government backing
Access to SBA Resources
Multiple SBA loan options

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• CONS

Access to additional capital
Typically require collateral or a personal
guarantee
Longer application process
An excellent credit score is required
Relatively high interest-rates

Stringent requirements for borrowers

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Business Lines of Credit
A business line of credit is the most popular
form of business financing. It works similarly to
a regular business loan, except that it provides
revolving credit. With a business line of credit,
you can borrow cash up to your approved credit
limit and pay interest only on the amount you
borrow from your credit limit, plus a withdrawal
fee. A business line of credit generally has a
higher credit limit than credit cards with an
annual fee.
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SBA Loan Alternatives
When it comes to small business financing, SBA
loans are not your only option. There are many
alternatives available to SBA loans that offer
funding with quick access to capital. Here are
some of the best alternatives to SBA loans.
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• Business Credit Cards

Business credit cards also provide quick access
to revolving credit, where you can borrow cash to
pay for things up to your approved credit limit.
After using the cash, youll pay for the money
youve borrowed on the card and your credit limit
goes back up after payment. Business credit
cards typically carry high-interest rates and
might not be a suitable option when you need to
carry a balance. You can avoid interest charges
by paying your entire credit card bill by the due
date.
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Crowdfunding
Crowdfunding is another great way to raise
capital for your small business via individual
investors. When raising capital for your business
with crowdfunding campaigns, you have to offer
investors something in return for their
investment. For many, this could mean offering
part of your business ownership or your products
or services.
Crowdfunding is best for startups and new
businesses that need to raise capital. Keep in
mind that crowdfunding campaigns can take a lot
of time, even months, to complete along with
setting a specific funding goal. If youre unable
to meet your fundraising goal, you may have to
return all the money you raised.
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• Small Business Loans

Online small business loans from alternative
lenders are the most suitable option when you
need quick cash without a complicated application
process. Online lenders, aka alternative lenders,
offer easy and simple application process with a
quick decision within 24 hours. With small
business loans, you can secure capital up to
500,000, and funded within 24 hours, instead of
days, weeks or months from an SBA loan. The
application process is simple with less
restrictive requirements such as at least one
year of time in business, 100,000 in annual
business revenue and three months of bank
statements. Another best thing about online
business loans is that it helps build your credit
score and borrowing history. If you secure
smaller online loans, it could help you secure
SBA loans in the future as well.
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• Pros and Cons of Alternative Lending

Fast loan approval and funding process
PROS
CONS
CONS Not for startups No government
backing Some lenders may charge hidden
fees
Fast loan approval and funding process The easy
loan application process
Funding in as quick as 24 hours

Shorter repayment schedule to avoid debt faster
Straightforward requirements No down payment or
collateral needed Secure financing even with no
credit or subpar credit
Use the funds however you see fit
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• SBA Loans vs Alternative Lending Options

Choosing between SBA loans and online small
business loans can sometimes be confusing. With
lower interest rates, longer terms, and loan
amounts, applying for SBA loans could be worth a
shot. However, lengthy application processing
time and stringent qualification requirements can
make it difficult to get approved. Use due
diligence and look for options that fit your
businesss financial needs. With a range of
financing options out there, you can make sure
your business has the capital it needs to grow
and succeed.