What is an SBA Loan for Women?
SBA loans are loans backed by the Small Business Administration (SBA) for entrepreneurs looking to start or expand their business. This provides banks or other SBA-approved lenders with the security of knowing that a significant portion of the loan payment will be covered if the borrower defaults. SBA loans play a significant role in helping more women to enter the business world, which even today is still less accessible to women. Only 30% of small businesses in the U.S. are owned by women. More alarmingly, of all the money lent to small businesses, only 4.4% is given to businesses owned by women. Furthermore, loans given to women on average tend to be for smaller amounts and have higher interest rates. Although SBA loans require strong ratings to obtain, they tend to be for large amounts and have low-interest rates. While rates can be as low as 6%, SBA express loans can be as high as $350,000, while SBA 7(A)loans can be up to $5 million. This makes SBA loans a great way to help female entrepreneurs expand their small business.
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Interest rates for SBA loans tend to be rather low, ranging from about 5% – 9% depending on the type and details of the loan. Market rates for CDC loans, for instance, may be anywhere between 4.88% – 5.15%, depending on treasury rates and ongoing fees. Market rates for SBA (7A) loans, on the other hand, are as high as 7% for loans of $50,000 or higher with a payment term of 7 years or less, 9% for loans of $25,000 or less, and 8% for amounts in between. Additionally, rates may be fixed or adjustable depending on the type of loan. Sticking with the above examples, CDC have fixed rates, while SBA loans fluctuate throughout the life of the loan.
Credit requirements vary depending on the kind of SBA loan for which you are applying. SBA (7A) loans require a minimum credit rating of 640, while CDC loans have a more severe requirement of 680. SBA microloans, on the other hand, tend to be for smaller amounts, and hence have a milder credit requirement of 620-640. Credit scores, however, are not the only thing at play when being considered for an SBA loan. Lenders will also take into account how long you’ve been in business, how profitable your business is, and how much you intend to borrow. SBA loans also require a heavy amount of documentation and may take months to process.
How to Get an SBA Loan for Women
In general, it is recommended that anyone applying for an SBA loan be in business for at least 2 years running a profitable business, have at least $100,000 in revenue for the past year, and be seeking a loan of at least $30,000. If you are a woman looking to take out an SBA loan, the National Women’s Business Council (NWBC) and the SBA’s Office of Women’s Business Ownership (OWBO) are great sources of information and guidance. Additionally, SCORE is an organization in partnership with the SBA that offers expert business mentors to help guide and advise anyone running or looking to start their own business.