Why Growing Businesses Shouldn’t Overlook the Benefits of SBA Loans

If you’re a business owner in growth mode, you’re likely exploring financing structures to support your company’s ambitions. That’s where Small Business Administration (SBA) loans can help — and eligibility extends to a wider range of established businesses than many people realize.

For many use cases, SBA loans may offer more flexibility than conventional loans, including lower down payment requirements, longer terms, more lenient collateral requirements and the ability to fund multiple project uses under a single loan.

Here’s a closer look at SBA financing options for businesses like yours.

How Large Can Your Business Be and Still Qualify for an SBA Loan?

SBA financing is a great resource for small businesses – and the definition of “small” may be more expansive than you’d expect. Many companies with substantial revenue, assets and earnings may qualify. Using the SBA Alternative Size Standard, the SBA program can accommodate businesses with up to $20 million in tangible net worth and a two-year average net income of up to $6.5 million.

Qualified borrowers may be able to combine SBA programs for $10 million or more in financing, depending on the business and project:

• A recent SBA rule enables qualified borrowers who first secure a 7(a) loan to access up to $10 million in financing — up to $5 million each via the 7(a) loan and 504 loan programs. 
• Eligible manufacturers aren’t restricted to an aggregate limit within the SBA 504 loan program. Each eligible project can access up to $5 million in SBA funding.

SBA Financing Is Not Limited to Basic Business Needs 

Growing businesses can potentially benefit from the distinct features and structural advantages of SBA loans. For qualifying businesses, SBA loans can offer:

• Multiple permissible uses for SBA 7(a) loans, including acquisitions, real estate, equipment and working capital
• Longer terms (10-year standard loan term, or 25-year standard loan terms for commercial real estate term loans)
• Fully amortizing repayment, with predictable payments and without balloon payments or forced refinancing
• Smaller down payments
• Fewer reporting requirements and no financial covenants 
• No prepayment penalty for terms under 15 years

How SBA Loans Can Fund Complex Ownership Transitions 

SBA loans can support full buyouts, partner buyouts and new-owner acquisitions. The SBA now allows partial ownership buyout structures, where the seller retains ownership in the business post-transaction.

SBA 7(a) is often the preferred financing vehicle when much of the target business’s value is goodwill — the premium paid for intangible assets like reputation, customer relationships and future revenue generation.

Collateral Requirements Can Be More Flexible Than Many Owners Assume 

A lack of sufficient collateral doesn’t necessarily prevent a business from qualifying for an SBA loan. Instead of lending strictly against pledged assets, lenders examine cash flow and the ability to repay. Because of the SBA guaranty, lenders can take a more flexible view of collateral.

If a company’s assets don’t fully cover an SBA loan, owners with an equity stake of 20% or more may be required to pledge personal real estate.

The SBA Process Moves Faster With a Preferred Lender 

When you choose an SBA loan, you are borrowing from a bank, not the U.S. government. The SBA guarantees a significant portion of the loan, giving lenders more confidence to offer terms and approvals that meet borrowers’ needs.

The SBA process can move relatively quickly, especially when working with an SBA Preferred Lender like Western Alliance Bank. SBA Preferred Lenders can approve loans directly, without having to submit each loan to the SBA first. This structure can shorten closing timelines for borrowers who are quick to satisfy the loan documentation requirements.

The SBA process has four stages: 

• Application and documentation → Credit-approved loan term sheet → Underwriting and commitment → Closing

Consider the Bill Howe Family of Companies, a 260-employee San Diego plumbing business that turned to Western Alliance to help finance its purchase of a new headquarters through an SBA loan. The company’s chief financial officer called the process “incredibly smooth,” with responsive communication throughout.