SBA Loans for working capital: pros and cons

At some point, most small businesses find themselves needing additional working capital to help bridge a gap in funds or take their company to the next level. It’s wise to explore all of your financing options in order to make the best financial decision. We’ll help you weigh the pros and cons of SBA loans to see if it’s the right fit for your business.

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What is an SBA Loan?

An SBA loan is funded by an independent lender but guaranteed by the federal government’s Small Business Administration. Because the government backs the loan, the lender is more likely to offer funds to a small business it might otherwise deny. There are a variety of SBA loans to consider, all of which range in loan amount, term, and use for the funds.

Advantages of SBA Loans for Working Capital

One reason that many businesses turn to an SBA loan is that it can potentially provide you with financing when a traditional bank or credit union turns you down. Like any working capital loan, an SBA loan can help create a more consistent cash flow. If you have seasonality in your business or want to invest in some type of growth or new venture, you can supplement your existing capital to meet those needs. An SBA loan also typically comes with restructuring options. In the event your ability to repay changes, you may be able to work out a different repayment plan in order to avoid going into default.

Disadvantages of SBA Loans for Working Capital

There are also some downsides to using an SBA loan for your company’s working capital needs. First, they often require that you use some type of personal asset as collateral. If you default on the loan, you incur the risk of losing your collateral. The second issue is that the application process for an SBA loan is lengthy and usually requires a lot of paperwork. If you need working capital quickly, this may not be the best option.

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The Bottom Line

In addition to considering an SBA loan for working capital needs, many small business owners look at online lenders that offer unsecured small business loans. The application process is fast, as is the time it takes to get funds in your bank account. An online lender like us can be a strategic resource to bolster any company’s working capital.