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SBA Working Capital Loans: Are They a Good Idea for You?

Published June 28th, 2022 by Cornerstone Capital Advisors

If you're launching a new business, you'll need to secure startup capital. Startup capital gives you the money that you need to pay for the operational costs of starting a business.

There are many options that you have regarding the acquisition of startup capital. You can traditionally get startup capital like a loan or a venture-capital round. You can also get your startup capital through advances or revenue.

However, if you're looking to secure a large amount of money in a short amount of time, a working capital loan might be right for you. They allow you to increase your operating capital faster and more efficiently. Learn all about SBA Capital loans and find out if they're the right fit for you.

What Are Working Capital Loans?

Working capital loans are short-term loans that are used exclusively for your business; they cover operating costs when businesses are falling short. 

The term "operating cost" can encompass anything from office space rentals to payroll. Because of their wide scope, working capital loans are helpful to any business that needs help addressing its short-term needs. 

What You Need to Know About SBA Working Capital Loans

There are different types of SBA working loans, each comes with its own unique requirements and qualifications. However, they are all essential to providing financial assistance to small businesses. 

Each loan has a different maximum loan amount and maximum guarantee. This makes it vital for any prospective borrower to look into the logistics of each prospective loan application. At Cornerstone Capital Advisors, our team of financial experts can help you navigate the different SBA working loans available. 

Pros of SBA Working Capital Loans

Many new business owners are in need of capital to launch their business. That's why they turn to SBA loans. Here are some of the pros of SVA working loans. 

Diverse Loan Qualifications

Businesses that typically don't receive traditional approvals should look into SBA working loans. Even businesses that typically don't get approved for traditional loans can qualify for SBA working loans. 

You may also look into "SBA guarantees," which allow the lender to recover a portion of your outstanding balances even if you default on your loan. This gives the lender a greater sense of security. Because the lenders have the safety of a guarantee, borrowers who may not otherwise qualify can be approved. 

Lenders of SBA applications are also more open to long-term repayment plans. This alternative payment plan lessens the strain on cash flow. This makes it easier for borrowers to repay their debts. 

Capped Interest Rates

Unlike traditional loans, SBA loans have a capped interest rate. This means that the loan's interest rate is made of a base rate plus a small percentage added by the lender. 

Regardless of your lender, all SBA loans are subject to SBA maximums which work to make SBA loans affordable for their borrowers. This is one of the greatest loans of an SBA loan. 

Varied Loan Quantities

SBA loans are available for a wide range of sums. You can take out an SBA loan for a few hundred dollars or even millions. These programs are designed to help you access the funds necessary to promote your business. 

Depending on the quantify of money you seek, there are limitations to what the money can be used for. Be sure to meet with an expert so you can be aware of the restrictions that accompany your loan. 

Use a Resource Center for Information 

To help business owners navigate SBA loans, the SBA offers resource centers to help you navigate the application process. Many people are unable to cope with  These centers providing additional support for underserved communities so that anyone can experience the benefits of SBA loans. 

Cons of SBA Working Capital Loans

Although SBA working loans help businesses get off the ground or expand, they are not full-proof. They have a slow approval process and require that borrowers levy some of their own capital. 

Slow Approval Process

Due to bureaucratic red tape, SBA working capital loans have a notorious slow approval process. However, if you work with experts to refine your application process, you can streamline the process. 

Required Down Payment 

Borrowers can expect to make a downpayment when securing an SBA loan. Typically, you will be asked to put down 10-20% of your desired loan amount to get your SBA loan. 

Lenders feel more comfortable working with a borrower who is willing to also pour equity into their business. These down payment requirements are still lesser than that of conventional loans. 

Potential Collateral Requirments 

Most SBA lenders require that borrowers put down collateral. Collateral is an asset that a lender puts down as security for a loan. Having borrowers put down their own assets helps to reduce risk on behalf of the lender. 

Personal Liability 

Even when you are seeking a business loan, you can be personally liable for the loan amount. When applying for an SBA loan, you accept legal responsibility for repaying the debt in full.

As a result of this arrangement, the lender can seize your collateral if you default on your loans. If you still fail the repay your debts, the SBA can get the U.S. Treasury Department involved. 

Are SBA Working Capital Loans Right for Your Business?

At Cornerstone Capital Advisors, we offer a comprehensive scope of financial expertise to help fulfill all of your business's needs. Capital Loans are a great way to renew your business' potential and secure your financial future. 

Contact Cornerstone Capital Advisors to get your SBA working Capital Loan application started today. 


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