SBA Loan Guide
The Small Business Administration (SBA) offers several programs to help small businesses get the funding they need. These loans are issued by approved lenders and guaranteed by the SBA.
SBA loans offer very competitive interest rates, low down payment requirements, favorable loan terms, and high borrowing limits.
While these loans can be difficult to qualify for, they tend to offer greater benefits than small business loans from banks or alternative lenders.
SBA Loan Programs
There are several different SBA loan programs designed to assist with various aspects of small business operations.
The SBA 7(a) loan program is the SBA’s primary small business financing program. These loans are great for most small businesses as they can be used for nearly any application.
In addition to the 7(a) loan program, the SBA offers other loan programs, such as:
● SBA Microloans
● SBA Disaster Loans
● SBA Export Loans
● SBA CAPLines
● SBA CDC/504 Loans
These programs are meant to provide assistance to small businesses with special needs. For example, a small business that is affected by a natural disaster can use an SBA disaster recovery loan to avoid going out of business.
In most cases, though, small businesses can get all the assistance they need via the 7(a) loan program.
Loan limits depend on the type of loan you apply for.
For standard 7(a) loans, small businesses can borrow a maximum of $5 million. The SBA will guarantee 85% for loans up to $150,000 and 75% for loans greater than that.
7(a) small loans have a maximum loan amount of $350,000. The SBA guarantee is the same for these loans as it is for standard 7(a) loans.
Interest Rates & Terms
Since the SBA guarantees a significant portion of these loans, lenders are able to offer very competitive interest rates and terms.
The SBA does not guarantee a specific interest rate, but does prevent lenders from exceeding a maximum rate. Currently, the maximum interest rate is 10.25%, but lower interest rates can be obtained if you have a good credit history.
- Repayment term
The repayment term for an SBA 7(a) loan can be as long as 25 years for commercial real estate. Loans used for working capital can have terms of up to seven years. For equipment, loan terms can be up to 10 years.
- Approval time
It’s always better to get your money sooner rather than later. While disbursement times vary on a case-by-case basis, the SBA tends to offer fast turnaround time.
For standard 7(a) loans, the SBA is usually able to respond to applications within 5-10 business days.
If you need your money as fast as possible, the SBA offers SBA Express loans. For these loans, the SBA will review your application within 36 hours.
After approval, it typically takes 30 to 90 days to receive funding.
For loans under $25,000, the SBA does not require lenders to secure collateral. Though lenders may still require you to offer collateral, depending on your financial circumstances.
For loans over $350,000, the SBA requires lenders to secure as much collateral as possible up to the total amount of the loan.
SBA 7(a) Loan Requirements
Since the SBA does not lend money itself, the requirements for these loans depend on your lender.
That being said, there are a few standard requirements that you will likely have to meet, including:
● A minimum credit score of 680
● A 10% down payment, if using your loan for real estate
● Sufficient collateral
● No recent liens, bankruptcies, or foreclosures
The business must also be a for-profit business in the United States. You may also need to meet certain size standards.
How to Apply For an SBA Loan
Applying for an SBA loan is similar to applying for any other small business loan. It’s important to be prepared for this process in order to get your funding as quickly as possible.
Just follow a few steps to get started on your SBA loan application.
- Choose a loan program
As previously mentioned, the SBA 7(a) loan program is right for most small businesses.
That being said, there are several other loan programs to help businesses in unique circumstances.
Visit SBA.gov for more information about the various loan programs and to find the right one for your needs.
- Find a lender
The SBA makes finding an approved lender easy.
All you need to do is use the SBA’s Lender Match tool to find loan providers in your area. After searching for lenders, be sure to get quotes and compare offers from at least three different providers.
This will ensure you find the lender that offers the best rates and terms.
- Complete your application
To speed up the application and approval process, be sure to have the following documents prepared in advance:
● Business tax returns
● Personal tax returns
● Debt history
● Profit and loss statements
● Financial projections
● Business licenses
● Expected return on investment
● Owner resumes
● Business lease
● Proof of ownership
● Balance sheets
These documents, in addition to similar information, will help lenders get a clear picture of your financial circumstances.
You will need these documents to be approved for an SBA loan and preparing them in advance will streamline the application process.
Based on a 15 year, $250,000 loan (less down payment) at 7.25% APR