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Are you looking to expand, or recover your small business with the help of a loan? Then you should consider applying for an SBA loan. The U.S. Small Business Administration (SBA) is a federal government agency that supports small businesses and entrepreneurs by partnering with certain banks, credit unions, and other lenders to offer a government-backed guarantee on part of a loan. Because of this guarantee, lenders are able to offer loans with lower interest rates and more flexible terms.
The one downside is that an SBA loan can be notoriously difficult to obtain. However, with a little-advanced knowledge and preparation, you can increase your chances of securing some of this smart low financing for your small business.
For more detailed information about the SBA and their loan programs, visit www.sba.gov
Here’s a breakdown of the 6 main types of SBA loans and what you need to know about their uses, terms, and rates:
1.SBA 7(a) Loans (the SBA flagship and most popular loan option)
Amount: Federally guaranteed up to $5 million
Specialized Types: Express, Advantage
Purpose: Can be used to fund capital, equipment, expansion, or refinance debt
Processor: Designated banks, credit unions, and other specialized lenders
Terms: 7-year, 10-year, and 25-year loans are most common
Rates: 7.25 – 9.75%
SBA 7(a) loans are popular because of their low interest rates and long repayment terms, which make them one of the most affordable solutions for business capital. To figure out how much your SBA loan could cost is based on the loan amount, interest rate, and repayment terms.
Amount: Federally guaranteed up to $5 million
Purpose: Can be used to fund commercial real estate and facilities
Processor: Community development corporation non-profits and various private lenders
Terms: 10-year or 20-year
Rates: 4.85 – 5.08%
If you’re looking for a real estate loan and will occupy at minimum 51% of the space, you could be a good candidate for an SBA 504 loan.
Amount: Up to $50,000 NOT guaranteed
Purpose: Can be used to fund start-up capital, equipment, and inventory; can NOT be used for real estate or debt refinancing
Processor: Non-profits and community-based organizations
Terms: Up to 6-years
Rates: 8-13%
Microloans are best for self-employed or other home-based businesses with smaller business loan needs. If you’re interested in applying for a SBA Microloan, you must work with one of your local SBA-approved intermediaries.
Amount: from $200,000 up to $500,000
Types: Seasonal, Contract, Builders, Standard Asset-Based, and Small Asset-Based
Purpose: Can be used for seasonal and short-term working capital
Processor: Designated banks, credit unions, and other specialized lenders
Terms: Up to 5-years
Rates: 7.25-9.75%
If you need a revolving line of credit for recurrent upfront expenditures or significant fluctuations in cash flow over your business cycle, you could be an ideal candidate for an SBA CAPLines loan.
Amount: Up to $5 million
Types: Express, Working Capital
Purpose: Can be used to fund new exporting operations
Processor: Designated banks, credit unions, and other specialized lenders
Terms: Up to 25-years
Rates: 6-10%
If you’re looking to grow your business into new international markets, you could be a good candidate for an SBA Export loan.
Amount: Up to $2 million
Types: Business Physical Disaster, Economic Injury Disaster, Military Reservists Economic Injury
Purpose: Can be used to fund business ventures damaged by a declared natural disaster
Processor: Designated banks, credit unions, and other specialized lenders
Terms: Up to 25-years
Rates: 4-8%
Make sure the disaster affecting your business qualifies for an SBA disaster loan by checking the Federal Disaster Loan Assistance Database.
In order to qualify for an SBA loan, you will need a good credit score, typically 680 or higher (though there are some exceptions, particularly for smaller loans). You will also probably be required to make a down payment and put up some collateral – qualified lenders can inform you of the details necessary for the specific loan type and amount you are requesting.
If you’re interested in applying for an SBA loan, one of the best place to find more information is the SBA website, where you can find an SBA Loan Submission Checklist that will let you know everything you’ll need to have on hand and in order before you apply.
One of the best ways to get an SBA loan today is to use an online platform, which makes it easier and faster to get an SBA loan than the traditional bank process. The two top online options are SmartBiz (based in San Francisco, CA) and Live Oak Bank (based in Wilmington, NC). With these hassle-free online options available, there’s never been a better time to see if you can qualify for an SBA loan.
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