The government investing in small business.
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Loan Amount
$50,000-5,000,000
Loan Term
10-25 Years
Time to Funds
30-90 Days
Interest Rates
Prime+
There’s really no better ally for small businesses than SBA.
This is probably the first government initiative in this sector that we all agree with. The Small Business Administration (SBA) is actually a policy of the federal government targeted at helping small businesses acquire much needed funding. However, the SBA is not responsible for footing the cash. What it does is to establish guidelines, then guarantee certain portion of the loans. Since lenders are at less risk in the event of a default, they’ll be more inclined to offer entrepreneurs more funds.
There are SBA loans for practically every business need.
There are SBA loan options for practically every aspect of small business. The 504, SBA Express and 7(a) are the most common types of SBA loans. Here is a breakdown of all the available loan options to help you decide which is best for you.
SBA 7(a) Loan
The 7(a) is probably the most flexible of all SBA loans. It can be used to:- Cover cost of construction.
- Buy land.
- Purchase or expand an already existing business.
- Refinance an existing debt.
- Purchase furniture, machinery, materials or supplies.
If you meet the qualification requirements, you can actually get up to $5milion 7(a) loan.
SBA 504 Loan
The 504 loans are however more complicated than the 7(a) loans. The fact that 504s can be used to fund projects means those projects have to be examined thoroughly. The lender covers about 50% of your total costs when the loan is funded, while the SBA covers 40% - the implication of this is that you have to cover at least 10% of the project right away. You’ll also need to personally guarantee not less than 20% of said loan.The SBA 504 loan must be used for financing fixed assets, though you can also include some soft loan costs. Here are some examples of these qualifying projects:
- Buying an existing building.
- Building new facilities or renovating an existing one.
- Buying land or making land improvements like landscaping, grading, and adding parking lots.
- Buying long-term machinery.
- Refinancing debts incurred in the course of your business expansion or during renovation of your equipment or facilities.
Before you can qualify for the SBA 504 loan, the net worth of your business must be at least $15 with $5 million or less being your average net income for the preceding two years before your application.
SBA Express Loan
The SBA Express is perfect for those that need quick cash. Unlike the slower review process associated with the other SBA loans, applications for the SBA Express are reviewed in 36 hours. This does not necessarily mean you’ll be able to assess the funds that quickly, it sometimes takes up to 30 days to fund your SBA Express loan.An SBA Express can help you access up to $350,000. You might need collateral to secure your loan if the loan sum exceeds $25,000. The loan may be used as line of credit (term of 7 years), or working capital (5-10 years) or as commercial real estate loan (i.e. 25-year term)
If the bank is at less risk, you’re likely to get a better deal.
SBA loans are in demand, and when you consider the fact that their terms and rates are almost at par with bank loans, I guess this is understandable. SBA also guarantees loans and limits the lender’s risks, which is why more banks are beginning to gravitate towards it. Banks actually fight for the right to loan you money. This way, you get to enjoy some of the best terms and rates out there.
SBA loans have lots of other benefits - they offer fixed interest rates, long term repayment terms and monthly payments. SBA loan is perfect for building and improving credits, making you more qualified to apply for lots of other loans or even higher amounts when you’re looking for another round of funding for your small business.
Small businesses using SBA loans enjoy a lot of other long-term benefits. For instance according to SBA estimates, more than 2 million jobs have been created since 2014 as a result of 504 loans. So if you’re really looking to grow your small business, SBA loan is definitely the way to go.
There are certain paperwork requirements when applying for SBA loans.
Although it is easier to acquire SBA loans than traditional bank loans, their requirements are still more stringent than that of many other non-institutional lenders. In fact, they’re more paperwork intensive, require more time for funds and have more rejection percentage than most direct online lenders.
Therefore, before you can get a pre-approval letter, you must provide adequate information. After providing the regular requirements such as business license, you can actually speed up the entire process and boost your chances of getting approved by rounding up the following documents:
- 2 years’ worth of your business tax returns.
- 2 years’ worth of your personal tax returns.
- YTD balance sheet.
- Profit and loss statement for YTD.
- Debt schedule.