Table of Contents
This article will explore the different types and rates of SBA loans available to small businesses in the United States.
SBA loans have low interest rates and durations up to 25 years, despite the fact that they are tough to qualify for.
The following are the six kinds of SBA loans:
- 7(a) Loans: Up to $5 million in working capital
- CDC/504 Loans: For the purchase of the owner-occupied commercial real estate.
- SBA CAPLines: A revolving credit line offered by the Small Business Administration.
- Export Loans: Funding for exporters to increase their export activities.
- Working capital loans: Working capital loans of up to $50,000 are available via the SBA Microloans program.
- SBA Catastrophe Loans: These are loans for companies that have been harmed by a natural disaster.
What Are SBA Loans and How Do They Work?
SBA loans, with the exception of the Disaster Loan program, are not granted by the SBA. The loans will be provided by banks, credit unions, community development organizations, micro-lending institutions, and other lenders. If a borrower fails on their loan, the SBA guarantees or promises to pay a part of the lender’s losses, ranging from 50 percent to 85 percent.
Lenders benefit from the SBA guarantee because it lowers their risk. This enables lenders to provide loans to companies that they would not have been able to lend to otherwise. Businesses with inadequate down payments or collateral for traditional bank loans, for example, may be able to qualify for an SBA-guaranteed loan. Borrowers may be offered loans with lower interest rates and longer payback periods than they would be offered by traditional commercial lenders.
1. SBA 7(a) Loans
The most prevalent form of SBA funding is 7(a) loans. These loans range in size from $5,000 to $5 million and may be utilized for working capital, debt consolidation, or the purchase of a company, real estate, or equipment. The 7(a) lending program also includes two popular loans: the SBA Express Loan and the SBA Advantage Loan.
SBA 7(a) loans are popular among small companies because of their lengthy payback periods and low interest rates, making them one of the most cost-effective working capital options available.
While the Small Business Administration does not have a minimum loan amount, most lenders will not finance loans under $30,000.
For an SBA 7(a) loan, a startup company must satisfy the following requirements:
- Startups must demonstrate to lenders that they have adequate industry or company management expertise as well as a solid business strategy.
- Larger down payments: Most SBA lenders will demand a 20% to 30% equity infusion or down payment of your entire project expenses, or $20 to $30 for every $100 you wish to borrow.
- Excellent credit: In our experience, being accepted for SBA financing as a startup is very tough for anybody other than highly qualified applicants (credit score of at least 700, greater net worth, and real estate with adequate equity).
Guidant Financial can assist businesses with putting out SBA loan applications and locating lenders that are most likely to cooperate with them. Guidant can also help you with a rollover for business starting (ROBS) if you have retirement funds in a 401(k) or individual retirement plan (IRA).
How to Obtain an SBA 7(a) Loan
Applying for an SBA loan may be a time-consuming and difficult procedure. Finding a lender with SBA loan expertise is critical since it increases your chances of being financed and saves you time and energy throughout the loan process.
In general, it takes 90 days or more for an SBA loan to be approved and funded; however, SBA preferred lenders may be able to approve and finance loans faster.
The SBA Express Loan Program
The SBA Express Loan is a program that allows modest loans to be processed quickly. The SBA Express Loan follows the same criteria as the regular SBA 7(a) loan, with the exception that the maximum loan amount is $350,000 and only a few lenders are eligible to participate. Because the SBA only insures up to 50% of SBA Express loans, the interest rates on these loans are often higher than regular 7(a) loans.
SBA Community Advantage Loans
SBA Community Advantage Loans are intended to assist companies in underserved areas in obtaining funding. These programs are offered to borrowers who satisfy the SBA’s eligibility requirements but are unable to get a regular SBA 7(a) loan due to a lack of income, collateral, or other factors.
The SBA’s Community Advantage Program provides the same fast application and approval procedure as an SBA Express loan, but it also guarantees 85 percent of loans up to $250,000. Lenders will be more motivated to offer these loans via the SBA Express program as a result of this reduction in risk.
2. 504 Loans
SBA loans are available via the CDC/SBA 504 loan program for small companies seeking to buy or develop owner-occupied commercial real estate. To finance these initiatives, the program brings together two lenders: a bank or conventional lender and a community development organization (CDC). The bank loans up to 50%, the CDC up to 40%, and the borrower is responsible for the rest of the project’s expenses, usually in the form of a cash down payment.
The company must occupy at least 51% of the commercial space to qualify for CDC/SBA 504 loans. While renting out 49 percent of your new building to tenants is a wonderful idea, this kind of SBA loan is better suited for businesses who plan to inhabit the space themselves.
How to Apply for a CDC/SBA 504 Loan
In terms of documentation and time to funding, the SBA 504 loan application procedure is comparable to the SBA 7(a) loan application process. You’ll also have to submit extra documentation for the property you’re financing.
3. CAPLines Loan Program
Small companies may use the SBA CAPLines program to get up to $5 million in loans or lines of credit to assist them to manage their short-term and cyclical working capital requirements. SBA CAPLines is ideal for companies that need a revolving line of credit to make regular payments or plan for unforeseen expenditures.
Terri Dennison, the SBA Georgia District Office’s district director, says:
“The SBA CAPLines Program helps businesses with their short-term and cyclical working capital requirements. Companies that need large upfront payments for a long time before getting payment are excellent candidates. Firms with substantial cash flow variations throughout the course of the economic cycle may also profit.”
The SBA CAPLines program offers interest rates that are identical to the SBA 7(a) loan rates. Remember that you only have to pay interest on what you borrow with a line of credit, and you’re not obligated to advance money you don’t need. This makes it an excellent choice for companies with erratic cash flow.
An SBA line of credit under the CAPLines program will have greater ongoing service costs than an SBA 7(a) loan. This is because credit lines are granted based on short-term assets like invoices and contracts, which must be verified on a regular basis. The service charge for most CAPLines is limited at 2%, but it may be higher for working capital lines.
How to Apply for a CAPLine Line of Credit
An SBA line of credit via the CAPLine program is applied for in the same way as an SBA 7(a) loan. Traditional lenders that engage in the SBA 7(a) program, such as banks and credit unions, are likely to participate in the CAPLines program as well.
A stand-alone SBA CAPLines line of credit may be available to well-qualified borrowers or companies that have the potential to bring in a lot of additional business to a bank. CAPLines, on the other hand, are usually provided in combination with a conventional SBA 7(a) loan or a CDC/SBA 504 loan.
4. Export Loans
SBA Export Loans offer financing of up to $5 million to assist small companies in the United States develop their export operations, participating in international transactions, and entering new overseas markets. These loans are intended for companies who do worldwide business and want to expand their operations in those regions.
The Small Business Administration (SBA) provides three different kinds of export loans to help companies with export working capital and international trade finance. Businesses may receive money through the SBA export finance program that they wouldn’t be able to get from a conventional loan or other sources. Export Express, Export Working Capital, and International Trade are the three SBA export lending programs.
The requirements and eligibility are similar to those of the SBA 7(a) loan program. If you have particular questions regarding the SBA Export Loan program, you may contact the SBA’s international trade experts.
How to Apply for an Export Loan
Most SBA-approved 7(a) lenders can help you get an SBA Export Loan. Finding a reliable lender is a crucial step in the application process. To help you out, we’ve put up a list of the top 100 SBA lenders, as well as an evaluation of 10 of the finest SBA lenders.
5. Small Business Administration Microloan Program
The SBA Microloan program offers SBA loans to nonprofit intermediate lenders who then lend to for-profit small companies and nonprofit childcare facilities in amounts of less than $50,000. The Small Business Administration (SBA) does not guarantee any of the loans issued under the SBA Microloan program. Microloans are available for up to six years, with an average loan amount of $13,000.
Dennison claims that:
“The SBA Microloan program is excellent for home-based companies, self-employed individuals, and those that need less cash than a traditional company loan.” Microlenders also provide training and technical support, which are essential for long-term company success.”
The SBA allows nonprofit intermediates to borrow up to $750,000 in their first year and up to $1.25 million each year following that, with a total borrowing limit of $5 million. During the last five years, the Microloan program has averaged approximately $37 million in approvals each year.
Rates, Terms, and Qualifications for SBA Microloans
Nonprofit intermediaries establish their own interest rates based on the borrower’s creditworthiness and the startup or small business’s characteristics. Traditional and bigger lenders have less flexibility in assessing your creditworthiness than nonprofit intermediate lenders in the SBA Microloan program. The nonprofit lender, on the other hand, will need to be very confident in your capacity to repay the loan.
SBA Microloans have rates and conditions that are comparable to those provided by peer-to-peer lenders. Peer-to-peer loans, on the other hand, maybe authorized in minutes without a lot of paperwork, while SBA Microloans might take months to be approved and need a lot of paperwork.
How to Apply for a Small Business Administration Microloan
You must engage with an SBA-approved intermediary in your region to apply for an SBA microloan. Despite the fact that SBA Microloans are lower in size, approval and financing may take up to 90 days.
6. Disaster Loans
SBA Catastrophe Loans are intended to help businesses recover after a declared natural or man-made disaster. Each Disaster Loan has a distinct purpose, and you may apply for many different kinds of loans at once to suit your requirements. These are ideal for companies that have been adversely affected by a catastrophe and can provide proof of the negative effect.
Disaster loans are available to businesses of all sizes and most private nonprofit organizations that satisfy basic requirements, such as excellent credit (a credit score of at least 660) and the capacity to repay.
How to Apply for a Disaster Loan
If a catastrophe occurs and you need money to address gaps in insurance coverage, operational costs, or other needs, you may apply directly to the SBA for help.
Conclusion
Hopefully, you now have enough knowledge about each of the six main kinds of SBA loans to choose which one is best for you. If you do not qualify, there are a variety of alternative financing solutions that may be able to assist you in obtaining the cash your company needs.
Frequently Asked Questions
What is the typical interest rate for an SBA loan?
The typical interest rate for an SBA loan is 9.00%.
What are the 2 types of SBA loans?
The two types of SBA loans are what is called a fixed-rate loan and an adjustable-rate mortgage. A fixed-rate loan has the same interest rates for each time period, whereas adjustable-rate mortgage changes with market conditions to keep up with the current average monthly numbers.
