SBA Loans
Understanding SBA Loans to Small Businesses
SBA Loans: Tips on securing a guaranteed loan from the SBA in 2022
The Small Business Administration (SBA) has a number of loan programs designed specifically for small and medium sized business, including microloans, SBA 7(a) loans, and CDC/504 loan program.
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What is an SBA Loan?
The U.S. Small Business Administration, or SBA, is a federal agency that provides loan guarantee programs and other services to support and encourage the growth and development of small businesses across the United States. It was founded on July 30, 1953, and has delivered over 20 million loans, guarantees, counseling sessions, contracts, and other forms of assistance to small businesses across the country. SBA loans are offered to merchants through multiple financial institutions.
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SBA Loan Guarantee Program
The SBA guarantees a portion of the loan, which makes it easier for funders to provide loans to small businesses that may fall in a higher risk category. These businesses may not be in a strong enough financial position to obtain traditional bank small business loans, and therefore rely on the SBA guarantee.
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Common SBA Loan Program Features
SBA programs offer lower down payments and longer term financing, which can help businesses just starting out, those looking to expand, or better manage their cash flow. This allows small businesses to focus on operational expenses rather than debt repayment.
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What Can I Use an SBA Loan For?
p>Loans from the SBA are provided for various purposes. These include business start-ups or acquisitions, working capital, owner-occupied real estate, franchise financing, inventory, debt refinancing, equipment, and even improvements and renovations. -
Choosing an SBA Funder
Biz2Credit can help merchants find the right SBA funder for their needs, and we have the experience needed to make SBA borrowing easier and more convenient for our customers.
Biz2Credit helped secure funding for my practice in a faster, smoother, and easier way.
Which SBA Financing Solution is right for your business?
SBA Express Loans
SBA Loan Benefits
Good source of long term financing for working capital needs.
Eligibility
Merchant(s), Business and Use of Proceeds all need to be eligible. Age of business needs to be greater than 18 months. Owners should either be US citizens or Green card holders.
Use of Proceeds (See details)
Usually used for financing working capital needs or for buying equipment.
Loan Amounts
Up to $350,000. Loans up to $100,000 do not require any proof of income. Loans above $100,000 require last 2 Year of business and personal tax returns on all principals having more than 20% stake.
Rate structure
Rates adjust quarterly, indexed off the Wall Street Journal Prime rate. Typical rates vary from prime plus 1 to prime plus 4.
Typical Loan Amortization
Up to 7 years, fully amortized. Typical loan term is around 3 to 5 yrs with an option to roll over up to 7 yrs.
SBA 7(A) Loans
SBA Loan Benefits
Excellent source for flexible use of proceeds. No balloons or calls and provides highly leveraged financing.
Eligibility
Merchant(s), Business and Use of Proceeds all need to be eligible. Owners should either be US citizens or Green card holders. Foreign aliens can qualify if they own less than 49% of the business.
Use of Proceeds (See details)
Financing for long and short term assets used in normal business operations. Acquisitions and refinances are eligible, and may include real estate and business goodwill. Working lines of credit up to $100,000 are also eligible.
Loan Amounts
Up to $5,000,000. Loans require last 3 yrs of business tax returns, real estate schedule if applicable and 2 yrs of personal tax returns on all principals having more than 20 % stake.
Rate structure
Rates adjust quarterly, indexed off the Wall Street Journal Prime rate. Typical rates range from Prime plus 1 to prime plus 2.
Typical Loan Amortization
Amortization depends on the use of proceeds. Loans amortize from 7 to 25 years. Loans are fully amortized with no Balloons or Calls.
SBA 504 financing
SBA Loan Benefits
An excellent long term fixed rate product.
Eligibility
Small business must occupy at least 51% of real estate asset and comply with federal business size standards. The business cannot have sales over $6 million or employ more than 500 employees.
Use of Proceeds (See details)
Used to finance long term assets like real estate or equipment.
Loan Amounts
1st Mortgage = No Limit
2nd Mortgage = *
*$1,500,000 - Standard
$2,000,000 - Public policy goal
$4,000,000 - Manufacturing
>Rate structure
1st Mortgage = Both fixed and adjustable rates are available.
2nd Mortgage = Fixed rates only.
Typical rates are around prime minus 1 on fixed rates.
>Typical Loan Amortization
1st Mortgage loan provides a maximum amortization of 25 years.
2nd Mortgage loan provides a maximum amortization of 20 years.
SBA Disaster Loans
The Small Business Administration also provides emergency and disaster assistance loans for businesses that are facing hardships due to unforeseen natural and economic disasters. When a small business is facing physical damage due to a natural disaster or economic disaster, the SBA can activate emergency lending authority to provide money to that business directly through one of two programs.
Physical Disaster Loans
For businesses that have suffered physical damage due to a declared disaster in their state.
Economic Injury Disaster Loans
For businesses that have suffered loss of revenues and the inability to pay employees due to a declared disaster in their state.
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What is the Most Popular SBA Loan For Small Businesses?
According to the Small Business Administration, "The 7(a) Loan Program, SBA's most common loan program, includes financial help for businesses with special requirements."
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Who Is Eligible for an SBA 7(a) Loan?
Eligibility requirements for the 7(a) loan program are based on several key characteristics of the business and its owners. According to the SBA, eligibility is based on how the company earns its revenue, the background of its owners and where it operates.
SBA does not specifically list companies eligible to receive 7(a) loans. However, they do provide a list of industries that are ineligible for these types of loans. See SBA ineligible companies). However, there are some basic requirements to be eligible for assistance. Businesses must:
- Operate for profit
- Be small, as defined by the SBA
- Be engaged in, or propose to do business in, the United States or its possessions
- Have reasonable invested equity
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for the loan proceeds
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
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How Can I Use Money From An SBA 7(a) Loan?
According to the Small Business Administration, there are some rules on how you can and cannot use proceeds from an SBA-guaranteed 7(a) loan. Typically, the use of loan proceeds is very general according to SBA loan rules. However, there are some limitations and restrictions on the use of funds. "For example, proceeds can't be used to buy an asset to hold for its potential increased value or to reimburse an owner for the money they previously put into their business."
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Acceptable uses of SBA 7(a) Loan Proceeds
Financing for long and short term assets used in normal business operations. Acquisitions and refinances are eligible, and may include real estate and business goodwill. Working lines of credit up to $100,000 are also eligible.
- To purchase equipment, machinery, furniture, fixtures, supplies or materials
- To purchase real estate, including land and buildings
- To construct a new building or renovate an existing building
- To establish a new business or assist in the acquisition, operation or expansion of an existing business
- To refinance existing business debt, under certain conditions
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SBA loans cannot be used for these purposes
- To refinance existing debt where the funder is in a position to sustain a loss and SBA would take over that loss through refinancing
- To affect a partial change of business ownership or a change that will not benefit the business
- To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital to continue the business until the SBA-backed loan is disbursed
- To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
- For a purpose that is not considered to be a sound business purpose as determined by the SBA
- If you are unsure whether or not your anticipated use of funds is allowed, check with your SBA-approved funder
eBook
SBA Loan Programs in a Nutshell
Small businesses form the backbone of the U.S. economy. Helping small companies grow, is of vital Importance to the nation's employment and economic development.
Research Report
New Jersey Business Owners Are Most Likely to Be Approved for a Loan, According to New Report by Biz2Credit
Study examined over 50,000 loan applications during last 12 months
Blog
Is the SBA 7(a) Loan Program Right For Your Business?
The SBA 7(a) loan program is designed to help small businesses get the funding they need to supercharge their growth. Several different kinds of loans are available under this program.
What Are 7(a) Loan Amounts, Fees & Interest Rates? How It all Works
SBA 7(a) loans are granted and negotiated between merchants and SBA-approved funders. However, the SBA does provide some guidance in these areas.
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What are SBA Loan Amounts Minimums and Maximums?
There is no official minimum loan amount for SBA 7(a) loans from the SBA. Funders may set minimum amounts. The maximum loan amount is $5 million. According to the latest figures available from the SBA, the average 7(a) loan amount in fiscal year 2015 was $371,628.
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What are SBA Loan Fees?
Loans guaranteed by the SBA are assessed a guarantee fee. This fee is based on the loan's maturity and the dollar amount guaranteed, not the total loan amount. The SBA-approved funder is responsible for paying the guarantee fee to the SBA; and the funder has the option of passing that cost along to the merchant. According to the SBA, "The funds to reimburse the funder can be included in the overall loan proceeds."
- On loans under $150,000, the fees will be set at zero percent.
- On any loan greater than $150,000 with a maturity of one year or shorter, the fee is 0.25 percent of the guaranteed portion of the loan.
- On loans with maturities of more than one year, the normal fee is 3 percent of the SBA-guaranteed portion on loans of $150,000 to $700,000, and
- 3.5 percent on loans of more than $700,000.
- There is also an additional fee of 0.25 percent on any guaranteed portion of more than $1 million.
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What are SBA Loan Interest Rates?
For loans guaranteed by the SBA, rates are negotiated between the applicant and funder and subject to the SBA maximums. Both fixed and variable interest rate structures are available. The maximum rate is composed of two parts, a base rate and an allowable spread. There are three acceptable base rates:
- A prime rate published in a daily national newspaper (*All references to the prime rate refer to the base rate in effect on the first business day of the month the loan application is received by the SBA.),
- London Interbank One Month Prime plus 3 percent; and an ,
- SBA Peg Rate.
Funders are allowed to add an additional spread to the base rate to arrive at the final rate. For loans with maturities of shorter than seven years, the maximum spread will be no more than 2.25 percent. For loans with maturities of seven years or more, the maximum spread will be 2.75 percent. The spread on loans of less than $50,000 and loans processed through Express procedures have higher maximums.
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Percentage of SBA Guarantee
SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. SBA's maximum exposure amount is $3,750,000. Thus, if a business receives an SBA-guaranteed loan for $5 million, the maximum guarantee to the funder will be $3,750,000 or 75%. SBA Express loans have a maximum guarantee set at 50 percent.
SBA Loan Checklist for 7(a) Program
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SBA Loan Application
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Personal Background and Financial Statement
Statement of Personal History - SBA Form 912
Personal Financial Statement - SBA Form 413 -
Business Financial Statements
- Profit and Loss (P&L) Statement - This must be current within 180 days of your application. Also include supplementary schedules from the last three fiscal years.
- Projected Financial Statements - Include a detailed, one-year projection of income and finances and attach a written explanation as to how you expect to achieve this projection.
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Ownership and Affiliations
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Business Certificate/License
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Loan Application History
Include records of any loans you may have applied for in the past.
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Income Tax Returns
Include signed personal and business federal income tax returns of your business' principals for previous three years.
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Resumes
Include personal resumes for each principal.
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Business Overview and History
Provide an executive summary of your business and challenges.
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Business Lease
Include a copy of your business lease.
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If You are Purchasing an Existing Business
- Current balance sheet and P&L statement of business to be purchased
- Previous two years federal income tax returns of the business
- Proposed Bill of Sale including Terms of Sale
- Asking price with schedule of inventory, machinery and equipment, furniture and fixtures