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This article is for entrepreneurs and business owners looking to apply or learn more about small business loans provided through the Small Business Administration.
As we know, we are in unprecedented times when it comes to the economic effects of the recent and ongoing global pandemic. Many small business owners have suffered and continue to feel the pressure of the pre-recession conditions...thankfully though, the SBA provides solutions.
We'll take a more detailed glance at the opportunities allotted to small business owners who seek financial asylum.
SBA OVERVIEW
The Small Business Administration (SBA) partially guarantees loan repayment to participating lenders through the SBA Loan Program, a government program created to help entrepreneurs in these trying economic times. As a small business owner who may have not qualified previously for a business loan, re-applying through the SBA may get you accepted because of the guarantee promised by the government to partially repay the loan on your behalf. In turn, participating banks are more likely to accept applications because they present less risk due to the partial repayment guarantee.
These loans are regulated for lower interest rates, longer terms and greater funding amounts depending on qualifications and SBA loan product. Borrowing amounts vary for each loan option, nevertheless, ALL borrow amounts are available, from $500- $5M.
Since SBA loans are easier to qualify for than traditional bank loans, applications require extensive proof of business financials. That said, we'll make sure to help get your documentation in order before applying... and we'll go over exactly what documents you should prepare to submit for the application.
If you are a business owner who has been looking for business funding and feel like you have exasperated all of your available resources, or have gotten constant denials because of one issue or another, book a call with Regal Business Group and allow us to help you get your desired funding approved. ***RBG is an online financial marketplace partnered with SBA approved lenders as well as other industry leading business funding sources dedicated to helping you make the lending process easy. There are no fees associated with any of Regal Business Group's services.***
What is the SBA?
Created in 1953, the US Small Business Administration (SBA) is a federal government agency devoted to small businesses and their continued prosperity. it was created to aid, counsel, assist and protect the interests of small businesses, as well as preserve free competitive enterprise and maintain and strengthen the overall economy of our nation. Nowadays, amid global economic turmoil, its primary focus hinges on guaranteeing financing to small businesses who've been victims of natural disasters, as well as providing specialized advice and assistance in international trade.
What is an SBA Loan?
Although the Small Business Administration is not a direct lender, it creates the guidelines for the loans offered by its partners, which include banks, credit unions, community development organizations and micro-lending institutions. The loans administered by the SBA are partially guaranteed for up to 85% of the total borrowing amount, decreasing some of the risk of loaning out money for SBA partnered lenders.
The SBA regulates the interest rates of these loans which make them much more affordable than typical bank loans, it also regulates the amount of money that can be borrowed, allowing small business owners to have access to a much wider range of business loans ($500-$5 million). For many borrowers who have been prebiously denied by a lender, the government backing a major part of the loan can entice lenders to deem the risk as more acceptable, giving business owners a greater chance of being approved for SBA backed loans.
What are some Advantages/Drawbacks of an SBA Loan?
Advantages
Lower Interest Rates (2%-7%)
Longer Terms
Fixed Terms
Flexible funding amounts ($500-$5M)
Flexible repayment for businesses facing financial hardships
Designed for startups and borrowers with limited collateral
Easier to qualify than traditional bank loans
More options
Available free counseling and support (business plan writing and marketing)
Drawbacks
Application fees
Credit check fees
Guarantee fee for the portion of the loan being guaranteed by SBA
60 to 120 days to close on loan
Extensive documentation needed
Some personal guarantees may be required contingent on how much of your business you own
Time in business requirement (at least 2 years) for some SBA loan products
Who qualifies for an SBA loan?
Must operate within the U.S.
Must operate for-profit
Must have reasonable owner equity to invest
Must first seek other forms of funding before applying
In dire financial situations, qualifications for an SBA loan vary contingent on a business owners financial history and depend on how well or poorly the business has been run. If your company has struggled due to the affects of unforeseen circumstances like Covid or natural disasters, you may be able to qualify, but if it has not been victim to national or natural events and you have no money because of poor business management, you may not qualify for an SBA loan.
What businesses are ineligible for SBA loans?
Ineligible businesses include those participating in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole.
What can SBA loans be used for?
SBA loans are to be used for the growth and benefit of a business directly. They can be used for equipment, payroll, inventory, working capital, or to purchase or improve real estate.
What are the main types of SBA loans?
7(a) loan: Most popular, $5 million max borrow amount
SBA micro-loans: available to startups, best for smaller/early stage businesses
504 loans- Long term, fixed rates
This is a table of All SBA loans offered by the SBA including interest rates, amounts, and more.
If section is marked with an asterisk (*) it may be subject to additional stipulations, negotiations, and/or alternate qualifications.
Any specific information regarding the SBA and its products has been sourced directly from the SBA website, you can visit https://www.sba.gov for more information.
Program | % of guarantee | Term/Maturity | Max interest rates | Guarantee Fees | Benefits | Max Loan Amount |
7(a) loans | 85% for loans <150k, 75% for loans >150k | 5-10 yrs for working capital, 25 yrs for real estate | For loans <7yrs: 2.25%-4.25% (plus prime) For loans >7yrs: 2.75%-4.75% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Long-term financing, Improved cash flow; Fixed maturity, No balloons; No prepayment penalty (under 15 years) | $5 million |
SBA micro-loans | Not Applicable | <6 yrs | 7.75% or 8.5%* | 7.75% or 8.5%* | Direct loans from nonprofit intermediary lenders; Fixed-rate financing; Very small loan amounts; Technical assistance available | $350,000 |
504 loans | up to 40%* | 10 or 20 yr fixed IR* | 2.1%-2.4%* | Participation fee on lender share of 0.5% plus CDC may charge up to 1.5%, 0.625%- 2.0% monthly service fee on unpaid balance, Ongoing guarantee fee of 0.697% of principal outstanding | Low down payment - equity (10%,15% or 20%). (The equity contribution may be borrowed as long as it is not from an SBA loan) Fees can be financed; SBA /CDC Portion: Long-term fixed rate Full amortization and No balloons | $5.5 million |
7(a) Small loans | 85% for loans <150k, 75% for loans >150k | 5-10 yrs for working capital, 25 yrs for real estate | For loans <7yrs: 2.25%-4.25% (plus prime) For loans >7yrs: 2.75%-4.75% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Long-term financing, Improved cash flow; Fixed maturity, No balloons; No prepayment penalty (under 15 years) | $350,000 |
SBA Express | 50% | <7 yrs for revolving credit lines, 5-10 yrs for working capital, 25 yrs for real estate | For loans <$50k: 6.5% (plus prime) For loans >$50k: 4.5% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Fast turnaround; Streamlined process; Easy-to-use line of credit | $350,000 |
SBA Veterans Advantage | 50%* | <7 yrs for revolving credit lines, 5-10 yrs for working capital, 25 yrs for real estate* | For loans <$50k: 6.5% (plus prime) For loans >$50k: 4.5% (plus prime)* | No guarantee fee Ongoing fee of 0.546% | Fast turnaround; Streamlined process; Easy-to-use line of credit, No guarantee fee | $350,000* |
CapLines | 85% for loans <150k, 75% for loans >150k | <10 yrs, except builders cap line which is 5 yrs | For loans <7yrs: 2.25%-4.25% (plus prime) For loans >7yrs: 2.75%-4.75% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | 1. Working Capital - (LOC) Revolving Line of Credit 2. Contract - can finance all costs (excluding profit). 3. Seasonal - Seasonal working capital needs. 4. Builder - Finances direct costs in building a commercial or residential structure | $5 million |
Community Advantage | 85% for loans <150k, 75% for loans >150k | 5-10 yrs for working capital, 25 yrs for real estate | Prime plus 6% | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Long-term financing, Improved cash flow; Fixed maturity, No balloons; No prepayment penalty (under 15 years) plus lenders must be CDFIs, CDCs, micro-lender or SBA Intermediary Lenders targeting underserved market. | $250,000 |
International Trade | 90% guarantee up to 4.5 million max | <25 yrs | For loans <7yrs: 2.25%-4.25% (plus prime) For loans >7yrs: 2.75%-4.75% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Long term financing to allow small business to compete more effectively in the international marketplace | $5 million |
Export Working Capital Program | 90% guarantee up to 4.5 million max | generally <1yr, may go up to 3 yrs | no maximum but SBA monitors for reasonability | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Additional working capital to increase export sales without disrupting domestic financing and business plan | $5 million |
Export Express | 90% for loans <$350k, 75% for loans >$350k | <7 yrs for revolving credit lines, 5-10 yrs for working capital, 25 yrs for real estate | For loans <$50k: 6.5% (plus prime) For loans >$50k: 4.5% (plus prime) | (No SBA guarantee fees on loans <$150k) $150,001k-$700k= 3% $701k-$1M= 3.5% (plus 3.75% on guarantee portion over 1M) <12 months= .25% Ongoing fee of 0.546% | Fast turnaround; Streamlined process; Easy-to-use line of credit Loan can be for direct or indirect exporting. | $500,000 |
504 Loan Refinancing Program | up to 40%* | 10 or 20 yr fixed IR* | 2.1%-2.4%* | Participation fee on lender share of 0.5% plus CDC may charge up to 1.5%, 0.625%- 2.0% monthly service fee on unpaid balance, Ongoing guarantee fee of 0.731% of principal outstanding | Business can access equity in their commercial real estate for business operating expenses or refinance property on reasonable terms. Fees can be financed; SBA /CDC Portion: Long-term fixed rate Full amortization and No balloons | $5.5 million |
If you are a business owner who has been looking for business funding and feel like you have exasperated all of your available resources, or have gotten constant denials because of one issue or another, book a call with Regal Business Group and allow us to help you get your desired funding approved. ***RBG is an online financial marketplace partnered with SBA approved lenders as well as other industry leading business funding sources dedicated to helping you make the lending process easy. There are no fees associated with any of Regal Business Group's services.***
How do I get an SBA loan?
These are a few steps you can take to get an SBA loan:
Apply with Regal Business Group- RBG works with a Top 10 Nationwide SBA Lender to make the application process smooth and efficient. With help from some of the best in the business, we will guide you through the entire application process from start to finish.
Visit a Small Business Development Center- Use the SBA website to find one near you. These centers provide small businesses with more than just help with funding, you can connect with an SBA representative and take advantage of some of the agency's many services.
Use Lender Match- The SBA provides this online tool that processes your claim and matches you with different SBA approved partners.
What documentation do I need for an SBA loan?
An SBA loan requires extensive documentation because it is typically the the last source of funding for small businesses that cant otherwise get approved from traditional banks. Being that the SBA approves a portion of the loan with partner approved banks, it requires a complete picture of your business's current financial status, its past performance and its future projections.
Here is a list of documents you can expect to have to submit before getting approved for an SBA loan:
Personal Statements:
Personal financial and background statements
Statement of personal history
Personal records of past loans you've applied for
Name and addresses of all your subsidiaries and partners
Resumes for all business principals
Business Financial Statements:
A profit and loss statement
Supplementary profit and loss schedules from the last 3 fiscal years
Business records of loans you've applied for
Three years worth of signed business and personal tax returns
Business certificate and license
Copy of property leases or deeds
List of debts
Resumes of key team members
Business overview and history
Business plan
One year projection of income and finances
Written plan that explains how you will reach revenue projections
Additional questions to prepare for:
Why are you applying for this loan?
How will you use the loan proceeds?
What assets do you need to purchase and who are your suppliers?
What other business debt do you have and who are your creditors?
Who are the members of your management team?
Bryan Alvarez is president and CEO of Regal Business Group, a business finance expert and an english literature graduate of CUNY Baruch College. Contents of this article were sourced from Sba.gov.