SBA loans are popular for their low rates and flexible terms. They typically have more stringent criteria than other funding options.
This is not a fast funding option. SBA loans can technically be approved in a week, but typically take 2-3 months to be processed.
We can structure deals that provide funding from other sources to bridge that waiting period.
What is an SBA loan?
An SBA loan is a business loan insured by the U.S. government. There are a variety of SBA loan types available, each designed for a specific purpose.
Funds received through SBA loans can be used for operating capital, fixed assets, and equipment purchases. Some SBA loans have restrictions on use.
- The average 7(a) loan amount in 2018 was approximately $425,500 according to SBA data
- The maximum loan amount is $5.5 million
- Monthly payments are fixed
- Payback periods may range up to 25 years for acquisitions or commercial property
- Interest rates are capped by the SBA
- Approval is more difficult to obtain than for a LOC (line of credit), invoice factoring, or merchant cash advance.
Basic Eligibility Requirements
- In business for 2 years (Startup SBAs are possible but are more difficult to acquire)
- Minimum 650 FICO score
- No recent bankruptcies or delinquencies on previous government loans
Two rates come into play with SBA loans:
- The prime rate, which is posted daily in the Wall St. Journal and which can be affected by actions of the Federal Reserve. The current prime rate is 5.25%.
- The lender spread
The borrower and lender can negotiate the interest rate, which is capped by the SBA.
Who is a Good Fit for an SBA Loan?
Because applying for an SBA loan can be a time-consuming process, you’ll want to make sure this is a good option for your business before you begin.
If you’ve been in business for at least 2 years, you have good credit, have the cash flow to support the loan payments, and your business finances are in good order, then an SBA loan is a good option for you.
What Documents Are Required?
Documents that you’ll need to furnish include (but are not limited to):
- 2-3 years of business and personal tax returns
- Profit and Loss Statement
- Balance sheet and complete list of business debt
- Business entity documents, proof of insurance, business location proof
- SBA Forms 1919 and 1920
- Depending upon the type of SBA loan you apply for, additional forms may be required
SBA 7(a) loans
These loans are the SBA’s primary vehicle for small business funding.
Funds from 7(a) loans can be used in a variety of ways, including for working capital, expansion, fixed assets, and equipment purchases.
There are seven different 7(a) loan types and they vary in terms:
- Standard 7(a)
- 7(a) Small Loan
- SBA Express
- Export Express
- Export Working Capital
- International Trade
- Preferred Lenders
- Veterans Advantage
Disaster loan assistance
These loans are low-interest and can be used to replace or repair the following:
- Machinery and equipment
- Business assets
- Real estate