SBA Loans - Terms, Rates and Requirements in Review

SBA Loans - Terms, Rates and Requirements Reviewed
SBA Loans - Terms, Rates and Requirements Reviewed

The Small Business Administration (SBA) serves as a guarantor in loans issued by approved lenders to qualifying small business owners. These low-interest SBA loans can be a starting point for new entrepreneurs or can help existing for-profit firms to expand their business.

The SBA reduces the risks for the lending partners, makes capital more accessible to businesses and provides lender-matching services to connect borrowers with lenders that offer the ideal loans for their company.

What Types of SBA Loans Are There?

There are seven different types of SBA loans available to small business applicants

SBA 8(a) Loans

Terms depend on the specific SBA loan.

The SBA’s 8(a) Business Development program provides assistance and access to SBA-guaranteed loans to small businesses run by socially and economically disadvantaged individuals.


SBA Microloans

A maximum of $50,000.

Terms of up to 6 years, a maximum 13% interest rate.

This is a program for for-profit small businesses that need a smaller amount of working capital and self-employed entrepreneurs.


SBA Disaster Loans

A maximum of $2 million.

Terms of up to 30 years, a maximum 8% interest rate.

SBA Disaster Loans provide the much-needed financing to businesses and homeowners that have suffered property damage due to a declared national disaster.


SBA Export Loans

A maximum of $5 million.

Terms of up to 25 years, a maximum 11.75% interest rate.

These are an opportunity for export businesses to finance international endeavors and expand export activity.


SBA 7(a) Loans

A maximum of $5 million.

Terms of up to 25 years, a maximum 10% interest rate.

The 7(a) program offers affordable loans to borrowers looking for long-term financing to cover business-related expenses.


SBA CAPLine Loans

A maximum of $5 million.

Terms of up to 10 years, a maximum 10% interest rate.

This program is perfect for companies that need a line of credit that can be accessed again in the future.


CDC/504 Loans

A maximum of $20 million.

Terms of up to 25 years, a maximum 3.65% interest rate.

SBA’s 504 loans provide long-term low-interest financing to purchase owner-occupied commercial real estate.

 

SBA Loan Terms and Rates Explained

1. SBA Microloans

What Is an SBA Microloan?

The SBA Microloan program provides financial assistance to non-profit auxiliary lenders that, in turn, provide funding to self-employed workers, for-profit home-based businesses and other companies that need a smaller capital than what conventional business loans will usually offer. These auxiliary lenders - Microlenders - also provide assistance and training to first-time business owners and beginner entrepreneurs.

These loans are not in any way guaranteed by the SBA.

SBA Microloans are similar to most peer-to-peer loans in terms of loan amounts and interest rates, but make take a more significant time to get approved due to the copious amounts of paperwork and background checks required in the application. 

Loan Amounts

Up to $50,000, with the average Microloan being around $13,000

Interest Rates

8% - 13% with the Microlenders setting their own interest rates
after analyzing the small business applicant and the creditworthiness of the borrower

Repayment Terms

Up to 6 years

Fees

Packaging and closing fees depend on the specific lender

Repayment cycle

Monthly installments

Funding time

From 1 to 3 months

 

SBA Microloan Requirements

SBA Microloan qualifications will depend strongly on the lender through which the borrower applies for the loan. Unlike other loan programs, the SBA does not enforce any requirements and leaves the process up to the Microlender to decide on. On the other hand, with the SBA-enforced regulations being, in this case, mostly nonexistent, the lender has more flexibility in determining a borrower’s creditworthiness. The funds may be used for most small business purposes (working capital, inventory, supplies, or equipment) except for refinancing other debts or purchasing real property. In order to qualify, the applicant must:

  • Have a credit score of no less than 640 (with the minimum credit score for other loans averaging at about 680);
  • Have a personal guarantee;
  • Have some collateral (will vary from lender to lender);
  • Be a for-profit business or non-profit child care center;
  • Prove the intent to use the funds to start or expand their business.

How to Apply for an SBA Microloan?

You can apply for an SBA Microloan through a Microloan Provider - a local SBA-approved intermediary. These include certain nonprofit organizations with experience in providing lending and business training assistance to borrowers. Applicants may be required to undergo and successfully complete certain training aimed at helping them get their business on the track to success. 


2. SBA Disaster Loans

What Is an SBA Disaster Loan?

These loans are provided to business owners and homeowners that have suffered as a result of a declared physical or economic disaster and can provide evidence of the negative impact. These are low-interest loans with rates starting at 4% at going up to no more than 8%. The highest interest rate applies only to borrowers who are potentially able to receive funding from another source.

Loan Amounts

Up to $2 million

Interest Rates

From 4% to 8% for Business Physical Disaster loans

No more than 4% for Economic Injury Disaster loans

No more than 4% for Military Reservist Economic Injury loans

Repayment Terms

Up to 30 years

Fees

None

Repayment cycle

Monthly installments

Funding time

Up to 4 weeks for processing and 5 days to close the loan

 

SBA Disaster Loan Types

SBA’s Disaster loans provide borrowers with a source of gap funding and the much-needed financial relief in the face of a crisis. There are four types of low-interest, long-term SBA Disaster loans you can apply for to repair the damage caused by a declared disaster:

Home and Personal Property Loan

Borrowers with primary residence in an area of declared disaster area may be eligible for a loan of up to $200,000 to replace or repair their home.

Business Physical Disaster Loan  (BPDL)

BPDLs are made for businesses that suffered physical losses and damages to property not covered by insurance up to $2 million. The damaged property must be located in an area of declared national disaster.

Economic Injury Disaster Loan (EIDL)

EIDLs are longer-term working capital loans for small businesses that have suffered significant economic injury and require $2 million or less to meet normal operating expenses.

Military Reservists Economic Injury Loans (MREIDL)

MREIDLs are medium-term working capital loans that are provided to a business that suffered unforeseen expenses due to having an essential employee called up for active military duty and require $2 million or less to meet normal operating expenses.

 

SBA Disaster Loan Requirements

  • Your business must be located in an SBA-declared disaster area and have suffered damage from that disaster;
  • The business may not be fully physically nor economically viable;
  • For MREIDL, an essential employee must have been called to active duty
  • Prove the intent to use loan proceeds to repair or replace damaged property, as a source of working capital or to cover operating expenses.
  • A credit score of no less than 660 and a proven ability to repay the loan;
  • Have collateral (for loans above $25,000).

How to Apply for an SBA Disaster Loan?

There are several ways in which borrowers may apply for all types of SBA disaster assistance. Filing an online application through https://disasterloan.sba.gov is the most efficient way that takes the least amount of time to complete. Applicants must prepare the following information:

  • Contact information and social security numbers for all disaster loan applicants;
  • FEMA registration number;
  • Deed or lease information;
  • Insurance information;
  • Employer Identification Number (EIN), income information, account balances and monthly expenses for business applicants.

Potential applicants also have the option of submitting a paper application by mail. Applicable SBA Forms include:

Completed applications and supporting forms should be sent to the following address:

U.S. Small Business Administration

Processing and Disbursement Center

14925 Kingsport Rd.

Ft. Worth, TX 76155-2243


3. SBA Export Loans

What Are SBA Export Loans?

In summary, the SBA has three export loan types that provide businesses with export working capital and international trade financing. With SBA financing, businesses can get funding that may not otherwise be available from a traditional loan or other sources. The three SBA export loan programs are Export Express, Export Working Capital, and International Trade.

SBA Export Express Loans
Simplified SBA loans that provide limited working capital to promote businesses with export activities.

Loan Amounts

Up to $500,000

Interest Rates

From 9.75% to 11.75%

Repayment Terms

Up to seven years for a line of credit; same as 7(a) for term loans (10 to 25 years)

Fees

0.5% to 3.5% origination fee

$2,000 to $4,000 loan packaging fee

2% to 3.5% SBA guarantee fee

Repayment cycle

Monthly installments

Funding time

From 1 to 3 months


SBA Export Working Capital Loans
Loans of up to $5 million in working capital for supporting export transactions with foreign customers. Can be sought before finalizing the deal serving to earn a better position in negotiating export payment terms.

Loan Amounts

Up to $5 million

Interest Rates

From 6% to 10% monitored for reasonableness with no SBA-set limits

Repayment Terms

Up to 3 years

Fees

0.5% to 3.5% origination fee

$2,000 to $4,000 loan packaging fee

2% to 3.5% SBA guarantee fee

Repayment cycle

Monthly installments

Funding time

From 1 to 3 months


SBA International Trade Loans
Financing for small businesses wishing to enter international markets or expand existing international trade. Provides support from SBA-approved trade specialists.

Loan Amounts

Up to $5 million

Interest Rates

From 7.50% to 10.00%

Repayment Terms

From 10 to 25 years

Fees

0.5% to 3.5% origination fee

$2,000 to $4,000 loan packaging fee

2% to 3.5% SBA guarantee fee

Repayment cycle

Monthly installments

Funding time

From 1 to 3 months

 

SBA Export Loan Requirements

SBA Export Loan qualifications are similar to 7(a) loans requirements with a few variations determined by the specific program you are enrolling in:

  • Applicants are required to have a credit score of at least 680;
  • The business must be involved in international trade and export and (for Export Express loans) be at least a year old;
  • All export loans require short-term collateral like invoices or project contracts;
  • The loans are - at the bare minimum - 20% guaranteed by owners;
  • Applications from business owners with recent bankruptcies, foreclosures, or tax liens will be declined;
  • Applicants will be expected to show intent of developing both new and existing foreign markets.

How to Apply for an SBA Export Loan?

Borrowers may apply for financing through SBA-approved lenders that offer 7(a) loans. See below for more information.


4. SBA 7(a) Loans

What Is an SBA 7(a) Loan?

The 7(a) program offers some of the most common types of loans provided by the SBA. The funds can be used for working capital, to refinance debt, buy or expand a business, purchase real estate, equipment or supplies. The program includes, among others:

  1. Standard 7(a) Loan - the traditional SBA 7(a) loan with a maximum of $5 million.
  2. SBA 7(a) Small Loan - a smaller loan with the maximum amount under $350,000.
  3. SBA Express - with a maximum loan amount of $350,000 and accelerated turnaround time for SBA review.
  4. SBA Community Advantage Loan - a program for businesses that don’t qualify for traditional financing with loans from $50,000 to $250,000.
  5. Veterans Advantage - loans with reduced fees given to veteran-owned small businesses.

SBA 7(a) loans are available to most small businesses - from startups to more established companies - and cover working capital needs to help get the business on track. These loans have the reputation of being one of the most affordable working capital solutions are popular among borrowers due to their low-interest rates, long repayment periods and flexible terms.

Loan Amounts

No more than $5 million

Interest Rates

From 7.50% to 10.00%

Repayment Terms

Up to 10 years for working capital loans and 25 years for commercial real estate loans

Fees

0.5% to 3.5% origination fee

$2,000 to $4,000 loan packaging fee

2% to 3.5% SBA guarantee fee

Repayment cycle

Monthly installments

Funding time

From 1 to 3 or more months

 

SBA 7(a) Loan Requirements

Borrowers applying for any of the SBA 7(a) loans will need to meet the following requirements:

  • A credit score of at least 680;
  • No bankruptcies, foreclosures, or tax liens in the recent past;
  • A down payment of 10% to 20%;
  • Some collateral. Although 7(a) loans are not required to be fully collateralized, lenders are less likely to approve loans over $25,000 that aren’t secured;
  • The business must be located in the United States with its owners being U.S. citizens;

Additional requirements for startups:

  • A credit score of at least 700;
  • Startups need to demonstrate industry experience and provide a strong and detailed business plan to the lender;
  • Owners are required to provide projections for the performance of their startup over the next three years;
  • Startups should expect a down payment of up to 30%.

How to Apply for an SBA 7(a) Loan?

Knowing that the lender you’re about to work with - or, better yet, working with an SBA-approved lender or loan broker - will make the application process much smoother. Look for a lending institution that understands your industry and has previous history of working with small businesses in your field.

Once you secure financing, the funds received through a 7(a) loan can be used to buy a business or a franchise, refinance an existing debt, buy commercial real estate or improve existing facilities, or for leasehold improvements.


5. SBA CAPLine Loans

What Are SBA CAPLine Loans?

SBA’s CAPLines program has four lines of credit made available to borrowers with short-term recurring working capital needs. The program is designed to provide loans of up to $5 million to help small businesses cover seasonal payments, finance recurring projects, and support unexpected expenses.

Loan Amounts

Up to $5 million, of which up to $3.75 million is guaranteed by the SBA

Interest Rates

From 7.50% to 10.00%

Repayment Terms

Up to 5 years for builder CAPLines and 10 years for seasonal, working capital and contract CAPLines

Fees

$2,000 to $4,000 loan packaging fee 

2% to 3.5% SBA guarantee fee

2% ongoing servicing fee

Repayment cycle

Varies by program

Funding time

From 1 to 3 months

 

SBA Capline Loan Types

There are four SBA CAPLines programs made for seasonal, contract, builder, and working capital purposes. All four are based on seasonal or cyclical working capital needs. The four existing types of SBA CAPLines are:

SBA Seasonal Line of Credit

Loans of up to $5 million to cover recurring seasonal increases in accounts receivable, inventory needs, or labor costs.

SBA Contract Line of Credit

Loans of up to $5 million for materials and labor associated with recurring assignable contracts.

SBA Builders Line of Credit

Loans of up to $5 million for builders and construction workers who build or renovate residential or commercial property.

SBA Working Capital (Asset-based) Line of Credit

Loans of up to $5 million that can be used for converting short-term assets into cash.

 

SBA Capline Loan Requirements

Qualifications for the SBA CAPLines mostly match the requirements for 7(a) loans with the addition of several program-specific points applicants will be required to cover. 

  • A credit score of at least 680;
  • No bankruptcies, foreclosures, or tax liens in the recent past;
  • Some collateral (invoices or project contracts);
  • A down payment of at least 10%.

Additional requirements that vary depending on the SBA line of credit you are applying for include: 

  • At least one year of operations and a pattern of seasonal business activity for Seasonal Line of Credit;
  • Accounts receivable and an inventory for Working Capital Line of Credit;
  • Proof of work experience and profitability for Contract Line of Credit;
  • Demonstrated experience of construction and home building along with the general profitability of the project for Builders Line of Credit.

6. CDC/504 Loans

What Is a CDC/504 Loan?

The CDC/SBA 504 loan program provides financing to business owners with plans to buy or build owner-occupied commercial real estate. Funding is provided by a traditional lender, that contributes up to 50% of the project’s costs, and a Certified Development Company (CDC), that lends up to 40%. The remaining 10% is paid by the borrower and usually count towards the down payment for the loan.

A CDC/SBA 504 loan for a single project cannot exceed $14 million. However, borrowers can apply for multiple SBA 504 loans at the same time for separate projects as long as the overall amount of the loan stays under $20 million.

Loan Amounts

Up to $14 million

Interest Rates

From 3.40% to 3.65%

Repayment Terms

10 or 20 years

Fees

0.5% SBA Guarantee Fee

0.5% to 3.5% SBA Origination Fee

Funding time

Several months

 

CDC/504 Loan Requirements

CDC/SBA 504 loans require that the business be for-profit, based primarily in the United States, run by U.S. citizens and occupying more than half of the commercial space that it’s purchasing. Other requirements include:

  • At credit score of 680 or more;
  • A down payment of 10% of the total cost of the project;
  • The proposed project must meet the SBA-set public policy and job-creating objectives;
  • The real estate must be at least 51% owner-occupied;
  • The borrower needs to prove that they have not been able to procure funds from other sources;
  • The borrower must not be engaged in the investment of rental real estate;
  • The applicant’s business must be worth at least $15 million.

How to Apply for a CDC/SBA 504 Loan?

Contact your local SBA district office If you wish to apply for SBA/504 financing. The SBA will match you with a CDC. You will then be required to find a third-party lender or select from the lenders your CDC usually works with. Keep in mind that lenders may have specific requirements set forth to potential borrowers.

After finding a CDC and selecting a lender, you will need to file your application along with the following forms:

SBALOANFORMS

Legal Disclamer:

The information provided on sbaloanforms.com is for general and educational purposes only and is not a substitute for professional advice. All information is provided in good faith, however, we make no representation or warranty of any kind regarding its accuracy, validity, reliability, or completeness. Consult with the appropriate professionals before taking any legal action. sbaloanforms.com will not be liable for loss or damage of any kind incurred as a result of using the information provided on the site.

SBALOANFORMS. All rights reserved. 2019 ©