What Is a SBA Loan?
SBA Loans are bank and commercial loans provided to new and existing small businesses that are backed by the United States Small Business Administration. The purpose of SBA lending is to provide financing for small companies that haven’t been able to secure traditional bank financing. The bank or SBA lender provides enhanced financing to the small business, while the government agrees to shoulder the great majority of the lenders’ losses should the small business default on the loan. In theory, by reducing risk to the lending institutions with the SBA guarantee, the banks and lending institutions are more inclined to approve loans they would not normally fund. Since the government is taking the majority of the risk with this type of financing, the SBA requires small businesses and commercial lenders to meet certain guidelines before they get an SBA guarantee before funding.
SBA 7(a) Financing
- ◼ Loan Amounts: Up to $5,000,000
- ◼ Rates: 5-8%
- ◼ Terms: 3-25 years
- ◼ Funding time: 30-60 days
The SBA 7(a) is the Small Business Administration’s largest lending program, which is an umbrella for a number of other SBA financing options. SBA 7(a) loans can be as much as $5 million, but the government will only guarantee up to $3.75 million for any one small business. Other debt finance programs under the 7(a) program include SBA Express Lender Structured Loans, Export Express lender structured loans and lines of credit, International Trade Loans, Export Working Capital Loans, and CAPLines (Seasonal, Contract, Builders, Working Capital). Use of SBA 7(a) loan proceeds includes starting a business, purchasing an existing business, purchasing a building, constructing new buildings, working capital, purchasing inventory, fixed assets and raw materials, leasehold improvements, and, in some qualifying situations, refinancing and consolidation of business debt. SBA 7(a) financing is offered as both a term loan facility and also as a line of credit.
SBA 504 Financing
- ◼ Loan Amounts: Up to $10,000,000
- ◼ Rates: 5-7%
- ◼ Terms: 10-20 years
- ◼ Funding time: 30-60 days
The SBA 504 program was created to help small business owners finance long-term fixed assets (such as commercial buildings and business equipment) and, in some cases, refinance long-term equipment loan terms at market or below market prices. While there isn’t a limit on the SBA 504 commercial loan size, the SBA will only guarantee $5 million for the facility. The SBA 504 loan is administered through three parties: the small business owner, a conventional bank lender, and a non-profit Community Development Corporation lender. Under this program, the borrower would agree to put up 10% of the loan facility, the bank would agree to put up 50%, and the CDC would agree to put up the remaining 40% of the loan.
SBA Microloan Program
- ◼ Loan Amounts: Up to $50,000
- ◼ Rates: 6-13%
- ◼ Terms: Up to 6 years
The SBA Microloan program provides loans up to $50,000 to small business owners and non-profit childcare centers. Qualification and use-of-funds for the SBA microloan program are similar to the 7(a) program in that there are wide uses allowed. The major difference in the microloan program as opposed to the 7(a) program is how it is administered: the SBA provides funding to non-profit micro-lenders who then disperse the funds to qualified companies.
Eligible Businesses
- ◼ Must be for-profit
- ◼ Meet SBA’s definition of small business
- ◼ Must have a reasonable amount of equity
- ◼ Exhausted all other finance options
- ◼ Can not be delinquent on government debt
- ◼ Purpose for the SBA loan must be for a valid business purpose
- ◼ Have a valid need for the SBA loan
Ineligible Businesses
- ◼ Financial businesses
- ◼ Developers and Rentals
- ◼ Life insurance companies
- ◼ Foreign Businesses
- ◼ Businesses that are engaged in any illegal activity
- ◼ Businesses principally engaged in religion or religious belief
- ◼ Speculative companies
Considering SBA loans? Call us today at (801) 532-1763 to explore your options.