The Complete Guide to Each and Every SBA Loan Program
Under the U.S. Small Business Administrationâs various âSBA loanâ programs, you can borrow money for nearly any business purposeâincluding adding to working capital, purchasing inventory or equipment, refinancing other debts, buying real estate, or even funding the acquisition of other businesses.
$5,000 - $5 million
5 - 25 years
Starting at 6.5%
As little as 3 weeks
Securing an SBA loan is no easy featâ¦
So how can you get one?
As it turns out, many businessesâincluding small or newer onesâcan qualify for an SBA loan. The most important factor will be your credit score: SBA loans are for business owners with strong borrowing histories.
Be prepared: SBA loans usually require a lot of time, energy, attention, and documentation.
Itâs definitely not a loan that youâll apply to and receive the funding for in a few days, but it is a loan you can use grow you business, refinance your other debt, and more at the lowest available rates.
You might find it difficult to qualify for an SBA loan if your company has a limited track record or, especially, if your credit is poor. After all, the SBA and your lender are sticking their neck out on the belief that youâre a reliable borrower.
**Based on past Fundera customers.
Almost every small business owner wants to know how to qualify for an SBA loan. As one of the lowest-cost products out there, SBA loans are the holy grail when it comes to growing your business affordably.
But arenât they impossible to get approved for?
At Fundera, weâve helped thousands of small business owners successfully secure SBA loans. With all that experienceâand dataâunder our belt, weâre confident we can give you the information you need to apply for an SBA loan.
By understanding how the product works and what exactly the eligibility requirements are, youâll know if an SBA loan is the right product for your businessâ¦
...And if not, weâll show you what you need to get there soon.
Letâs get started.
First things first: where do SBA loans come from?
The Small Business Administration (SBA) is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to small business loans.
Weâll focus on the last one here.
The most common misconception about the SBA is that the agency lends money to businesses.
But actually, thatâs not trueâin most cases, the SBA doesnât directly lend money to businesses. So what is an âSBA loanâ if not a loan from the SBA?
Instead, you get SBA loans from a bank that participates in SBA financing. The SBA uses federal money to guarantee a percentage of those loans to the banks, so financial institutions have more incentive to lend money to small businesses.
Simply put, the SBA backs up a portion of the bankâs small business loan, meaning less risk for lenders.
Because of this guarantee, bankers are more inclined to lend you money even if you donât fit their strict credit criteria. They can service a whole different set of customers than usualâwithout making too many sacrifices.
What does all this mean for you?
While an SBA loan is cost-effective, youâre still working with a bankâand banks are nothing if not slow.
At plenty of major banks, getting an SBA loan can still be a lengthy, complicated process. Lenders want to review your credit and financial statements, and might expect you to have collateral to secure the loan. Even with the government guarantee, many small businesses donât wind up qualifying for SBA loans. And if they do, the process could take months.
On the other hand, an SBA loanâs low interest rates and long repayment terms are almost always worth the wait.
Soâwhatâs next? What is the actual application like?
Hereâs the deal:
If youâd like to apply for SBA financing, you can expect to complete an extensive loan application. Youâll need to provide documents like financial statements, information on your collateral, a description of your business, and a statement of how youâll use the loan proceeds, among others.
Your bank will look for applicants with good credit, a solid business plan, and a demonstrated ability to repay the loan. Your borrowing history is especially important to a bank.
By the way, there are a few different kinds of SBA loans to pick from.
How do you know which one is right for you?
The SBA loan program youâll want to apply for depends on the size, age, and goals of your business.
The most popular programs are the SBA 7(a) loan, which is for plenty of general business purposes, and the CDC/504 loan, which is most often used to purchase major fixed assets like equipment and commercial real estate.
The SBA also offers a Microloan program for small or new businesses searching for loans under $50,000.
If youâre feeling unsure about which SBA loan makes sense, Fundera can walk you through your options and help you decide which program is right for youâand whether youâll qualify.
And if youâre not there yet, weâll work with you to graduate your business up to an SBA loanâone of the longest-term and most affordable business loan options out there.
Whatâs the bottom line for your businessâs bottom line? How much will an SBA loan cost? Well, the cost and repayment of your SBA loan depends on the program you choose. Here are the fees, interest rates, and repayment terms usually associated with each of SBAâs most popular loan programs.
Fees: A guarantee fee, based on your loanâs maturity and the dollar amount guaranteed, might be included in the total cost of the loan.
(Remember: the SBA isnât lending to you directlyâand it doesnât guarantee 100% of the bankâs loan. Thatâs why âdollar amount guaranteedâ is different from âtotal loan amount.â)
The lender originally pays the guarantee fee, but it also can just pass that expense on to the borrower. These fees range from 0% for loans under $150,000 to 3.5% on loans of more than $700,000.
Thereâs also an additional fee of 0.25% on any guaranteed portion of more than $1 million.
Donât feel too overwhelmed, though.
These fees donât hold a candle to the amount of cash youâre saving by taking on an SBA loan instead of something smaller, faster, and more expensive.
Interest: Exactly how much will this capital cost?
7(a) SBA loans come with interest rates in either fixed or variable (typically adjusted quarterly) varieties. Your bank lender determines which it will offer.
To protect borrowers, the SBA puts a ceiling on 7(a) loan rates by limiting the âspreadâ a bank is allowed to apply on top of the loanâs base interest rate.
In other words, the SBA restricts how much a bank can make off your SBA loan.
If your loan term is less than 7 years, the maximum spread will be at most 2.25%. For longer loans, that spread increases to 2.75%.
Basically, youâll wind up paying a rate between 6 - 13%.
Repayment: What would a 7(a) SBA loan mean for your businessâs cash flow?
You can expect monthly payments for 25 years for real estate, 10 years for equipment, and generally up to 7 years for working capital.
Keep in mind: these are the longest terms youâll find, giving you plenty of time to figure out how to make each payment and spreading those large loan amounts over many years.
Fees: 504 SBA loan fees are usually about 3% of the loan amountâand can sometimes be financed with the loan.
Also, be aware that youâll need to put around 10% of your purchase down to secure 504 SBA financing.
Interest: The SBAâs 504 loan program is one of the most complicated financing products out there.
Weâll give you the short and long of it.
The short story: You can probably expect an interest rate of 5 - 6% on your loan. You wonât know the exact rate until roughly 45 days after the fact, though.
The long story, in case youâre curious: The 504 loan program involves two individual loansâone from a bank (which is 50% of the loan) and one facilitated by a Certified Development Corporation (which is usually 40% of the loan). The latter gets grouped together when all CDCs pool their projects, and through underwriters, auction the pool to investors.
On the one hand, that means you donât get to know the exact rate until the sale of the pool, which is approximately 45 days after youâve closed with the CDC.
On the other, historically speaking, youâre pretty set for a pool rate between 4 - 5%. When blended with your bank rate, the total should come out to around 5 - 6%.
Heyâwe told you it was complicated. But you donât really need to worry: it all gets handled automatically.
Repayment: Youâll find maturity terms of 10 and 20 years with the 504 SBA loan program.
Interest: Rates range over 8 - 13% for the microloan program.
Repayment: Loan repayment terms depend on the loan amount, use of funding, and other criteria, but the maximum repayment term allowed for an SBA microloan is 6 years. As for the repayment schedule: like with other SBA loans, you can expect monthly charges.