The Small Business Administration is an indispensable resource for business owners in need of financing. In partnership with banks, credit unions, and other financial institutions, the SBA offers low-cost government-backed business loans. SBA loans can be used for most business uses, such as working capital, inventory, equipment, refinancing, and real estate.
SBA loan borrower requirements are difficult to meet, and the application process can be time-consuming. However, for most borrowers, the effort is worth the access to low-cost loans they couldn’t get elsewhere.
Are you eligible for an SBA loan? And which type of loan is right for your business? Keep reading to find out!Need more information and resources geared toward small business owners during this Coronavirus (COVID-19) pandemic? Read on, APPLY
What Is The SBA?
Founded in 1953, the Small Business Administration (SBA) is a government agency that supports small businesses and entrepreneurs across the United States. Its mission is to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.”
The agency supports small businesses in a number of ways. In addition to its loan programs, it offers educational services and distributes government contracts.
The SBA also supports diversity initiatives. While it will lend to any business that meets its requirements, that means that it might be an especially useful resource for women-, minority-, and veteran-owned businesses and startups.
What are the types of SBA Loans?
The SBA offers a variety of loan programs that vary according to business needs. Its flagship program is the 7a , which offers loans for most general business purposes. However, it also offers special programs such as microloans and disaster loans.
Below is a summary of the types of loans offered by the SBA:
|7(a) Loans||Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.|
|Microloans||Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.|
|CDC/504 Loans||Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.|
|Disaster Loans||Loans used to rebuild or maintain business following a disaster.|
Between its four main loan programs, SBA loan products can be used for most purposes. Borrowers can use loans for working capital, fixed assets like equipment, machinery, or real estate, inventory purchasing, refinancing, exports, or even startup costs.
Contrary to popular belief, the SBA does not originate business loans. Instead, the agency guarantees a portion of loans offered by partner banks, credit unions, non-profits, and other financial institutions. In the event the borrower defaults, the lender can collect their lost funds from the SBA. Because loans backed by the SBA are lower risk, banks and other partners are able to offer low rates and fees. SBA loans generally carry the best rates and terms you’ll come across.
That said, government-backed loans are not without their downsides. Because they involve a joint effort between multiple institutions (one of which is the US government), SBA loans tend to have long application processes with a lot of paperwork (and a fair amount of waiting). And some small business owners, especially those with poor credit, might not qualify for an SBA loan. Ponte Investments has mastered the application process and have streamlined the timeline as much as possible. You will still have to have a fairly strong borrower profile and be willing (and able) to wait a few weeks to get your funds. If you have emergency funding needs, Ponte Investments has mezzanine financing available to our clients. Want to know more?
• In business at least 2 years
• Owner’s personal credit score is 650 or above
• Business credit score is 150 or above
For many businesses, however, expending a little extra effort is worth it to get a low-cost, government-backed business loan.
What are the Interest Rates for an SBA Loan?
The SBA sets limits on the rates their partners are able to charge on a loan.
Rates for microloans, 504 loans, and disaster loans are fixed, but 7(a) loans generally carry variable interest rates. For 7(a) loans, your interest rate is determined by a base rate (normally the WSJ prime rate) plus a markup. Your interest rate will change when the prime rate (or other base rate) changes. Consequently, your monthly payments and total borrowing amount might change while you are repaying the loan.
Your interest rate might also vary according to how much you are borrowing. For example, here are the base rates and markups for standard 7(a) loans:
|Loan Amount||Less Than Seven Years||More Than 7 Years|
|Up to $25,000||Base rate + 4.25%||Base rate + 4.75%|
|$25,000-$50,000||Base rate + 3.25%||Base rate + 3.75%|
|$50,000 or More||Base rate + 2.25%||Base rate + 2.75%|
Along with interest rates, you might be charged other fees by the SBA and its partners, such as guarantee fees, processing fees, and packaging fees.
What are the Terms Can I Expect?
Along with interest rates and fees, the SBA sets limits on term lengths and repayment terms.
SBA loans usually carry the longest term lengths you’ll come across. For general 7(a) loans, you can expect a term length of 10 or 25 years:
- 10 years for equipment, working capital, or inventory
- 25 years for real estate
504 loans carry similar term lengths:
- 10 years for equipment and machinery
- 20 years for land
Microloans and some specialized 7(a) loans have shorter term lengths. For example, the maximum term length for microloans is six years.
Generally, SBA loans are repaid on a monthly basis.
Do I Need A Down Payment Or Collateral To Get An SBA Loan?
A big appeal of SBA loans is that the agency guarantees a portion of your loan. Consequently, borrowers have more flexibility about what, and how much, collateral they have to supply. But that doesn’t mean you’re completely off the hook.
The SBA requires that all business owners sign a personal guarantee — an agreement stating that you are personally responsible for repaying the loan if your business no longer can.
In most cases, the lender will still require as much collateral from your business as possible. In some cases, the equipment or real estate you are purchasing can be used as collateral. In other cases, you will have to put up assets that you already have. While you usually still have to put up collateral, you might not have to put up as much, and the lender might be more flexible about what they’re willing to accept as collateral.
In some cases, you will also have to pay a down payment. For example, 7(a) 504 loans require that you pay a small amount (usually 10%) of the cost of the project you are undertaking.
Am I an SBA Loan Candidate?
As stated above, you must have a strong borrower profile and credit score to get an SBA loan.
To receive a loan, you’ll have to meet the requirements of the SBA as well as its partners. You’ll have to be able to prove that you’re able and willing to meet the repayments, by showing that your business is (or will be) financially capable of repaying and that you have been a responsible borrower in the past.
To prove that your business is able to repay the loan, you’ll have to submit financial documents from your business, as well as information about the way you want to use the funds. If your business cannot currently repay, perhaps because you are still starting it up, you will have to prove that it will be able to in the future by providing information such as business plans and industry experience.
To prove that you have been a responsible borrower in the past, the SBA and your lender will evaluate your credit history and score. Unfortunately, business owners with bad credit will have a hard time qualifying for an SBA loan. Most eligible SBA loan borrowers have a credit score in the high 600’s or higher. Don’t meet that requirement? Then CLICK to request more information.
Can I Apply for an SBA Loan?
To receive an SBA loan, you’ll have to demonstrate that you are willing and able to repay your loan. To do so, you’ll have to fill out a fair amount of paperwork and wait a fair amount of time for the SBA and its partners to process your application. Ponte Investments LLC has closed thousands of SBA loans for their clients. their collective experience will make the process a lot easier for you and your business.
Required documentation will vary according to your business and the loan you are applying for, but you can expect to have to submit documents and fill out forms such as:
- Federal business tax forms
- Federal personal tax forms
- Balance sheets
- Profit & loss statements
- AR / AP agings
- Business debt schedule
- Forms about your business and its history
- Project-specific information
- Statement of personal history
- Your resume or CV
You might also have to submit information on the real estate or business you are trying to purchase, the debt you want to refinance, a business plan and projected income statement, or other documents.
We will process this information and decide if you’re eligible for a loan. During this phase, they might ask for additional paperwork while also looking at your credit history to evaluate your creditworthiness.
How Long Until I Get Funded by the SBA?
Obtaining an SBA loan generally takes a couple of months.
In addition to requiring a lot of paperwork and documentation, your loan application has to be processed by us and our SBA Preferred Lending Partner institutions. Ponte Investments will help you to prepare your package, review and process it, and work with the lender to ensure the timely approval and funding of your SBA loan.
My Loan Application Was Declined. What Are My Options?
Unfortunately, not every business is qualified for an SBA loan. To qualify, you need a strong credit history and strong financials (or a strong business plan).
If you can’t currently get an SBA loan, we have other financing options available to fit most any situation. REQUEST more information or