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What is an SBA Loan

The U.S. Small Business Administration (SBA) is a federal agency that supports small business development and growth. This agency does not actually provide the loans. It establishes the guidelines for all SBA loans and then guarantees a portion of the loan, (in the case of default) which diminishes the risk for its lending partners.

SBA Loan Amount $35,000 - $5,000,000
SBA 7a Loan Amount $50,000 - $3,000,000
SBA 504 Loan Amount $250,000 - $5,000,000
SBA Express $35,000 - $250,000
Loan Term 25 years
Interest Rate Prime+
Payment Frequency Monthly
Time to Funds 30 days - 90 days
Benefits
  • SBA financing up to 90%
  • Loan terms up to 25 years
  • Fixed and variable rate options
Drawbacks
  • Lots of paperwork
  • May require collateral
  • There is a strict acceptance criteria

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Types of SBA Loans

SBA 7(a): can be used for acquiring a business, refinancing, startup funds, equipment, partner buyout, or for the purchase of real estate. By far the most used and most common SBA program, 7(a) loans can help both existing and new businesses get financing. Whether you choose to use it for buying or reconditioning furnishings, equipment, land, or buildings, or you opt to refinance debt or get working capital, the huge plus about the 7(a) loan is that it can be used for more general purposes.

SBA 504: is a purchase or construction loan only.

SBA Express: This loan covers equipment and working capital. These can be pre-approved in less than 2 days. The maximum amount for this type of loan is $350,000. The maximum SBA guarantee is 50 percent. Borrowers and lenders can negotiate the interest rate. Rates can be variable or fixed and are tied to the prime rate, the London Interbank Offered Rate (LIBOR), or the optional peg rate, but they may not surpass the SBA’s maximum rates. Lenders are not required to take collateral for loans up to $25,000.

30-Day Plan for Securing SBA Loans

Week 1 – Application

The first stage in your loan approval process involves meeting your SBA lender and giving him or her enough information to assess your loan application for a pre-approval letter. You’ll need to submit:
• Business and personal financial statements
• Business and personal tax returns for the last three years
• Completed application outlining the loan request and giving details of how the proceeds will be used
• Signed authorization for background and credit checks
• Resumes for your primary managers and your owners

You can use Lendio’s platform to connect with lenders that offer these long-term, low-interest loans. In order to expedite the process, follow the SBA’s recommended business plan outline to the letter to prevent further questions down the line. You should also check with the different SBA lenders to find out their timeline before selecting a bank.

Week Two – Approval

You should receive an approval in seven, and sometimes even five, business days once you have tendered a complete loan package. The timeframe from submission of the application to disbursement of funds takes about 30-60 days, depending on the complexity of the loan. If you receive SBA approval, your bank will give you a proposal.

Make sure you apply to more than one bank, even if you have the word of a preferred lender. Some borrowers reach several weeks into the process, only to receive a rejection from the borrower.

Week 3 – Underwriting

You enter the underwriting phase after accepting the proposal. For SBA loans, this phase comprises the exchange of lots of information, a complete evaluation, and an official approval or decline of your application.

To improve your chances of approval, consider a larger down payment. The typical SBA loan requires only 10 percent down, but if you can mitigate the bank’s risk with a larger down payment or a personal guarantee (particularly if your venture is risky) that could push it through faster.

Week 4 – Closing

During this period loan terms are settled and signed. Guarantee fees and closing costs are paid. The length of time is determined by the complexity of the arrangement.

Loans taken for less than $150,000 can take as little as 30 days from application to funding. The timeframe mainly depends on how quickly you can submit the required documentation. If you choose to work with Lendio we make it our duty to advance you from application to funding as quickly as possible, regardless of the loan size.

Keep in mind that each loan is different, and yours may take longer than the thirty days projected here. However, once your documentation is in order, and you follow the other guidelines in this article, your loan will be processed more quickly, and you, too, can have your funds in thirty days or less.

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