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SBA Loans

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.

Quick facts and Requirements

Loan Amount

$50,000-5,000,000

Loan Term

10-25 Years

Payment Frequency

Monthly

Interest Rate

Prime+

Time to Funds

30 days - 90 days

Benefits & Drawbacks

SBA financing up to 90%
Loan terms up to 25 years
Fixed and variable rate options
Lots of paperwork
May require collateral
There is a strict acceptance criteria

What Is an SBA Loan?

An SBA Loan is a loan given through the Small Business Association. The SBA is a government agency built solely for the purpose of assisting small businesses acquire the funding they need. Recognizing the incredible importance of small businesses on the American economy (roughly 99% of allsmall-business-administration-loans American businesses are considered “small”) the SBA was formed to bolster the growth and prosperity of our nation by supporting the small businesses and entrepreneurs who keep the American dream alive and well.In that vein, an SBA loan is one that has been approved by the SBA, and in most cases co-sponsored by a traditional financial institution. The SBA provides some of the loan money, while the financial institution provides the remainder, together meeting the funding needs of the approved loan. Typically the SBA will take on a larger portion of the loan amount and guarantee the loan, leaving the financial institution with less risk.The 3 primary loans from the SBA are SBA 7(a), SBA 504, and SBA Express loans, each of which serve different purposes, with different terms, rates, and loan amount limits. Therefore, which SBA loan product you choose should depend heavily on what specific needs you have for your business.

Why Choose an SBA Loan?

While SBA loans are significantly easier to attain than a traditional bank loan, they still present the most challenges compared with other non-institutional lenders. For example, SBA loans are more paperwork intensive, typically have a much longer time to funds, as well as a higher percentage of rejection than direct online lenders.Still, SBA loans are some of the most sought-after loans for small businesses because of their benefits. The primary benefit of an SBA loan is that it allows you to get rates and terms that are comparable to bank loans even when you may not be able to secure a bank loan. The SBA does this by taking on a larger part of the loan and guaranteeing the loan, which makes the loan product significantly more desirable for banks than your loan itself. This encourages banks to fight for your business, which in turn gives you better rates and terms, while still being a very safe investment for banks themselves.SBA loans are an attractive option for other many other reasons as well. For example, SBA loans all carry monthly payments, fixed interest rates, long repayment terms, and generally make for an excellent step towards improving your credit so you can apply for a bank loan when you need your next round of funding.

SBA 7(a) Loans

Aside from having bank quality rates and terms, SBA 7(a) loans are some of the most versatile loans on the market. That means they have virtually no restrictions on usage, as long as the money is going to be used for business purposes. This includes (but is not limited to) acquiring a business, refinancing, startup funds, equipment, partner buyout, and the purchase of real estate. Because of its unparalleled flexibility, SBA 7(a) loans are by far the most common SBA loan on the market.Originally put together to help specific industries acquire financial help, the SBA 7(a) program comprises several other subsidiary programs:SBA 7a loans
  • Export Loan Program
  • Rural Business Loan Program
  • Express & Pilot Programs
  • Special Purpose Loans Program
The intention behind this loan product was to assist businesses with unique requirements meet their financial needs. SBA 7(a) loans are now available to nearly all types of businesses, and serve a vital role in sparking economic growth by committing more capital to small businesses and entrepreneurs in underserved communities.SBA 7(a) loans can range between $50,000-$5,000,000, with a loan term that ranges from 10 to 25 years depending on what the loan will be used for, along with other details. Also, your loan will be repaid monthly.

SBA 504 Loans

For all intensive purposes, SBA 504 loans are just like SBA 7(a) loans, only optimized around real estate. Because of this, SBA 504 loans are limited to real estate only. However, they are some of the best loans on the market when it comes to acquiring major fixed assets, expanding, or modernizing your current business property. For example, SBA 504 loans allows you to finance up to 90% of the appraised property value, or 100% of the outstanding principal, whichever is lower. They will also include eligible refinancing costs.There are a few eligibility requirements for this kind of loan however:
  • Your business must operate for profit
  • Your business must meet fit and size guidelines set by the SBA for the 504 program
    • Tangible net worth can’t exceed $7.5 million
    • Net income can’t exceed $2.5 million after taxes
  • 504 loans can’t be given to businesses that speculate
  • 504 loans can’t be given to businesses that invest in rental real estate
SBA 504 loans can range between $50,000-5,000,000. The loan term is also 20 years, to be repaid in monthly payments.

SBA Express Loans

In the same way the SBA 504 loans are basically an SBA 7(a) loan optimized for real estate, an SBA Express loan is the SBA loan fine-tuned for speed and efficiency. Typically, the more expediently a loan is processed, the worse the terms and rates, and the less desireable the lender. SBA Express loans function to offer funding for businesses that require fast financing while still providing bank-like rates and terms.In order to decrease approval time, the maximum amount of the loan is reduced, and the usage is limited to financing equipment, debt consolidation, and increasing working capital. Here are some good facts to know about SBA Express loans:
  • Can be pre-approved in less than 2 daysSBA Express Loan
  • Maximum loan amount of $350,000
  • Maximum SBA guarantee is 50%
  • Interest rate is negotiable between borrower and lender
  • Rates can be variable or fixed, tied to a prime rate, LIBOR, or the optional peg rate
  • Rates may not surpass SBA’s maximum rates
  • Lenders are not required to take collateral for loans up to $25,000
Additionally, you can get an SBA Express loan from as little as $5,000 up to $350,000, and the loan term is typically 10 years, repaid in monthly payments.

Getting An SBA Loan

Step 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. Items you’ll want to have with you include (but are not limited to)SBA loan application
  • Business and personal financial statements
  • Business and personal tax returns for the last three years
  • Completed application outlining 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. This will likely save you further questions and time down the line.

Step 2- Approval

Depending on the type of loan applied for and your particular circumstance, the time to approval will vary. However, once you have tendered a complete loan package it’s only a matter of time before an approval comes through. Typically, 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 do receive SBA approval, your bank will then offer you a proposal. It is good practice to apply to more than one bank, even if you have the word of a preferred lender. Some borrowers can get several weeks into the process, only to receive a rejection from the bank later. Though this is a rare scenario, taking precautions will minimize the issues you will face along the way.

Step 3- Underwriting

You will enter the underwriting phase after accepting the proposal from the bank. For SBA loans, this phase comprises the exchange of all the information required (there is quite a bit of it), a complete evaluation, and an official approval or decline of your application. To improve your chances of approval, try to provide as large a down payment as feasible for your company. 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 help push your loan through the process faster and with less chance of rejection.

Step 4- ClosingClosing a loan with a handshake

During this period loan terms are settled and signed, and guarantee fees and closing costs are paid. The length of this process is also determined by the complexity of the arrangement. Loans under $150,000 can take as little as 30 days from application to funding, however they can also take much longer in some circumstances. The timeframe is primarily dependant upon how quickly the required documentation can be submitted, reviewed, and accepted. If you choose to work with Lendio for your SBA loan 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 be difficult or complicated. However, our funding managers know exactly what is required to expedite the SBA loan process, and will help you every step of the way to ensure your funds are processed and received as fast as possible.

Why use Lendio?

Lendio's mission is to empower your business by making small business loans simple through options, speed, and trust. Whether you are looking for an acquisition loan or a term loan, Lendio offers hundreds of different loan products from a variety of lenders. Finding out which business loan is best for you is why we're here.