TABLE OF CONTENTS
- What Is an SBA Loan?
- What Is an SBA Express Loan?
- The 3 Types of SBA Express Loans
- What Are the Terms of SBA Express Loans?
- Who Is Eligible for SBA Express Loans?
- What Are the Pros and Cons of SBA Express Loans?
- How to Apply for SBA Express Loans
- Finalizing Your SBA Express Loan Application
Applicants for Small Business Administration (SBA) loans often wait months for approval. Thankfully, the federal agency provides an express loan program to speed up the review process and fund small businesses faster.
If you need funding for your small business and need it quickly, consider an SBA Express loan. Here’s what you need to know before you apply.
What Is an SBA Loan?
Because some small business owners struggle to qualify for conventional bank financing, SBA loan programs help entrepreneurs secure the funding they otherwise couldn’t obtain.
The SBA doesn’t provide loans. Instead, the agency guarantees a portion of the debt if the borrower cannot pay — up to 90%, depending on the amount and type of loan.
The SBA guaranty lowers the risk to lenders, making them more apt to work with higher-risk borrowers. Additionally, interest rates and fees are regulated, making terms more favorable than many other business financing forms.
What Is an SBA Express Loan?
SBA Express loans are a part of the agency’s 7(a) loan program, the SBA’s primary means for helping small businesses obtain funding. They were put in place to help business owners obtain the benefits of other SBA loans in an expedited fashion.
Business owners searching for working capital loans, business lines of credit and equipment financing can cut the time they wait for approval. Though the lender is ultimately responsible for the decision to extend credit, the SBA notes that they respond to Express applications within 36 hours and Export Express applications within 24 hours.
The review process of SBA Express loans is sped up because these loans generally involve lower amounts of money and have fewer documentation requirements than other SBA funding programs.
The 3 Types of SBA Express Loans
There are 3 different types of these expedited SBA loans: Express, Export Express and Express Bridge Loans.
1. SBA Express Loans
The flexibility and competitive terms of SBA’s standard Express loans make them a popular funding option for many small business owners. Express loans typically max out at $350,000 and carry a 50% guaranty backed by the SBA.
Of note, the CARES Act temporarily increased the maximum SBA Express loan amounts to $1 million for applications approved between March 27, 2020, and December 31, 2020. The maximum loan amount will revert to $350,000 on January 1, 2021.
2. SBA Export Express Loans
Express Export loans are for owners who want to begin or enhance their international exporting business. To qualify, you must prove the money will be used to fund your day-to-day operations, inventory orders and to refinance debts related to that part of your business.
Because many conventional lenders associate international business operations with higher risk, the SBA guarantees up to 90% of the funding to help borrowers receive approval. These loans have a maximum amount of $500,000. It’s important to note that the CARES Act changes do not alter the maximum loan amounts for Export Express loans.
3. Express Bridge Loan Pilot Program
This is a term loan option for small businesses that have been impacted by COVID-19, have an existing relationship with an SBA Express lender and have applied and are waiting to be approved for long-term financing, including an SBA disaster loan. To qualify, applicants must be unable to obtain financing elsewhere.
Applications for this program can be submitted through March 13, 2021. Loans will not exceed $25,000.
If after approval for the Express Bridge Loan, the borrower is approved for an SBA disaster loan, the lender may require the borrower to repay the bridge loan in full or in part from disaster loan proceeds.
Collateral is not required for these loans.
|SBA Express Loans||SBA Export Express||SBA Express Bridge Loan Pilot||SBA Standard 7(a)|
|Maximum Loan Amount||$350,000*||$500,000||$25,000||$5 Million|
|SBA Percent of Guaranty||50%||90% for loans of $350,000 or less, 75% for loans greater than $350,000||50%||85% for loans of $150,000 or less, 75% for loans greater than $150,000|
|SBA Turnaround||Within 36 hours||Within 24 hours||Same as SBA Express||5-10 business days|
What Are the Terms of SBA Express Loans?
The rates, fees and other details of SBA loans are designed to make them more accessible and palatable to small business owners.
Rates and Fees of SBA Express Loans
The steep interest rates and hidden fees of many funding opportunities can cripple a business owner’s cash flow. You may get the funding you need now, but the premium you pay will make it more difficult to grow in the future.
Knowing this, the SBA and its lending partners aim to lower the financial burden that borrowers face.
For SBA loans, lenders are prohibited from including specific fees that are usually a part of their loan agreements, including processing, application, origination fees and more. This could mean thousands in savings for your business.
Certain guaranty fees are paid on the guaranteed portion of SBA loans, but they’re generally lower than what you would expect in other loans. Depending on the loan amount and term length, your guaranty fees can range from 0%-3%.
|Loan Amount||Repayment term < 1 year||Repayment term > 1 year|
|SBA Express loans to qualified veterans and spouses, up to $350,000||0%||0% (when program is zero subsidy)|
|Up to $150,000||0%||2%|
|$150,000 and up||.25%||3%|
The SBA also regulates interest rates. These rates are capped and tied to the prime rate. As of November 2020, the current prime rate is 3.25%.
The maximum rate for SBA Express and Export Express loans is as follows:
|Loan Amount||Interest rate|
|$50,000 or less||Prime rate + 6.5%|
|Over $50,000||Prime rate + 4.5%|
If you were to add the current prime rate to 6.5%, the interest rate on a $50,000 loan would not exceed 9.75%. Visit the Federal Reserve website to find updated daily prime rates.
SBA Express business funding can be used for revolving lines of credit or term loans. Express and Export Express term lengths will be determined by what you are using the funding for, the expected life of the collateral you may put up and your ability to repay the loan.
- Real estate loans: Up to 25 years
- Working capital, machinery and equipment loans: Typically range from 5-10 years, but are not to exceed the useful life of the collateral (usually the equipment that was financed)
- Lines of credit: Maximum 5 years for revolving line of credit and 5 years payback period, for a total of 10 years (during the term-out or payback period, the borrower cannot draw against the credit line)
- Bridge loans: Up to 7 years
Who Is Eligible for SBA Express Loans?
The SBA is essentially going out on a limb to get your company the funding it needs to succeed, so the agency understandably has its requirements.
Because these loans are meant to help persuade lenders to consider less attractive borrowers than they usually would, the criteria is a bit more relaxed than typical lending programs.
Determining Your Eligibility
Here’s a quick checklist of some of the SBA Express loan requirements:
- Operate business for profit
- Engage in operations in the U.S. or its territories
- In business for 2 years or more
- Qualify as a small business using SBA size standards
- No delinquencies on any previous government loans
- The owner must have used personal equity to finance business before seeking SBA assistance
What About My Credit Score?
Typically, business owners need a personal credit score of 650 or better to qualify for an SBA loan. The SBA will also review your FICO SBSS small business credit score when prescreening applications. Reportedly, the SBA requires a minimum SBSS score of 155, with many SBA lenders requiring a minimum of 160-165.
Can’t qualify for an SBA loan? There are other funding options available for small business owners with bad credit.
Businesses Ineligible for SBA Loans
As a government agency, SBA won’t assist certain businesses, including the following:
- Lending companies
- Gambling businesses
- Businesses that promote or partake in illegal activities
- Insurance companies
- Businesses following a pyramid sales structure
- Businesses primarily engaging in the teaching, instruction or promotion of religious practices
If your business doesn’t qualify, there are alternative ways to get funding.
What Are the Pros and Cons of SBA Express Loans?
The SBA Express loan program offers several benefits to small business owners who have difficulty getting approved for conventional loans. While the relatively fast process and generous term lengths are attractive, there are some drawbacks to SBA Express loans.
Before deciding whether this is the right funding option for you, weigh the advantages and disadvantages of SBA Express business funding.
- Quick response time
- Streamlined application process
- Flexible use of proceeds
- Lower loan amounts
- High credit score requirements
- Higher interest rates compared to other SBA loans
How to Apply for SBA Express Loans
The application process for an SBA Express loan doesn’t have to be complicated. The first step is to gather the documents you’ll need in order to apply with an SBA-approved lender.
You’ll need to fill out the SBA’s borrower information form, also called Form 1919. In the document, you’ll include everything the SBA will need to verify and qualify your application, including information about your business’s structure and operation.
Based on your answers on Form 1919, you may be required to fill out additional paperwork.
Here are a few other important documents to prepare:
- Personal and business tax returns
- Personal financial statements (required from each individual owning 20% or more of the company)
- Profit-and-loss statement
- Balance sheet
- Proof of collateral
Other documents, such as business licenses, articles of incorporation, commercial leases or franchise agreements may be requested depending on the particular loan application.
Finalizing Your SBA Express Loan Application
When you have everything together, submit the documents to your lender and the SBA will review your application. Since you’ll be applying for an SBA Express loan, you should receive notification in a few days. Once approved, funds could be available within 7 days, with the entire process taking 45-60 days.