What Is an SBA Loan?
An SBA loan is a financing program partly guaranteed by the U.S. Small Business Administration in an effort to decrease the risk for lenders who disburse funding to small businesses. This funding option is intended for owners who may not meet the qualifications of a traditional bank loan and can be used for almost any business purpose.
So how can you get one?
Many businesses — including small or new ones — can qualify for an SBA loan. Fast Capital 360 will walk you through your options and help you decide which SBA loan program is right for you — and whether you qualify.
Advantages
- Long payment terms
- Low down payment
- Low interest rates
- Multiple programs available
- Can be used for a variety of uses
Disadvantages
- Many qualification requirements
- Long application process
- Can require collateral
Loan Amount
$5,000—$5,000,000
Estimated Repayment Term
5—25 years
Interest Rate
Starting at 6%
Speed of Funding
As fast as 30 days
How Do SBA Loans Work?
SBA loans are not directly funded by the U.S. Small Business Administration, though this is a common misconception.
The SBA partners with lenders that agree to the agency’s guidelines to provide small business owners with long-term loans at low interest rates.
The SBA guarantees a portion of the loan (usually between 50% to 85%) in case the borrower can’t make their SBA loan payments. In return for the funding, you will be required to make a personal guarantee.
A personal guarantee is simply an agreement a business owner signs agreeing to use their personal assets to pay back the loan in the event the business can’t pay back the loan itself. This agreement is binding even if the business is incorporated or a limited liability company (LLC).
Since the SBA offers a partial guarantee, the approved lenders face less of a risk funding small businesses as opposed to not having a guarantee.
As a result, SBA loans have more flexible interest rates and terms than traditional bank loans. These features help explain why SBA loans are highly sought-after by small business owners and are often their first funding choice.
SBA Loan Qualifications
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Time In Business: 2+ Years
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Annual Revenue: $75,000
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Credit Score: 650+
*based on previously approved borrowers
How Do I Apply for an SBA Loan?
You have the choice of applying for an SBA business loan through a banking institution or an online lender. The best lender for you will depend on how much you’re looking to borrow, the planned use of your funds, and how fast you need your loan.
For the majority of SBA loan applicants, the loan application process typically takes 60-90 days to complete and may take longer depending on each lender’s unique requirements. This is because the SBA is essentially the co-signer on the loan and will be responsible to the lender if the borrower defaults on payments.
Although the application and approval process is extensive and can take as long as a few months to complete, obtaining an SBA loan can be easier than securing a conventional bank loan.
Fast Capital 360 is here to guide you through the process. We’ll help you understand how the product works and what the eligibility requirements are, so you’ll know if an SBA loan is the right funding option for your business.
Some other documents you may need are:
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Driver's License
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Tax Returns
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Bank Statements
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Voided Business Check
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Credit Score
SBA Loan Programs
Since there is more than just one SBA loan type, the cost of your loan will depend on which SBA program you choose to apply for. To help you better understand which SBA loan would work best for you, here’s a breakdown of each program:
The 7(a) is the most commonly used SBA loan. You can borrow between $5,000 and $5 million, although the typical funding is between $200k and $400k, and its funds can be used for many different purposes, including:
- Working capital
- Buying a franchise
- Expanding your business
- Purchasing equipment
- Refinancing debt
Terms
Repayment terms are usually up to 25 years for real estate acquisition or construction, 10 years for most other uses, and 7 years for working capital.
Costs
Fees and rates tend to vary, but the maximum rate typically hovers between 7% and 9.5%.
The CDC/504 is geared towards small businesses seeking a loan of $5,000 all the way to $5 million. This program is designed for real estate purposes or other major fixed assets investments, including:
- Purchasing land
- Building improvements
- Expanding your business
- Funding for new construction
- Purchasing long-term equipment
Terms
Repayment terms for the CDC/504 SBA loan program are 10, 20, or 25 years.
Costs
The loan fees are usually 3% of the loan amount, and you’ll be expected to put about 10% down. The SBA sets a maximum interest rate on the CDC/504 loan, which is currently about 5%.
The Microloan is funded to startups or small businesses seeking loans of under $50,000, with loan amounts starting at $5,000. It’s often used for:
- Working capital
- Starting a new business
- Purchasing equipment
- Purchasing inventory
- Purchasing furniture
Terms
Repayment terms for the Microloan SBA program is a maximum of 6 years.
Costs
The microloan isn’t accompanied by any fees and the interest rate on a Microloan can range from 8% to 13%. The interest is a bit higher compared to other SBA loan types due to the increased risk associated with these businesses.
Where Do I Get an SBA Loan?
SBA loans are available through both traditional bank lenders and online lenders, so you can apply to whichever institution you feel most comfortable with.
Banks tend to offer a more traditional application process with physical paperwork, while online lenders provide an almost entirely electronic experience.
If you are unsure of which lender to use, you can contact Fast Capital 360.
We help you compare all your SBA loan options in one place and a dedicated Business Advisor will guide you through the extensive SBA loan application process.
When Will I Receive My SBA Loan?
After your loan application is submitted, you can expect to receive your SBA loan between 30-120 days.
The SBA underwriting process will take anywhere from 30-90 days with an additional 30 days to review a short list of stipulations. Once submitted and reviewed by the lender, the funds will be disbursed.
An SBA program can be advantageous to your new or small business if you are just starting up or looking to grow. If your small business meets the SBA’s guidelines, applying for one of these programs will be well worth the longer underwriting process and help with your business needs.
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