For SBA Lending, Think Inside the SBA Box.

The U.S. Small Business Administration (SBA) was created in 1953 to assist small businesses with guaranteed loans covering many of the small business needs for most industry types. The 7(a) program is the Small Business Administration’s flagship program and all SBA data on this website is referring to loans under the SBA 7(a)program.

The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters".

Through the SBA 7(a) guaranteed lending program, the SBA guarantees part of the business loan that a SBA approved lender provides. In the case of a loan default, the lender isn’t on the hook for all of the unpaid loan amount. This SBA guarantee results in lenders providing loans to small businesses that they otherwise would not.

See sba.gov

The term “SBA Loan” is a bit of a misnomer in that the SBA does not provide the loan.

An “SBA loan” is not a loan from the SBA but a loan provided by a bank or lender that is partially (50% to 90%) guaranteed by the SBA.

The bank or lender provides the loan and the SBA backs the loan with their guaranty.

What kinds of businesses are eligible for SBA loan?

Eligible businesses must:

• Be an operating business.

• Operate for profit.

• Be located in the U.S.

• Be small under SBA size requirements

• Not be a type of ineligible business

• Not be able to obtain the desired credit on reasonable terms from non-federal, non-state, and non-local government sources.

• Be creditworthy and demonstrate a reasonable ability to repay the loan.

What can SBA loans be used for?

7(a) loans can be used for:

• Acquiring, refinancing, or improving real estate and/or buildings

• Short- and long-term working capital

• Refinancing current business debt

• Purchasing and installation of machinery and equipment

• Purchasing furniture, fixtures, and supplies

• Changes of ownership (complete or partial)

• Multiple purpose loans, including any of the above

SBA Standard 7(a) Program loans are backed by an SBA guarantee of 85% for loans up to $150,000 and 75% for loans greater than $150,000. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review. Loans provided typically on 10 year terms with a maximum loan amount of $5 million.

SBA Express Loans are backed by an SBA guarantee of 50 percent, the lender uses its own application and documentation forms and the lender has unilateral credit approval authority as in the PLP Program. This method makes it easier and faster for lenders to provide small business loans of $350,000 or less, with SBA generally providing a loan guarantee to the lender within 24 hours of their request.

SBA Microloan Program was developed to increase the availability of small scale financing and technical assistance to prospective small business borrowers. Loans range from $500 to $50,000.

504 Certified Development Company (CDC) Loan Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A CDC is a nonprofit corporation set up to contribute to the economic development of its community or region.

Export Working Capital Loans are used to finance export sales - 90% SBA guaranty on a loan up to $5 million.

Some of the key benefits of an SBA loan are:

• Qualify for up to 50% more lending dollars than many non-SBA commercial loan options.

• Ten year terms, no balloon payments (when real estate is not included).

• No pre-pay penalty terms up to 15 years.

• Up to $5 million in loan dollars and $7 million pari passu loans.

• SBA loans don’t require down payments for startups or for business expansion acquisitions.

• More forgiving on credit and red flag issues than most conventional banks for criteria like previous BKs, credit score, criminal record, and collateral requirements

• Minimal ongoing covenant requirements compared to most conventional loans.

Terms

The standard SBA 7(a) loan not involving property is a 10 year term with matching 10 year amortization.

Straight property SBA 7(a) loans are on 25 year terms. Combining non-property loan will mix up the terms available. If the property portion is $1 more than the non-property loan portion then the whole loan amount would still be on a 25 year term.

If the non-property amount of the loan is larger than the property portion then terms can still extend anywhere from 12 to 17 years.

Rates

Interest rates are based on the prime rate currently at 8.50% plus the bank spread. The SBA puts caps on the spread based on if the loan is variable or fixed, the program, and the loan amount. Depending on the type of loan and amount currently rates can range from the mid 9% range to the mid 11% range. See Rates FAQ.

Amounts

The SBA guaranty goes up to $5 million and many of the preferred lenders will offer pari passu loans that adds a conventional sleeve to get the total loan amount to $7 million.

While there isn’t a minimum, many lenders will not move forward with loans under a certain minimum amount like $100,000 or $150,000. There are also lenders who have never funded an SBA loan over one million and aren’t going to start with you. It’s all about matching to the right lender for the amount (amongst other things) you need.

There are no prepay penalties for a standard ten year term SBA loan. However, for loans with a maturity of 15 years or longer, prepayment penalties apply when: The borrower voluntarily prepays 25 percent or more of the outstanding balance of the loan OR when the prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.

The prepayment fee is:

• During the first year after disbursement, 5% of the amount of the prepayment.

• During the second year after disbursement, 3% of the amount of the prepayment.

• During the third year after disbursement, 1% of the amount of the prepayment.

Covenants are the ongoing responsibilities you have as a borrower while the SBA loan is in place.

This primarily consists of providing annual tax returns and an updated personal financial statement each year.

All business loans have covenants, this is not unique to an SBA loan.