In SBA loan is financing given through a traditional lender, like a bank, that the Small Business Administration guarantees up to 85% of. These loans can be difficult to qualify, but typically are among the lowest rates a small business will find. In this article we’re going to discuss what makes an SBA loan stand out from other types of financing, and what qualifications, rates, and terms you can expect.
If you’re ready to move forward with an SBA loan right now, we recommend using SmartBiz as your loan provider. If you have a credit score of 680+, have been in business for a minimum of 2 years, and your business is profitable, then you could qualify for up to $350,000 through SmartBiz. The best part is that SmartBiz can get you funded as fast as 30 days, where typically SBA loans take 45-90 days.
SBA Loans in Detail
SBA loans are a great form of financing for small businesses to get working capital financing or funding to buy commercial real estate. There are multiple types of SBA loans but the most common type is an SBA 7a loan, which is what we will be discussing throughout the article.
The Small Business Administration doesn’t issue loans directly. Instead, when you get an SBA loan you’re working with a traditional financing institution, like a bank. The SBA guarantees a portion of your loan to the bank, which means if you default they will repay up to a certain percentage of the original loan amount. The SBA guarantees 85% of loans under $100K, and 75% of all other loans up to $5,000,000.
The SBA guarantees these loans because they have certain policy goals to help small businesses get access to affordable financing. The majority of SBA loans are for less than $150,000. If you’re one of those businesses then you should use our recommended loan provider, SmartBiz, to get funded within 30 days.
The SBA guarantee helps lenders feel more comfortable without requiring collateral to secure the loans, because the SBA serves as a backstop for them. The SBA charges each lender a guarantee fee to help fund the loans they end up paying the guarantee on. These fees are typically passed on to the borrower and become part of your loan.
SBA Loan Qualifications, Rates, & Terms
SBA loans are difficult to qualify for compared to other types of financing like short term loans. You generally need to be a prime borrower with a profitable business. While the SBA has some programs to help startups, you typically will need to be an established business in order to qualify as well. In the table below we show the basic qualifications and terms of an SBA 7a loan.
SBA Terms, Rates, & Qualifications at a Glance
|SBA Loan Amounts||Up to $5,000,000|
|SBA Interest Rates||5.5% - 8.5%|
|SBA Repayment Terms||10 years for working capital
25 years for commercial real estate
|SBA Loan Requirements||- 680+ Credit Score
- 10% – 20% Downpayment if using to purchase a business
- No recent bankruptcies, foreclosures, or tax liens
- Be a small business as defined by the SBA
- Not delinquent on any payments to the federal government, including taxes and
|SBA Guarantee Fee||0% - 3.5%|
|SBA Funding Time||30 - 90 Days|
SBA Loan Application Process & Documentation Required
If you’re looking for faster capital, or don’t qualify as a prime borrower, then you should consider short term loans through OnDeck or Kabbage. You can apply online for these loans and be approved within 10 minutes. Once approved, you can be fully funded with the money in your bank account as quickly as 1 day.
The SBA loan process, like getting a loan from a traditional bank, can be very cumbersome. They require a lot of documentation, and can take you away from your business frequently to collect the right paperwork or to meet with your lender.
Here is a list of the typical minimum documentation needed to complete your SBA loan:
- Current Business Financials
- Projected Business Financials (1 Year)
- P&L Statement
- Business Leases
- Business Ownership/Origination Documents
- Business Overview & History
- All Business Licenses
- Business Tax Returns (2 Years)
- Personal Tax Returns (2 Years)
- Resumes of All Business Owners & Executives
You’ll additionally be asked to fill out a number of SBA forms that provides the loan provider with more information about both you and your business. These loans can take up to 90 days to fund, assuming everything goes smoothly. This is why you need an experienced partner to help you navigate the SBA loan process. We recommend SmartBiz to be that partner. Get the step by step process on how to apply for an SBA loan by checking out our article.
The Smart Hack
SmartBiz can help you get a fully funded SBA loan of up to $350,000 in as fast as 30 days. Their experience partners you with the right lender for your situation, which can increase your chances of being funded. They handle all of your paperwork for you, and the rates they offer are competitive across the board. You can visit them today to be prequalified within a few minutes.