SBA Loans for Small Business Growth

The 7(a) Loan

The 7(a) Loan is the most popular type of SBA Loan, offering up to $5 million with repayment terms up to 25 years. It can be used for various purposes, including hiring, equipment purchases, debt refinancing, commercial real estate, and bulk inventory orders. Interest rates range from 5% to 10%, with a 1.7% fee for loans up to $150K and a 2.25% fee for loans above that amount. Additional fees may include an origination or loan packaging fee.

Restrictions include not being able to use the loan to purchase a building for leasing to another business, reimbursing a business owner for previous investments, or repaying debts owed to the U.S. government.

The CDC 504 Loan

SBA 504 Loans are specifically for purchasing major assets like heavy machinery and commercial real estate, often using these assets as collateral. These loans offer up to $5.5 million with terms up to 20 years and interest rates between 5% and 6%. Fees typically total around 3% of the loan amount, and a down payment of approximately 10% is required.

Funding usage must be specified, impacting borrowing limits and approval. For example, loans aimed at job creation must result in one job for every $65,000 borrowed, with a $5 million limit. For public policy projects, the limit is $5.5 million. Manufacturing businesses have different requirements, such as creating or retaining one job per $100,000 borrowed.

The SBA Microloan

Microloans offer up to $50,000 with repayment terms up to 6 years and interest rates from 8% to 13%. These loans carry no fees and are designed for smaller financial needs.

Economic Injury and Disaster Loans (EIDL)

EIDLs are for businesses affected by natural disasters, offering up to $2 million with a 3.75% interest rate and terms up to 30 years. The first payment is deferred for a year, and there are no fees or collateral requirements. Applications are made directly through the SBA’s website. Since the CARES Act, eligibility has expanded to include sole proprietors, tribal businesses, cooperatives, and independent contractors. Companies must have up to 500 employees, and loans under $200,000 do not require a personal guarantee.

SBA Loans – Research, Facts & Reports

1. In 2023, the SBA approved over 73,900 loans.
2. These loans totaled more than $121 billion.
3. Over 50% of Americans work for or own a small business, which create about 66% of new jobs annually in the U.S.
4. Around 70% of small businesses seek loans under $250,000.
5. In 2018, 43% of firms sought external funding.
6. In the 2019 fiscal year, the average SBA loan amount was $446,487.

The SBA loan program is often considered the best option for business loans due to its exceptionally low interest rates. Many borrowers prioritize interest rates when selecting a business loan, and SBA Loans offer rates that are hard to beat, often as low as 5%. While traditional business term loans from banks also have low rates, they rarely match those of SBA Loans. In contrast, newer or alternative financing options, such as short-term financing products, can have APRs as high as 99%.

SBA Loans also offer high borrowing limits and long repayment terms, making them ideal for significant investments that can transform your business. These loans provide the necessary capital without straining cash flow, thanks to the low interest rates. This financial flexibility allows business owners to cover operational costs while making loan payments, unlike more expensive products that might require cutting expenses or delaying other plans. As a result, SBA Loans are an excellent choice for businesses aiming to maximize their ROI.

Anyone seeking business loans knows that convenience often comes at a price. SBA Loans, offering maximum convenience and advantages, come with stringent requirements.

Aspiring borrowers might assume that the SBA’s guarantee of a large loan percentage makes SBA Loans easier to obtain than Business Term Loans. Logically, this should be true, but 85% is not 100%. Financial institutions still risk some loss in case of default, so they remain selective with SBA Loan applications. If you’re unlikely to be approved for a traditional Business Term Loan, your chances of getting an SBA Loan are also slim.

A significant disadvantage of SBA Loans is the lack of universal requirements. Each institution has its own criteria for approval, and some might favor specific industries or business types. For instance, banks often prefer established companies with substantial bank balances.

Potential borrowers should also be prepared for a lengthy application process. Extensive paperwork is typically required, and it can take at least three months to find out if you’ve been approved. Applicants might need to meet with multiple institutions and could be advised to reapply later when their finances have improved. Therefore, SBA Loans usually involve more than just submitting one application and quickly receiving funds.

PROS

• Lowest interest rates
• Longest repayment terms
• Versatile use for various business purposes

CONS

• Lengthy approval process
• Significant paperwork
• May require collateral
• Good to excellent credit needed

Approved businesses typically meet the following criteria:

Annual Revenue: $360K+ Credit Score: 650+ Time in Business: 2 years+

Quick and Easy Business Capital has partnerships with selected SBA lenders, allowing us to approve and distribute loans in as little as three weeks. Here’s how to get started:

Step 1: Ensure You Qualify

To secure long terms and the lowest interest rates, you must meet the general requirements with excellence. Your credit score should be well over 650-700, and your cash flow should be consistently strong month-to-month.

Since SBA Loans are designed for large-scale investments, you should support your desired investment with sufficient data. The funds’ purpose is crucial for approval.

Step 2: Gather Your Documents

SBA Loans require the following documents and information:

• Driver’s License
• Business license or certificate
• Voided business check (for business bank account information)
• Bank statements
• Credit report/statement of personal credit history
• Business tax returns
• Credit card processing statements
• Personal tax returns (3 years)
• Business tax returns (3 years)
• Business plan (not in all cases)
• Personal financial statement
• List of real estate owned
• Debt schedule/loan/rent/lease documentation
• Deeds/title/ownership documentation for any collateral/security
• Current profit & loss statements and balance sheet year-to-date
• A/R and A/P reports
• United Capital Source 1-page loan application

Step 3: Fill Out the Application

Begin the application process by calling us or filling out our one-page online application. You’ll need to enter the information from the previous section along with your desired funding amount.

Step 4: Speak to a Representative

Once you apply, a representative will contact you to explain the repayment structure, rates, and terms of your available options. This ensures you won’t encounter surprises or hidden fees during repayment.

Step 5: Receive Approval

SBA Loans through our network generally take 3-5 weeks to process. Once approved, funds should appear in your bank account within a few business days.

Your SBA Loan Gets Set Up – Now What?

Your business loan isn’t just a way to get financing; it’s also an excellent opportunity to build or improve your credit.

Make all your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit.

Consistently making your business financing payments on time and in full will positively impact your credit, leading to preferred rates and terms for future business financing needs.

Due to the stringent approval requirements, applications for SBA Loans can be declined for various reasons, often due to overlooked requirements. Therefore, it’s crucial to apply only when you are fully aware of your institution’s specific criteria, which may require direct contact to clarify.

However, being declined for an SBA Loan doesn’t mean you’re ineligible for other beneficial options. While these alternatives may not offer the lowest rates or highest borrowing limits, they can still support business growth effectively over time. Starting with a standard Business Term Loan or Business Line of Credit allows you to establish a solid payment history, enhancing your credit score and demonstrating your ability to manage payments without straining cash flow.

If qualifying for these options remains challenging, we may suggest alternative business financing tools such as business credit cards or personal loans, which are typically easier to obtain. At Quick and Easy Business Capital we often assist business owners hindered by poor credit. In such cases, exploring credit repair services can help address issues affecting your credit score, potentially improving your eligibility for financing.