What Is An SBA Loan & Which Program Is Best For Your Business?

Editor’s Note – Forbes Advisor may receive a commission on the sale of this link from partner links on this page, but that does not affect our editors’ comments or reviews.

Small business owners sometimes need financing to grow their businesses. The Small Business Administration (SBA) guarantees SBA loans to help these owners get financial support from banks and lenders.

Most of these types of loans come from SBA-approved lenders and are backed up to 85% of the loan amount. This means that if you do not get a debt on your loan, the government will pay the guaranteed amount to the lender. However, SBA requires personal insurance if it owns at least 20% of the company. This puts your personal assets in jeopardy, which means that SBA can recoup the losses if you are unable to pay.

In addition to traditional SBA loans, SSB also administers Payroll Protection Program (PPP) loans. The Treasury Department reopened the program in 2021, bringing relief to businesses. President Biden also announced that businesses with less than 20 employees will only have access through the 14-day application window. The deadline for applying for a PPP loan for the first or second round is March 31.

There are many different SBA loan programs that can help your business even when there are no PPP loans. We will walk you through each program to identify what works best for you and teach you how to get an SBA loan.

SBA loan programs

SBA offers SBA 7 (a), 504, CAPLines, Export, Microloan and Disaster loan programs. Of these programs, 7 (a) and 504 are the most popular, but 7 (a) is the SBA’s main credit program.

You can use the money from these SBA loan programs for a variety of business purposes, including business capital, equipment acquisition, debt recovery, ownership change, and real estate purchases. Learn more about each program to find the best one for you.

SBA 7 (a) Loan

The SBA 7 (a) loan program is the SBA’s main loan program. SBA guarantees up to $ 4.5 million in loans to small businesses. You can use short- and long-term business capital, revolving funds (depending on inventory and recipients’ prices), equipment purchases or real estate, building or renovating buildings, and using loan proceeds to start or help start a new business. Find, operate or expand existing business.

SBA 7 (a) Credit Terms

  • Loan amount; $ 25,000 to $ 5 million
  • Interest rates: 2.25% to 4.75% and base rate (Prime, Libor or SBA Peg rate)
  • Terms of payment Up to 10 years for working capital or up to 25 years for commercial real estate
  • Prepayment; Approximately 10% of the loan amount

SBA 7 (a) Credit Criteria

To be eligible, your business must:

Work as a for-profit company and work in the US or its territories
Have a reasonable ownership equity to invest
Use alternative financial resources, including personal assets, before seeking financial support

SBA 504 loan

SBA 504 loans are available for up to $ 5 million. You can use loan revenues to upgrade existing buildings or land, new facilities and long-term machinery and equipment, as well as land, roads, utilities, parking lots, landscaping, and existing facilities. Note that you cannot use these revenues for work capital or details, debt consolidation, payments or improvements and for real estate estimates or investments.

SBA 504 loan terms

  • Loan amount; Up to $ 5 million
  • Interest rates: About 5- or 10-year-old U.S. treasury accounts for approximately 3% of the total loan amount.
  • Terms of payment 10, 20 or 25 years
  • Prepayment; It usually varies from 10% to 30%, depending on the business age and financial usage

SBA 504 Credit Requirements

To be eligible, your business must:

  • Work as a for-profit company in the US
  • Have a net worth of less than $ 15 million
  • Have an average net income of less than $ 5 million after federal income tax for the two years prior to your application

SBA Microwave Program

SBA microns provide up to $ 50,000 to help small businesses get started and expand. With the help of working capital, stocks, supplies, furniture, appliances, machinery and equipment, you can use the proceeds to rebuild, reopen, repair, upgrade or upgrade small businesses. You cannot use your income to pay off debts or buy real estate.

SBA Microalysis Terms

  • Loan amount; Up to $ 50,000
  • Interest rates: Identify by lender but usually 8% to 13%
  • Terms of payment Up to six years

SBA Microalistic Qualifications

Intermediate lenders administer the program, including non-profit community-based credit unions. Micro lenders each have their own requirements and often require certain types of collateral, as well as business owners’ personal insurance.

SBA Accident Loans

The SBA Disaster Loan Program will provide up to $ 4 million in funding, including disasters, civil unrest and natural disasters. You can receive $ 25,000 in five days and the rest of your loan in five weeks.

The Disaster Loan Program is made up of four loans: physical injury, reduced support, military protection and economic damage.

SBA risk loan terms

  • Loan amount; Up to $ 2 million
  • Interest rates: Up to 4%
  • Terms of payment Up to 30 years

SBA risk credit criteria

Requirements vary by type of loan:

  1. Disability loans require more than $ 25,000 in mortgages, and real estate is the preferred type of mortgage.
  2. Measures to reduce repayment loans are reviewed, so credit criteria are unique.
  3. EIDLs are only available to small businesses if SBA determines that they cannot obtain credit elsewhere. EIDLs require guarantees for loans over $ 25,000, and real estate is the preferred form. However, for less than $ 200,000, EIDL Finance does not require the business owner to use their principal residence as collateral as long as there are other valuables equal to or greater than the loan amount.
  4. Military reserve loans require guarantees for loans over $ 50,000, and real estate is acceptable. These loans will not be reduced due to a lack of collateral, but the SBA will need the borrower’s guarantee.

SBA CAPLines

SBA CAPLines is an umbrella program for small businesses to meet short-term and cycle business capital needs. CAPLines finances up to $ 5 million and offers payment terms for up to 10 years. It is a credit line and you can use it as needed.

SBA CAPLines Terms

Loan amount; Up to $ 5 million
Interest rates: 2.25% to 4.75% and Base Rate (Prime, Labor or SBA Peg Rate)
Terms of payment Up to 10 years

SBA CAPLines eligibility requirements

CAPLines applications must meet the same requirements as SBA 7 (a).

  • For profit and working in the United States or its territories
  • Existence of reasonable ownership equity for investment
  • Use alternative financial resources, including personal assets, before seeking financial support

In addition, each CAPLine program has additional specific requirements.

How to get SBA loans

Your application process will vary depending on the SBA loan program you choose. However, overall, the process seems to be similar to these four steps.

1. Make sure your business is competent

If your business has been in operation for at least two years, earns at least $ 100,000 a year, and your personal credit score is at least 680, you may be eligible for an SBA loan. You can verify your credit score for free through an online service or your credit card provider. This will not affect your results as it only requires a soft credit check.

2. Gather the necessary documents

If your business is competent, now is the time to collect your documents. The SBA website includes a loan application verification list to help you identify the exact documents your business needs. Here are some common documents that SBA lenders are looking for

  • Loan application amount and detailed financial allocation
  • SBA business plan
  • Business Finance
  • Annual Profit and Loss (P&L) Statement
  • From year-to-year balance
  • Planned Funds (one to three years)
  • Proof of ownership
  • Business certificate or license
  • Credit application history
  • Business Tax Returns (last two years)
  • Private tax returns (last two years)
  • Personal financial statement
  • Business Overview and History
  • Business rent

3. Find an SBA-approved lender

SBA provides a lending matching tool to help you find a lender within two days. However, if you already have a relationship with a bank that offers SBA loans, it is wise to talk to them about loan options.

4. Submit your application

Once you have completed your application, the lender will submit a review to the SBA to make sure your business is eligible and meets the loan requirements. The application process usually takes 30 to 90 days after you submit your application. Once approved, your lender is responsible for closing the loan and disbursing the funds. You pay your lender every month.