SBA Loans Explained
Everything that's important about the programs offered.
SBA loans are business loans offered by participating lenders and financial institutions that are backed in part by the federal government.
Rather than take on the cost and overhead required to lend directly to the public, the SBA partners with local banks to facilitate the lending process, guaranteeing a portion of the loan to help reduce the risk should the borrower default on any payments.
The benefit to small businesses can sometimes be found in lower interest rates and flexible repayment terms, among other potential perks. SBA loans can be used for a variety of business needs including startup costs, working capital, property and expansion purchases, refinancing, and more. There are several loan types available depending on your funding needs, but can range from microloans to upwards of $5.5 million depending on the business.
The SBA’s 7(a) loan program is the most common and can sometimes include financial help for small businesses with special requirements.
The maximum loan amount for a 7(a) loan is $5 million, while any loan under $500,000 qualifies for a 7(a) Small Loan. According to the SBA, a 7(a) loan can be a good option when real estate is involved in the purchase, but it can also be used for:
Short- and long-term working capital
Refinancing current business debt
Purchasing and installation of machinery and equipment
Purchasing furniture, fixtures and supplies
These loans generally have an interest rate tied to the Prime rate and mature in 10-15 years, although real estate can go up to 25 years. Eligibility considerations are based on how the business produces income, its credit history, and where it operates.
Primary uses for the 7(a) loan include:
Long- and short-term working capital
Revolving funds based on the value of existing inventory and receivables
The purchase of equipment, machinery, furniture, fixtures, supplies or materials
The purchase of real estate, including land and buildings
The construction a new building or renovation an existing building
Establishing a new business or assisting in the acquisition, operation or expansion of an existing business
Refinancing existing business debt, under certain conditions
Your lender will help you figure out if a 7(a) loan makes sense for your business.
The SBA's 504 loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation. 504 loans are available through Certified Development Companies, SBA's community-based partners.
The maximum loan amount for a 504 loan is $5.5 million except for certain energy projects, which can receive up to $5.5 million per project, for up to three projects not to exceed a total of $16.5 million.
A 504 loan can be used for a wide range of assets that promote business growth and job creation. These include the purchase or construction of existing buildings or land, new facilities, or long-term machinery and equipment.
A 504 loan can also be used for the improvement or modernization of land, streets, utilities, parking lots, landscaping and even existing facilities.
Like it sounds, the microloan program provides smaller loans - a maximum of $50,000 - to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000, the SBA says.
This program uses specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the microloan program for eligible borrowers instead of financial institutions.
The SBA Express program features an accelerated turnaround time for completed applications. Eligibility guidelines are made by the lender, plus lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum.
