What is SBA Financing?
Created in 1953, the U.S. Small Business Administration (SBA) is the only cabinet-level federal agency dedicated entirely to businesses. Its goal is to help companies to flourish by providing them with counseling services, business capital, and contracting expertise. Serving as the nation’s only go-to resource and voice for the United States businesses community.
The SBA does not issue out any loans to businesses. Instead, SBA Loans are funded by a traditional bank or Non-Bank SBA Lender that is guaranteed by the Small Business Administration. It’s the lender that first sets credit requirements and determines whether or not your business is eligible for a Loan. Each SBA loan program has its own set of guidelines a business must meet along with the actual lender’s guidelines.
The SBA reviews and confirms the underwriting of the lender, and once everything is finally approved. Then the SBA will guarantee up to 85% of the loan. The agency is here to work with the lending community to help business owners and entrepreneurs pursue the American dream of running and growing their companies SBA loans, although challenging to qualify for, carry some of the industries lowest interest rates.
Is your business interested in opening up a new location, perhaps hiring employees, refinancing an existing loan? Then maybe an SBA Loan is a great option to help achieve your business goals.
Each SBA loan program has its own set of guidelines
The interest rates will max out at approximately 11% APR; standard SBA rates are usually Prime plus 2 to 3%. With terms that can go up to 25 years, however, the average time for an SBA loan is about ten years. There are about 12 different SBA loans on the marketplace that are here to service the US Business Community. The most common ones are the 7(a) loans, 504 loans, Loans for Veterans, Start-Up Loans, and disaster relief loans like the SBA PPP Loan.
Under their funding programs, the SBA provides traditional bank or Non-Bank SBA lenders a guarantee for up to 85% of the loan amount for loans of $150,000 or less. The SBA guarantees 75% of the loan amount for loans for $150,000 or more. In 2019 alone, the SBA stated that the average loan amount for the most significant loan product, the SBA 7(a) loan, was over $415,000. While the average loan amount for the smallest loan product, the SBA Microloan, was about $14,500. Most SBA program’s maximum loan amount is $10 million.
Almost any legal for-profit company that qualifies for a loan from a bank or non-bank lender could utilize SBA Financing. Whether it is for working capital, a line of credit, a long term loan, export goods internationally, purchase commercial real estate regardless of SBA Financing will probably be the best loan product on the market for the business.
Since the SBA doesn’t provide loans itself, businesses seeking SBA Financing will have to seek out a partnership with a traditional bank, or Non-Bank SBA Lenders (such as private and microlenders) who provide the loans and process the application.
There are a handful of options to choose from when looking for the right lender: Trying their current bank or a few local banks in their area, searching for Non-Bank SBA lenders throughout the nation or using a referral service like an SBA Specialized Broker that is partnered with multiple SBA Preferred Lenders.
All the Letters of Credit available on the market work in their ways. The buyer and the Seller in a trade transaction go over the options available and decide on a type of Letter of Credit that fits their needs, and they both agree to. From there, the two parties involved must set the terms by which the transaction will be deemed completed, and the Letter of Credit can thus be executed.
Every letter of credit, regardless of type, is written in an official document agreed to by both parties before it is submitted to the guaranteeing bank or non-bank lender for review.
The lenders will then review and validate the parties being represented by the bank in the transaction. For example, the buyer’s lender will verify the buyer has the collateral needed for the lender to provide the guarantee and secure the funds.
In the Letters of the Credit industry, the importer is called as the applicant or buyer. The applicant plays a vital role in a letter of credit transactions from beginning to end. A Letter of credit is not a sales contract.
The letter of credit is an independent structure that stands apart from the sales or other deals on which it may be based. Therefore, it should be kept in mind that a well-structured sales contract protects the party, which behaves in goodwill against various kinds of risks. Once the signature of the sales contract, the buyer applies to their bank to have the letter of credit issued in favor of the exporter.
The buyer has to make sure that the letter of credit application must be following the terms of the sales agreement. After the buyer applies to a lender for the issuance of a letter of credit. The issuing lender requests the Business to fill an application form, which is called the “Letter of Credit Application Form” or “Documentary Letter of Credit – Application Form.”
This is now the point whereby the issuing lender will evaluate the Letter of Credit application. Upon final approval, the issuing lender produces a Letter of Credit and sends it to the buyer for approval. Once the transaction is completed on the part of the Seller, the seller can either demand payment from the buyer or draw funds directly from the Letter of Credit. Another option the “beneficiary” Seller has is to assign the benefits to someone else in what’s called a “transferable letter of credit.”
They could, for example, transfer the interest to their corporate office, a lender, or someone else to whom they want to give the funds. Whoever ends up with a confirmed letter of credit can then draw the cash value from the issuing bank, like cashing a check.
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Is your business interested in expanding. Find out how SBA Financing can help.
The majority of SBA loan programs enable you to use the capital for almost any business goal or purpose, from working capital to the purchase of inventory or equipment for the business, to the refinancing of other debts, even the purchase of the real estate.
The payment frequency for SBA Loan repayments is monthly. These programs are ONLY available to any for-profit US-based businesses that have been established for at least two years. With the proper business and financial documents to showcase how the owners are operating the business. Though it isn’t always required, some collateral may be needed on a case by case scenario.
Is your business interested in opening up a new location, perhaps hiring employees, refinancing an existing loan? Then maybe an SBA Loan is a great option to help achieve your business goals.
A Non-Bank SBA Lender is a Non-Bank that works in conjunction with the SBA to accept and fund some or all of the SBA Loan products. (A Non-bank lender is an industry term for any: institution that does not deposit cash) that lends money.
Non-bank lenders provide a range of products and services, such as Commercial Term Loans, Business lines of credit, letters of credit, and installment loans, and that is just to name a few products.
There are a few reasons businesses choose to work directly with an SBA Lender. The main reasons are their current bank, or local banks denied their application or were unable to process it, and they want to try a different bank. Since the SBA does not lend out capital only guarantees loans, then it is possible not to get approved by one Non-Bank SBA lender and to then be approved by another.
Compared to bank loans, products at non-bank lenders tend to feature higher interest rates. However, non-bank lenders often offer more comfortable and/or faster application processes. They may be less likely to require collateral, such as equipment or real estate, to secure the loan (particularly for smaller loans).
Another reason to work with a Non-Bank SBA lender directly is that you can get your application into the hands of a lender that will be taking a direct stake in your business along with the SBA. The last key reason to possibly work with a Non-Bank SBA Lender is not all SBA lenders participate in all SBA products in all markets of the nation, and not every SBA lender can handle a wave of new clients at a time.
Traditional Banks have depository and lending clients to split their focus on. A Non-Bank SBA Lender could potentially aid an SBA applicant to fully maximize all that the SBA has to offer, over a local bank that has to cater to the greater community.
Underwriting Guidance, Predictable Approvals, & Quicker Responses
- In today’s fast-paced world, being able to respond to the market climate is a difference maker that leads to the success of a business. It takes time to evaluate a businesses financial needs, formulate the companies loan request, shop multiple lenders and prepare the needed paperwork. A good loan broker will be able to help with these tasks, saving you precious time and money in the process. Doing these things yourself will sometimes take days or weeks.SBA Loan Brokers are here to work hard for the owners of companies seeking a fast response from the SBA and their lender partner.
- From directing businesses on how to submit the proper applications at the onset, to helping owners analyze their creditworthiness and documentation. Great SBA Loan brokers will also provide the convenience of uploading all required financial information to all the necessary parties so the owners can focus on running their businesses.
- Quicker responses only come via faster underwriting. Which only happens when underwriting has all of the proper items needed at the once at the onset. This tends to lead to higher approval ratings as a great SBA Loan Broker will direct you to the loans they are pretty much certain a business will be approved for. This leads to faster funding which helps businesses to meet their challenges quickly if they’re able to secure fast funding. More importantly, since time is money than time-sensitive business opportunities can therefore be taken advantage of quicker once the company has readily access to capital available.
- The famous slogan, “When banks compete, you win,” is very true when it comes to SBA Lenders. Since the SBA only provides lending programs but the actual funds come from the specific bank or non-bank lender. A great SBA Loan broker has a very vast network of large bank and non-bank SBA lenders to work through. Where are you local bank or non-bank lender can only provide their one response. A great SBA Loan broker should have multiple responses for the business to choose from.
- Great SBA Loan brokers never sell their clients and prospective clients information to third parties. Therefore clients can expect a certain amount of exclusivity when it comes down to having the right SBA Loan broker in their corner.
Due Diligence & Access to Information
- Taking on and handling an influx of prospective borrowers requires a broker to have the in place the proper infrastructure to deal with tons of volume. The right SBA Loan broker will really excel when it comes time to finding the proper SBA loan that fits a businesses goals, a rapid underwriting and funding process should be key considerations. Lenders who have reliable technology can meet the needs of their borrowers more responsive than those who don’t.
- There are limitations on what brokers can charge to work on SBA loans for businesses. Therefore, it’s important to confirm that your broker charges the fees approved and accepted by the Small Business Administration guidelines.
- The owners may be great at running the company, but navigating the entire SBA and every bank’s guidelines is a different animal altogether. A great SBA Loan broker will help the owners and the (board of directors only if needed) to determine how much capital the business may need, how much interest the business can expect to pay, what are the best options and the most competitive lenders that cater to a specific businesses credit profile. For example, a broker questioning you about your business might discover that the use of funds is for a real estate acquisition and recommend the SBA 504 loan over the SBA 7a loan.
- The famous slogan, “When banks compete, you win,” is very true when it comes to SBA Lenders. Since the SBA only provides lending programs but the actual funds come from the specific bank or non-bank lender. A great SBA Loan broker has a very vast network of large bank and non-bank SBA lenders to work through. Where are you local bank or non-bank lender can only provide their one response. A great SBA Loan broker should have multiple responses for the business to choose from.
- SBA guidelines coupled with each specific lender’s rules can really make navigating through such an opaque market a very daunting task. A great SBA Loan broker has a reasonable sense of how the market works and they are ready and willing to provide qualifying businesses with a decent estimate of what they can expect for each type of SBA Loan that they are requesting.
- A great SBA Loan broker should understand the advantages and disadvantages of each particular loan product and provide the owners and their board with neutral advice based on each company’s own set of circumstances. In today’s digital landscape can mean that a great SBA Loan broker has access to all sorts of information about their lender partners that can be used to help companies achieve their desired funding goals. Prospective borrowers and their clients in turn can use the SBA Loan brokers technology to their advantage, particularly in conducting due diligence on a specific loan product.
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What are the Types of SBA Loans we Broker?
SBA Loans For Veterans
2- SBA Disabled Veterans Loans
3- SBA Express Loans
We here at Troy Business Groupare a Full-Service Business Financing firm that specializes in providing clients with access to SBA Financing.
Standard Interest Rates or Cost
Rates Starting at Prime + or Libor +
Typical Underwriting TimeLine
2 to up to 6 Weeks
Available Capital Limit
Up to $10mm for Working Capital & Up to $25mm for Real Estate.
Average Term Limits
1 to up to 10 Year Terms
In closing, Many entrepreneurs think of SBA loans as a great source for long term business capital, when they’re deciding to borrow the funds to fuel growth, expand, or finance some other business strategies. The SBA loan guarantee program was created in 1953 to encourage lenders to work with more businesses in order to ease the struggle to access capital.
The loans that are a part of the guarantee programs adhere to specific lending terms, interest rate caps, and other criteria outlined by the SBA. The loan programs through the Small Business Administration (SBA) can offer our clients flexible and competitive financing options to either launch, manintain, aor expand their companies. Is your business interested in opening up a new location or perhaps hiring employees or refinancing existing debts? Companies could utilize the loan program for major fixed asset purchases, payment of operating expenses, equipment purchases, and more.
Troy Business Grouphas a team of seasoned Business Financing Consultants that specialize in providing clients with access to the best SBA Financing loan programs on the market. Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with any SBA Loans programs needed and will guide you through the funding process each step of the way.
