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that specialize in SBA StartUp Loans

What are SBA Startup Loans?

The Small Business Administration (SBA) has been helping U.S companies, including startups. The part about helping start-ups may come as a bit of a surprise since it’s known that startups are viewed as riskier endeavors. Although the SBA doesn’t offer funding that is specific to just startups, most of the SBA loan programs don’t have a requirement for time in business.

Which creates an opportunity for new businesses to be able to qualify for many of the programs that are used by established businesses. However, since the SBA does not fund loans directly it simply provides a loan guarantee of up to 85% of the funded amount to the bank and non-bank lenders, that actually provide the capital to applying businesses.

It is very important for companies to first secure a relationship with SBA Lenders that also work with startups, before applying for an SBA Loan for a Startup Company. The SBA’s backing for an approved StartUp Loan not only makes the funding less riskier for the lenders, but it is also there to provide the company owners with additional resources, training, and advocacy they may need to successfully operate their own businesses.

SBA Loans for StartUps can help provide capital to new companies for a number of reasons including but not limited to funding to acquire a business or franchise, hiring new employees, or funding equipment purchases. Just to name a few potential uses for these funding programs.

The Four Main SBA Loans for StartUps Programs that we focus on are:

SBA 7(a) Loans for StartUp

SBA Community Advantage Loans

SBA MicroLoans

SBA Investment Programs

What are SBA 7(a) Loans for StartUps?

As mentioned earlier the SBA does not lend out actual capital it provides loan guarantees to banks and non-bank lenders to stimulate lending to the Business Community including some startups. Most Lenders will typically require at least two years in business to qualify for an SBA 7 (a) Loans.

These Loans therefore are a better option for more established startups who can meet the time in business requirement. Newer startups may also be able to qualify if their other qualifications are particularly strong.

The SBA 7(a) loan program provides lenders that fund loans to U.S Businesses  guarantees of up to 85% of the loan amount up to $5 million. The loan guarantee goes a long way towards reducing the risks, since start-ups often face some fierce financial challenges.

These loans are subject to SBA interest rate maximums which are pegged to the prime rate and the LIBOR. Rates can be both fixed and variable,therefore please make certain to review the finalized loan offer prior to signing and accepting. The SBA 7(a)  loan program can be used for a variety of purposes—including working capital, buying equipment, refinancing debt, buying an existing business, purchasing real estate, and more.

Like all SBA loan programs the requirements for a 7(a) loan for an established StartUp will depend on the actual lender funding the loan in conjunction with the SBA. Generally, businesses will need to have owners with good personal credit and the company will be expected to have strong company financials.

Depending on the individual company and it’s owners application a business could be funded up to $5mm with terms up to 25 years. Although interest rates will range from lender to lender the SBA does set maximum APR limits, and typically, you’ll see rates from around 7% to 14%. The SBA 7(a) loan can be an excellent option for a start-up seeking an infusion of capital into the ledger.

This government-backed loan program aims to help businesses from small to large scale, that either lack external funding sources, or desire the longer terms awarded on SBA Loans. Sba 7(a) Loan programs typically come with Prepayment penalties attached.

One average loan with a maturity of 15 years or more is subject to a prepayment penalty when the company prepays 25% or more of the loan within the first three years of disbursement of the loan proceeds. The penalties usually run on a sliding scale that is 5% of the prepayment amount if it takes place in the first year, it will be 3% if it takes place during the second year, and it will be 1% if it takes place in the third year.

These loan programs will have fees typically they come with both a loan guarantee fee and a loan servicing fee. Currently, loans under $150K have no guarantee fee, loans between $150K and $700K will be subject to a 3% guarantee fee, and loans greater than $700K will require a 3.5% fee.

Any loans greater than $1 million include an additional 0.25% guarantee fee for any amount over the $1 million mark. All loans are charged an ongoing service fee of 0.520% of the outstanding balance for the life of the loan. Whether the company is seeking capital for new hires, new equipment, or to expand the operation, SBA 7(a) Loans are here to help get established startups off the ground and running with enough capital to really succeed.

The SBA 7(a) loan can be used for a surprisingly wide range of start-up costs. Along with buying merchandise and paying employees, you can also finance these items in many cases:

Established StartUp Companies can use the SBA 7(a) Loan program to purchase land. This will not allow companies to use the capital to buy investment land to buy and hold. However, the land can be used in some aspect of the business. For example a new warehouse or the new HQ, established StartUp companies can not only finance land purchases with SBA 7(a) loan. They can also add the construction costs into that package.

Although SBA 7(a) loans amounts can range up to $5 million for businesses expenses or equipment and up to $25 million for real estate, most established startups won’t qualify for this much capital. Depending on the revenue opportunities drawn out in the business plan and how much personal capital the business owners could potentially pledge. 

This loan program can also be used by established StartUps to pay down existing debt. If a company is dealing with debt and it is becoming a crushing mountain of liabilities, the SBA 7(a) loan can help by consolidating it all down. Instead of multiple debts to service monthly, a business can convert down to one big loan, at a lower interest rate and over a longer term.

For established startups that are eligible for SBA 7 (a) loan’s maturity rate is based on how much capital the company borrows and the company’s ability to repay the loan, but maximums are set. Loans for working capital, inventory, and equipment are capped at 10 years. Loans for Real estate are capped at 25 years.

SBA 7(a) Loans can help an established startup purchase New equipment or furniture that will be for long term use. Whether a business needs a conveyor system, a cubicle farm, or a diagnostic machine for example, then this loan program can help. 

Whereas established businesses have proof of their success in the form of financial statements, tax returns, and other documents. In order for established startups to be eligible for SBA 7 (a)  the owner operators need to have a solid business plan and showcase they have industry experience. 

Established startup businesses that have been in operation for two years and maybe sometimes less (and meet the standard requirements of the SBA) may be eligible for this loan product.

For established startups to be eligible for a SBA 7(a) the company must be for-profit operations U.S. based and the owners must have an adequate amount of equity. The business must also demonstrate a reasonable need for requesting the loan.

Non-Qualified StartUp Businesses for this loan products are companies that invest in real estate, engage in illegal operations, operate as nonprofits, or specialize in loaning money. 

Business owners and operators of established startups need to have a minimum credit score of 680 fico. Also both the owners and the company must have no recent bankruptcies, foreclosures, or tax liens on the report. 

If loan proceeds are to be used to acquire a business or to purchase property or equipment, equity or a down payment of 10% or more may be required based on the lender. Ready to learn more?

In order to be eligible for these loan programs established startups need to meet the SBA loan guarantee percentage requirements. SBA 7(a) loans require the business and it’s owners to have to put up substantial capital to help buffer as collateral for the lender. For loans under $150K lenders are provided guarantees by the SBA for up to 85% of the loan amount. The company will have to provide the remaining 15% of the loan amount. Loans over $150K are only guaranteed for up to 75%, the company needs to provide the remaining 25% of the loan amount.

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TGRP Business Consultants are here to offer our clients all of their years of experience in providing capital to companies to grow and expand.

What are SBA Community Advantage Loans?

For newer startups that are not established enough to meet the eligibility criteria for the standard SBA 7(a) there is an additional option the  SBA Community Advantage program. This loan program works with lenders to provide companies with very similar rates and terms to the traditional 7(a) program with some key differences.

For starters one of the key changes will be the limit of the amount of capital borrowers can receive. The SBA Community Advantage loan program is capped at $250,000. The interest rates for these loans are comparable to those of standard SBA guidelines. The capital must be utilized for the same purposes as the SBA 7(a) loan program. Like the purchase of another business, financing equipment, or for just about any business purpose. 

This program can be extremely beneficial for startups even with the drawback of the lowered maximum loan amount. Mainly since Community Advantage loans are designed for underserved communities, such as low-income areas. However, startups can also qualify to receive these loans. Businesses that have been operating for two years or less that have been disqualified from other loans may receive a Community Advantage loan if all requirements set by the SBA have been met.

The SBA Community Advantage Loan Program provides lenders to loan guarantees for loans of up to $250,000 to businesses in Underserved Communities and even some StartUps.

Beyond the loans the programs also offer loads of resources for small business owners, including training and educational materials. The terms for these loan programs can range from  7 to up 10 years for working capital, inventory, business acquisitions, tenant improvements, and start-up expenses. For Real Estate the terms can range up to 25 years. The average interest rates range anywhere from prime + 2.75% to 6%.

Underserved communities usually include inner cities and rural areas. Federally designated Low-to-Moderate Income communities can be considered underserved.

Any business that has more than 50% of full-time staff members that are low-income or live in LMI areas is considered an underserved market. Businesses that are owned by minorities, women, and veterans are also included in this definition.

The SBA Community Advantage Loan Program allows businesses in underserved areas and some startups to receive low-interest financing with reasonable terms. Businesses that can’t receive financing through traditional loan programs can try to take advantage of competitive rates and terms through this SBA pilot program. The SBA Community Advantage Loan Program can provide companies with  loans of up to $250,000. 

This program assists small businesses in underserved markets and startups  with the capital needed to become empowered and successful. Which can also help to stimulate the businesses local economy and create jobs. The terms for the SBA Community Advantage Loan Programs can range from  7 to up 10 years and up to 25 years for Real Estate purchases.

All applicants for an SBA Community Advantage Loan must first meet the standard eligibility requirements set forth by the SBA for the 7 (a) Program.

Companies applying for this program must be a for-profit small business.

For a company to qualify for this loan program they must be based in the United States and some lenders will only work with companies that are based within their coverage areas.

Companies that qualify for this program should have fewer than 500 employees and under $15 million in annual revenue. 

Companies that participate in illegal operations, lending, or investment services are not eligible for SBA Loan programs.

Companies must provide a business plan that details the purpose for obtaining the loan, the ability of the company to be able to repay the loan, and be able to demonstrate a need for the funding. 

In addition, applicants must have exhausted other financing options before applying for a loan through the SBA.

The Community Advantage program requires a credit score of 680 for the business owners since the companies in underserved areas and startups may not have the established business credit score. Expect that any negative marks on a credit report will need to be explained to the lenders. 

The SBA has some experience requirements for this program; company owners must have at least 2 years of experience in the industry and show historical earnings sufficient to cover personal living expenses.

Collateral requirements for this loan program must inject 30% of total project costs for start-up businesses, 20% for business acquisition financing. Insufficient collateral will not preclude a company from obtaining financing.

Acceptable secondary sources of repayment for the SBA Community Advantage Loan Program are 

– Historical business cash flow sufficient to service requested debt

– Cash flow ability based on reasonable projections

– Collateral equal or close to the loan amount

– Outside income source

– Co-signer with reasonable credit and income to repay the loan

 

Finally, the SBA has requirements specific to the Community Advantage program. In order to qualify for a loan, the applicant must operate the business in an underserved market. By the SBA’s definition, this includes Low-to-Moderate Income communities, businesses where over half of the full-time staff is low-income, Empowerment Zones, Enterprise Communities, Promise Zones, and HUBZones.

In addition to the underserved communities previously listed, startups that have been in business for fewer than two years are also eligible to apply. Servicemembers and military veterans who qualify for the SBA Veterans Advantage program and meet all other requirements can also apply for a Community Advantage loan.

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What are SBA Microloans?

Through the  Microloan Program, the (SBA) provides capital to banks, non bank lenders that work with non-profit community based organizations. These intermediaries with experience in lending administer the Microloan program for eligible borrowers as well as management and technical assistance.

The SBA Microloan program provides loans of up to $50,000 to help small businesses, startups, and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. The SBA limits how the funds from microloans are used by a business. Microloan capital can be used to purchase supplies, inventory, furniture, and materials for small businesses and startups. The funding can also be used as working capital. However the loans can not be used to purchase real estate or to pay off or refinance existing debt.

The SBA Microloan provides capital from as little as $500 to as much as $50,000 to a small business or a startup. The funds come from the SBA, which initially lends the money at a discounted rate to a bank or non-bank lender which in turn works with a non-profit intermediary who distributes the loan.

The SBA Microloans are available to small businesses and startups that are for-profit companies and have a solid business plan. The interest rates for this loan program depends on the lender, they typically range from 6.5% to 13%. The average rates fall on the lower side at approximately 7.5%. The maximum maturity for a microloan through the SBA is 6 years.

These loan programs come with fees that may be required by the intermediary to receive a microloan. Intermediaries can charge between 2% to 3% of the loan amount for packaging fees. Additional fees to close the loan, including recording fees, collateral appraisals, and credit reports, may also be passed on to the borrower. SBA Microloans uses are limited for example the capital can’t be used for debt refinancing or purchasing real estatePlease keep in mind due to the number of parties involved in closing one of these loan programs like the SBA, the lender, and the non-profit intermediary.

The Loan process can usually take several weeks. These loan programs require business owners to provide collateral and if the owners have bad credit, the loan may require a co-signer in order to close the loan. The SBA Microloan program is a great choice for any small business or a startup that needs working capital to purchase equipment, expand the business, or to get a project off the ground. 

One of the best resources for startups is the SBA Microloan program.
Through the program, the Small Business Administration (SBA) loans money to intermediary nonprofit lenders. 

These lenders then provide business loans of up to $50,000 to startups and small businesses, many of them run by women, minorities, or veterans. With the typical amount funded through the Microloan program being about $13,500

The SBA sets parameters around the maximum rates that intermediaries can charge, based on the intermediary’s own cost to borrow funds from the SBA.
SBA Microloan interest rates generally fall between 8% and 13%. The rates definitely vary from intermediary lender to intermediary lender, but the average interest rate recently was about 7.5%.

Both startups and established companies are eligible for the program

The SBA Microloan is a great option for other small businesses besides startups like underserved entrepreneurs, such as women, minorities, people with disabilities, and veterans

Businesses can use SBA Microloans for a range of purposes, including working capital or buying equipment, machinery, or supplies.

This is a good option for business owners with limited credit histories (especially those that are new to the country and working to establish credit)

SBA Microloans is a good option for sole proprietorships and freelancers or businesses with few or no employees>

This program has a term of up to 6 years which is a longer period for most startup financing options.

SBA Microloans are the most accessible type of SBA loan, and they’re a great option for aspiring entrepreneurs with a plan of action that are seeking the capital to execute their dreams.

The SBA leaves a lot of discretion to intermediary non-profits and the lender to decide the terms and which a company could qualify to receive Microloans. For example the SBA does not even review the loan applications for creditworthiness. The SBA’s main goal is to establish some parameters around interest rates and eligible loan uses.

As we already mentioned, the SBA does not fully underwrite Microloan applications for businesses. But they do set some basic parameters around eligibility in their SBA loan requirements. The lender and the intermediary that you work with will also have their own final guidelines. 

The company must be a for-profit business to qualify for an SBA Microloan. However, non-profit childcare centers are eligible for SBA Microloans.

Since the SBA provides the capital to a lender for this program credit score requirements are set by the microlenders and non-profit intermediaries that service this product. The average minimum credit score is around 580 fico. Microlenders and non-profit intermediaries are used to dealing with business owners who have a limited credit history, are rebuilding credit, or have less-than-perfect credit scores.

The business or it’s owners can not have any recent bankruptcies or foreclosure on their credit history in order to qualify for this program.

All businesses must submit a business plan to qualify for an SBA Microloan detailing the companies plan to generate revenue and the necessary profits to be able to repay the loan.

A standard business plan to qualify for the SBA Microloan program should detail the following:

All past and current financial statements and/or financial projections for 3 to 5 years

Background information on the company and business management experience

The company’s business’s value proposition

Analysis of target market and competitors

Description of marketing and growth strategies

SBA Microloans generally require collateral to qualify for this program. Business assets (e.g. equipment, accounts receivables, real estate, etc.) can serve as collateral, as can personal assets (e.g. personal car, home, personal property, etc.). In most cases, any assets that you purchase using the loan proceeds also become collateral.

A personal guarantee is required to close on this loan program.

Although our final option may not necessarily qualify as SBA loans for startups, the different SBA Investment programs can be worthwhile solutions for startups looking for financing. 

Small Business Investment Company (SBICs): SBICs are privately-owned investment companies that are licensed and regulated by the SBA. These investment companies use their own funds, as well as capital borrowed from the SBA (with an SBA guarantee) to invest in small businesses. SBICs offer both equity and debt financing and therefore, can be a great funding option for startups who can qualify.

Small Business Innovation Research (SBIR) Program: If your startup business is involved in science and technology, you might look into the SBIR program for financing. Through the SBIR program, your business can qualify for grants from government agencies looking to promote and facilitate the commercialization of research in these particular fields.

Small Business Technology Transfer (STTR) Program: Similar to the SBIR program, the STTR program offers grants for small businesses and nonprofit organizations involved in research and development within the fields of science and technology. Again, although these might not be SBA loans for startups, if you can qualify for one of these competitive grants, you won’t have to worry about interest or paying back the funding.

We are here to help StartUp businesses become the best versions of a company

Standard Interest Rates or Cost

Rates Starting at Prime
Plus+ or Libor +1

Typical Underwriting TimeLine

2–6 Weeks Depending
on the product

Available Capital Limit

25k—$1mm Depending
on the product

Average Term Limits

1 to up to 10 Years

In closing, Startups are generally seen as riskier investments for banks and non-bank lenders. On average 50% of small businesses fail within the first five years. SBA has put different loan programs in the marketplace to minimize the risk to lenders, so lenders working with the SBA are more likely to lend capital to riskier StartUps. New Companies are the driving force of innovation and new models of service in the marketplace.

Whether the company will become the next mainstreet favorite location for an American community or the next Fortune 500 company to dominate a marketspace. We are here to help StartUp businesses become the best versions of a company that they choose to be by utilizing the SBA Loan Programs for StartUps.

Troy Business Group is a Full-Service financing firm that specializes in working capital solutions focused on SBA Loans for StartUps. Our team works with businesses across all industries to help them capitalize on the values trapped in their fixed-assets to obtain the best funding terms for their company on the market place.

Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with SBA StartUp loan Programs, and will guide you through the process each step of the way.

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