SBA Loans To Grow Your Small Business
These low interest, longer-term loans
will help you expand your business
and take it to new heights.
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What are SBA 7(a) Loans?
The SBA 7(a) Loan Program derives from section 7(a) of the Small Business Act of 1953, which allows the U.S. Small Business Administration to provide loan guarantees to bank and non-bank lenders that finance U.S Small and Mid-Sized Businesses.
The partial loan guarantees can range from 50% to 85% of the loan amount, depending on the debtor’s qualifications and size of the loan.
The SBA 7(a) loan program may be used for such business purposes as short term working capital, long term financing, purchasing land or commercial real estate, equipment, machinery, the purchase of an existing business and for refinancing existing debts The SBA 7(a) loan program is the most popular of all the SBA loan guaranty programs.
WHAT COMPANIES COULD USE THE SBA 7(a) LOAN PROGRAM?
The majority of for-profit businesses could utilize the SBA 7(a) Loan program except for companies that engage in illegal activities or gambling, lending companies, pyramid sales companies, non-profit organizations and speculative businesses (i.e., real estate investment firms and cryptocurrency/rare coins/stamp dealers)
HOW DOES A SBA 7(a) LOAN WORK?
As mentioned earlier, SBA 7(a) Loans are funded by a bank or Non-Bank Lender. Once a business loan of up to $5 million is approved, the SBA 7(a) loans program applies a partial guarantee that ranges from 50% to 85% of the loan amount. The exact percentage will depend on the size of the loan and the borrower’s qualifications.
The maximum loan guarantee allowed under the program is 85% for loans up to $150,000 and 75% for loans greater than $150,000. Interest rates on loans in the 7(a) program are based on the prime rate, the size of the loan, and the maturity of the loan.
The SBA sets a maximum interest rate for the program of 11%, but business and their lender can negotiate within that limit. The average SBA (7a) loan program interest rate in recent years was the market prime rate plus 2.25%. The loans come with some of the most extended terms in the commercial loans market.
For loans in the SBA 7(a) program, lenders aren’t required to take collateral for loans below $25,000. For loans above $25,000, the SBA generally requires 20% collateral. The terms for loans for working capital, purchase of equipment, or for inventory can go up to 10 years. The terms on loans to purchase commercial real estate can go all the way up to 25 years.
Upon funding, generally, the lender collects any required collateral and will work along the side of the SBA to service the financing. The payments for the SBA 7(a) loan will be monthly for the set term.
What are the Benefits of the SBA 7(a) Loans Program?
The SBA 7(a) loan guarantees 50% to up 85% of the loan amount, ultimately motivating banks to extend lending to small businesses, riskier companies, or start-ups. By lowering the lender’s risk in case of a risky borrower for one reason or another default on loan.
The SBA 7(a) loans can be combined with other forms of small business financing to help you reach your funding needs. For example, company owners could use the 401(k) business funding program to pull money from their retirement accounts to cover a down payment of the requirement of the 7(a) loan program.
Collateral Requirements Are Not Very Strict Depending on Loan size.
SBA does not usually decline applications solely based on insufficient collateral since the Banks and non-bank lenders do not always require collateral on SBA 7(a) Loan Program.
Longer payment terms conventional loans max out at five years in term. SBA 7(a) Loan terms can go up to 10 years for working capital and equipment and up to 25 years for the purchase of the commercial real estate.
What are the SBA 7(a) Loan Program Eligibility Requirements?
- Must be a legally operated for-profit business.
- Companies must be in business for at least two years.
A business must be physically based in the United States, and it must be doing business with the U.S. and its territories.
- Majority owners are applying to need a min credit score – preferably above 680. The business owners can’t be on parole.
A company with no recent bankruptcies, foreclosures, or tax liens.|
A business must have fewer than 500 employees, and less than $7.5 million revenue on average each year for the past three years
- With the net income that is under $5 million (after taxes and not counting carry-over losses), and your tangible net worth must be less than $15 million.
- No Absentee owner-operators all the majority shareholders of the company must be investing their own time and money into the business, having (“invested equity”).
Owners need to show that they thoroughly exhausted all other financing options before seeking an SBA loan.
- A business plan or strategic action plan that showcases the owners have the resources to invest their assets in the business and to detail the intended use of funds is for a sound business purpose that will lead to the repayment of the loan.
The business and its owners are not delinquent on any existing debts to the U.S. government (taxes, student loans).
In addition to the eligibility requirements, there are also collateral requirements for the SBA 7(a) loan program
What are the SBA 7(a) LOAN PROGRAMS COLLATERAL REQUIREMENTS?
While the SBA guarantees a large percentage of an SBA 7(a) loan, a lender is still on the line for the remaining percent. Offering collateral for the loan instills confidence with the lender of the chances to recoup the capital. In the event, a borrower defaults on the funding. Generally, a lender prefers that the owners offer something like equipment, real estate, or other high-value assets as collateral if needed. If the business has sufficient cash flow, the SBA won’t be as concerned with collateral requirements. The collateral provided is split between the SBA and the lender.
- The business must have the ability to provide collateral for loan requests over $25,000.
- The ability to make a down payment of 10% if the intended use of funds is to purchase a business, commercial real estate, or business-related equipment.
Don’t fit the criteria? Don’t worry.
SBA 7(a) loan Program Quick NotesSBA 7(a) Loans are funded by a bank or Non-Bank Lender. Once a business loan of up to $5 million is approved, the SBA 7(a) loans program applies a partial guarantee that ranges from 50% to 85% of the loan amount. The exact percentage will depend on the size of the loan and the borrower’s qualifications. The maximum loan guarantee allowed under the program is 85% for loans up to $150,000 and 75% for loans greater than $150,000.
Up to 25 years
Up to $5,000,000
May be required
0.25 – 3.75%
What are SBA Working Capital Loans?The SBA Working Capital Loan Program uses the SBA 7(a) program guidelines to provide a loan guarantee of up to 85% to bank and non-bank lenders that lend to existing U.S. Businesses. The differences between the SBA Working Capital Loan Program and the SBA 7(a) Loan Program are funding limits. The SBA 7(a) program can finance up to $5mm. Therefore, it can take on average 30 to 45 days to close. With the SBA Working Capital Loan Program, funding is limited to a minimum of $75,000 to a maximum of $150,000 for business operations and can close in under 30 days. The program is meant to provide an underwriting approval or denial result in under 36 hours. The proceeds from these loans can be used for working capital expenses such as rent, utilities, employee wages, and some equipment purchases and inventory.
WHAT COMPANIES COULD USE THE SBA WORKING CAPITAL LOAN PROGRAM?The SBA Working Capital Loan Program could work best for almost all for-profit businesses. For companies that already qualified for the SBA 7(a) Loan Program. For companies that are already up and running but have needs for additional financing for daily operations. Except for companies that engage in illegal activities or gambling, lending companies, pyramid sales companies, non-profit organizations and speculative businesses (i.e., real estate investment firms and cryptocurrency/rare coins/stamp dealers)
HOW DO SBA WORKING CAPITAL LOANS WORK?The SBA Working Capital Loan program will work as a Standard 7(a) Loan Program except for the minimum funding amount allowed, and the maximum funded amount is capped lower than for standard 7(a) loans. The SBA Working Capital Loan program will work with a bank or non-bank lender to provide a loan guarantee of 85% of the loan amount made to only existing U.S. Businesses. As long as the business is not a start-up and the loan amount is between $75,000 and $150,000, a business that already qualified for the SBA 7(a) program can use the SBA Working Capital Loan Program. The program has payment terms that can go out to 3 years. Once the funding is approved and provided to the company, the business owners can use the fund’s expenses like rent, utilities, employee wages, equipment purchases, inventory additions, and other working capital expenses. The payments are monthly for a set term like all other SBA Loan Programs
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What are the Benefits of the SBA Working Capital Loans Program?Can provide a fast loan application response for a borrower with an answer in as little as 36 hours and funding in 30 days or less. Unlike other SBA loans that require 20 – 30 percent down payments and must be secured by personal collateral, Working Capital loans only need 10 percent down and are secured by your business assets. Plus, Working Capital loans can leverage owners’ dormant retirement funds to cover the down payment for a Business Start-up by working in conjunction with Rollovers.
What are the SBA Working Capital Loan Eligibility Requirements?Since SBA Working Capital Loans fall under the SBA 7(a) Program, the majority of the requirements are the same with a few additions listed below. The additional eligibility requirements are stricter when it comes to applying for an SBA Working Capital loan vs. the SBA 7(a). Owners must have at least a 690 minimum FICO credit score The owners and the business should not have had any bankruptcies within the last three years. Set funding Terms: Min funded amount of $75,000 and a maximum funded This Product is intended for existing businesses, yet start-ups for Franchises are eligible. If a company is a start-up that is joining a franchise, then the business must be in operations before funding. Plus, the company must have paid any franchise fees before funding. If the SBA Working Capital Loan Program will be used to purchase a franchise.
- These extra firm guidelines are in place to virtually guarantee that the borrower is able to pay back the loan. Since they have stricter underwriting requirements, the SBA can offer more preferable loan terms for Working Capital loans or other SBA loans.
SBA Working Capital Loan Program Quick NotesSBA Working Capital Loans are best for borrowers whose businesses are already established but need additional capital for daily operations. Funds from these loans are primarily used for working capital expenses such as rent, utilities, employee wages, and some equipment purchases and inventory.
Prime +2.25% to 4.75%
Up to 3 years
Up to $150,000
2.00% – 3.75%
What are SBA CAPLines?
The SBA CAPLines program provides a loan guarantee of up to 85% to a bank or non-bank lender that funds U.S. Companies a fixed or revolving Business Line of Credit. SBA CAPLines of Credit can be used for meeting short-term working capital needs and long term growth ideas.
SBA CAPLines of Credit is secured, meaning the line of credit must be fully collateralized by borrower or company assets. Including but not limited to accounts receivable, purchase orders, inventory, property liens, and other assets. If company assets don’t fully collateralize the loan, this is when the owner(s) will be required to pledge their assets, including up to placing a lien on residential or commercial real estate.
Funding of up to $5 million is available with maximum repayment terms of 10 years. There are four different lines of credit open under this program. Seasonal CAPLines is used for accounts receivable and inventory that increase seasonally. Repayment terms for CAPLines average at five years.
A maximum interest rate of 11% has been set by the SBA. On average, interest rates on SBA CAPLines range from the prime rate plus 2.25% to 4.75%. A one-time guarantee fee between 2% and 3.75% will also be charged, as well as additional expenses similar to other SBA loan programs.