Published December 22, 2021 by WC Team

SBA Loans: Find Financing For Your Business

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Starting a business takes money. One of the first and most significant financial decisions most business entrepreneurs make is how to fund their venture. How you choose to fund your business may have an impact on how you structure and operate it.

What is an SBA Loan?

SBA loans are business loans that are partially insured by the Small Business Administration of the United States. 

The government guarantee reduces the risk for banks. Allowing them to lend to small business owners who would not otherwise qualify for a regular bank loan.

SBA loans have low-interest rates and extended payback terms. Making them one of the most popular company financing options available. They are, however, often slower to fund and need a long application.

The three primary SBA loan programs CDC/504, microloan and 7(a) allow you to take loans for almost any company purpose. Including inventory or equipment purchases, debt refinancing, working capital and real estate purchases.

SBA 7(a) Loan Details

The SBA 7(a) loan program is the most popular of all SBA loan programs. This is because the money can be used for various company activities. 

SBA 7(a) loans in quantities up to $5 million are available in various forms including SBA Express loans and CAPLines credit lines.

Interest rates for SBA 7(a) loans are either fixed or variable (usually modified quarterly). Your bank's lender chooses which to provide.

Your interest rate is determined by your credit score as well as the duration of your repayment period. The SBA limits the amount of profit a bank may make from an SBA loan to safeguard borrowers.

Monthly payments for real estate might be expected for up to 25 years. While payments for equipment and working capital can be expected for up to 10 years.

On 7(a) loans the guarantee fee ranges from 0.25 percent to 3.5 percent of the loan's guaranteed component up to $1 million. Plus, 3.75 percent of the loan's guaranteed share exceeding $1 million. 

Be advised that your guarantee charge may be included in the loan's overall cost. Depending on the banks you interact with certain linked banks may also charge an origination fee or a loan packaging fee.

Monthly payments for real estate might be expected for up to 25 years while payments for equipment and working capital can be expected for up to 10 years.

On 7(a) loans the guarantee fee ranges from 0.25 percent to 3.5 percent of the loan's guaranteed component up to $1 million. Plus, 3.75 percent of the loan's guaranteed share exceeding $1 million. 

Be advised that your guarantee charge may be included in the loan's overall cost. Depending on the banks you interact with certain linked banks may also charge an origination fee or a loan packaging fee.

The Top SBA Lenders

First Home Bank

a top-15 SBA lending partner First Home Bank provides SBA 7(a) loans. You may get some of the finest rates and conditions on any company financing product on the market with these SBA loans. 

First Home SBA loans can be utilized for several reasons and can meet various long-term financial requirements. 

However, to qualify for an SBA loan from First Home Bank you must fulfill stringent conditions. As a result, these loans are best suited for established firms with excellent financials.

Cadence Bank

Cadence Bank is a preferred SBA lending partner that provides SBA 7(a) loans. Cadence Bank can provide SBA loans at some of the most competitive rates and terms available. 

These loans may be used for several reasons and are ideal for both young and existing highly qualified firms seeking long-term finance.

Temporary SBA Loan Program Updates

SBA temporarily raised the maximum amount for a loan under the SBA Loan Program from $350k to $1million for loans granted.

Effective from the first day of January 2021, the maximum loan amount under the SBA Express Loan Program will automatically return to $350k. 

It is crucial to note that this temporary increase in the maximum loan amount for SBA Express loans does not apply to Export Express loans (Section 7(a)(34) of the Small Business Act). Which continue to have a maximum loan limit of $500k.

SBA Loan Types

There are various SBA loan programs available with the following three being the most popular:

Your firm's size, age and goals determine the SBA loan program you should apply for.

SBA Microloan Program

An SBA microloan is a loan of up to $50,000 made by a nonprofit intermediary to a small business or startup owner. The money comes from the SBA which loans it to the middleman at a low-interest rate at first.

Businesses can use SBA microloans for various purposes. Including working capital as well as the purchase of equipment, machinery or supplies.

The interest rate on the microloan is decided by the institution you deal with based on your creditworthiness and the details of your small business. Rates often vary between 8% and 13%.

An SBA microloan has a maximum payback duration of six years. Microloans do not have any fees attached to them.

How To Apply For An SBA Loan

The SBA loan application procedure can be time-consuming and complex. 

Documents such as financial accounts, information on your collateral, a description of your firm and a declaration of how you intend to use the loan funds among others will be required. 

The following is a comprehensive list of loan paperwork that you may require:

• A business plan

• A driving licence 

• Bank statements

• A void business check

• The balance sheet

• Tax returns for businesses

• Profit-and-loss statements

• Individual tax returns

• Business debt repayment plan

The participating bank will search for candidates with strong credit, a sound business plan, successful enterprises and a proven capacity to repay the loan.

Remember though that your borrowing history is extremely relevant to the bank with whom you are negotiating an SBA loan.

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