For companies throughout the nation, SBA loans are a major source of capital. Rather, it guarantees a proportion of every SBA-backed loan authorized by a third-party lender, therefore facilitating firms’ access to credit. Borrowers of an SBA loan must fulfill SBA Loan Requirements.
SBA Loan Requirements
Setting policies for loans and lowering lender risk helps the U.S. Small Business Administration (SBA) assist small firms in securing capital. Any SBA loan qualifies for you only if you satisfy certain requirements.
An SBA loan asks you to:
- Formally registered and legally operating, you are a for-profit business.
- Either physically be in the United States or one of its territories.
- Invest time and/or money personally by the business owner in the company.
- See the size criteria of the SBA: Your company has to be classified as a “small” firm depending on average annual sales or average workforce.
- Not getting money from any other financial institutions.
- Depending on the expected running cash flow of your company, be able to pay back the loan.
As the owner of the company, you also have to fulfill certain criteria about your management abilities and moral integrity, which include having:
- A realistic company strategy.
- Essential knowledge of necessary management and success-oriented dedication.
- A personal statement proving you to be a law-abiding individual with an excellent reputation and past debt repayment history.
SBA loans are not available to several kinds of companies, including:
- Companies in real estate investing.
- Commercial enterprises engaged in speculative activities, futures trading, or wildcatting for oil.
- Pyramid sales techniques.
- Within the realm of gaming enterprises are racetracks and casinos.
- Not-for-profit, religious, or charitable organizations; as well as non-profit dealers of rare coins or stamps.
- Any enterprise involved in criminal activities or if the proprietor is currently on parole.
Usually depending on the lender and the kind of loan, SBA loans are authorized in 30 to 90 days and up to six months. Approval of SBA Express loans takes 36 hours.
SBA Loan Max Rate
The most 7(a) loans allowed are $5 million, maximum. However the maximum loan amounts for 7(a) loans granted via SBA Express and Export Express delivery systems are $500,000. The highest exposure SBA offers, that is, funds guaranteed, is $3.75 million.
The highest guarantee for 7(a) International Trade loans, however, is 90% or $4.5 million. Combining any other outstanding 7(a) loan with the guaranteed working capital for the International Trade loan cannot total more than $4 million.
Variable 7(a) loans have maximum interest rates shown below:
| Loan amount | Max rate |
| $50,000 or less | Base rate plus 6.5% |
| $50,001 to $250,000 | Base rate plus 6.0% |
| $250,001 to $350,000 | Base rate plus 4.5% |
| Greater than $350,000 | Base rate plus 3.0% |
For most 7(a) lending programs, SBA insures up to 85% of loans of $150,000 or less and up to 75% of loans beyond $150,000. On SBA Express loans, nevertheless, SBA offers a 50% assurance. For Export Express, Export Working Capital Program (EWCP), and International Trade loans SBA offers a 90% assurance.
How to apply for an SBA loan?
Applying for an SBA loan requires these actions:
- Make sure your company satisfies SBA criteria that is, that it is a for-profit company, satisfies size criteria, and has a strong credit record.
- Based on your company’s requirements, choose a suitable SBA loan program such as 7(a), 504, or Microloan.
- Obtain personal and business credit reports, tax records, a draft business plan, and financial statements, along with other essential documentation.
- Find a lender, that may be banks, credit unions, internet lenders, or any other entities engaged in SBA lending programs.
- Compile the necessary corroborating information and documentation to finalize the lender’s application form.
- The lender looks over your application and may want further details.
- Once accepted, your company receives loan money.
SBA Loan Types
SBA lending programs mostly fall into three main categories:
Standard 7(a) Loan
- Standard 7(a) loans may be used for everything from buying real estate to repaying debt to equipment purchase to company expansion. Lenders point up lending perks include cheap down payments and appealing interest rates.
- For a conventional 7(a) loan, the maximum allowed is $5 million. The SBA offers a normal 7(a) loan guarantee of 85%; for sums more than $150,000, it guarantees 75%.
7(a) Small Loan
- The small loan and the conventional 7(a) loan have a relationship. A 7(a) small loan differs mostly from other loans in that the maximum amount you might borrow is $350,000. Proceeds may be set aside for the same uses as a typical (7a) loan.
- SBA guarantees a 7(a) small loan at 85% for sums below $150,000; it guarantees 75% for quantities more than $150,000.
SBA Express
- Among all SBA loans, SBA Express loans—which are part of the 7(a) lending program—have the shortest approval periods and the simplest application procedure. Designed for uses including refinancing debt, purchasing equipment, or real estate improvement, these loans offer payback terms as long as 25 years One may also utilize the loan as a line of credit.
- An SBA Express loan has a maximum amount of $500, 000. SBA guarantees half of an Express loan.
SBA Microloans
- Targeting lower credit score entrepreneurs including veterans, women, minorities, and startup owners, SBA microloans help small businesses and select nonprofit childcare facilities rebuild, reopen, repair, or improve their operations. From profits, one may pay for items such as working capital, supplies, furniture, and machines.
- The maximum value of a microloan is $50,000. The average microloan is around $13,000. Usually, interests run between 8% and 13%.
504 Loans
- 504 loans are handled by SVA-licensed certified development corporations (CDCs). The greatest amount available, according to the kind of business or project, is either $5 million or $5.5 million.
- The revenues of a 504 loan might include real estate, heavy equipment, and fixed assets.