Here is all the information you need to know about obtaining and repaying an SBA loan if you’re interested.
A Simple Guide to SBA Loans
The United States has approximately 30.2 million small businesses. In fact, 99.9% of all businesses across the US are considered small businesses. 47.5% of Americans have employment by small businesses across the country.
Small businesses are the backbone of the US economy, and their continued success is crucial. However, in order for small businesses to succeed, they must have the money to run and expand their operations.
The Small Business Administration (SBA) provides a range of SBA loans to meet the particular needs of small businesses, making it possible for them to obtain the money they require to continue operating and expand as well.
Continue reading to discover more about the various SBA loan types.
What Is an SBA Loan?
Let’s begin by comprehending how an SBA loan functions. You don’t go to the Small Business Administration directly if you want an SBA loan.
As an alternative, you would apply for the loan at a bank or credit union. To find out if the SBA will support the loan, the lender would contact the SBA. This indicates that if you were to default on the loan, the SBA would provide the lender with government backing to secure the loan. Given that they know it is backed, this makes lending easier for the lender. However, you must sign a personal guarantee promising the lender and the SBA that you will personally repay the loan in the event that your company fails.
Since 20% of small businesses fail in the first year of business and 30% after the second year, this backing is important. It also means these loans require a little more effort to get and some personal collateral from the borrower.
Depending on the type of loan, the length of time for repayment of SBA loans varies. Depending on your reasons for needing the money or your plans for using it for your business, the SBA offers a variety of different types of loans. Let’s examine the various loan types in more detail.
The most popular and well-known SBA loan option is the 7(a) loan. A small business may borrow up to $5 million with an SBA 7(a) loan. The purpose for which you intend to use the loan will determine how long you have to pay it back.
You may have up to 25 years to repay a real estate loan. You have up to 10 years to pay back a loan for inventory, working capital, or equipment.
Based on the borrower’s credit score and credit history, these loans and their terms are determined. To be eligible, you probably need to have a credit score that is on average 640 or higher.
The SBA requires collateral to get approved too. They frequently have the right to demand a down payment equal to 10% of the loan amount as security.
The SBA 7(a) loan has the advantage of being flexible in how it can be used. Uses might include:
The lender will be the one to set the interest rate you pay on the loan. This will be based on the prime rate and can be fixed or variable. The SBA, though, does put limits for the maximum rate that can get charged for their backed loans.
The 7(a) loan is the umbrella term for the SBA Express loan. One thing to be aware of with SBA loans is that they can take some time to obtain. The SBA Express loan addresses that issue. It could be finished in as little as 36 hours.
You should be aware that you must still work with a traditional lender, who will conduct your underwriting. Additionally, the SBA will only back 50% of the amount of the Express loan.
You can borrow up to $350,000 from this loan. If you take out a loan, your repayment period will be shorter, up to 7 years for this credit line. It serves the same functions as the standard SBA 7(a) loan.
SBA Community Advantage 7(a) Loan
The SBA 7(a) umbrella also includes the Community Advantage loan. The SBA will guarantee up to 85% of the loan up to $250,000, allowing the small business to borrow between $50,000 and $250,000.
For this loan, the interest rates are typically a little higher. It is frequently the Prime rate plus about 6%, making the loan’s interest rate typically between 7% and 10%. For this type of loan, small businesses have seven to ten years to repay the debt.
The good news is that, like the Express loan, this one can be obtained more quickly than the standard SBA 7(a) loan after applying.
Businesses can obtain a line of credit through SBA CAPLine loans. The goal is to assist a small business with potential cash flow problems.
This might be a seasonal line of credit needed. They might also need to pay for materials before they can get payment from their customer. The SBA CAPLine provides the needed access to cash flow. A small business can borrow up to $5 million through this type of SBA loan.
There are four different options for CAPLine loans. Lets take a closer look at them.
Small businesses can finance contracts, purchase orders, or subcontracts with the aid of this kind of CAPLine loan. The loan can get used for:
This gives a company enough time to finish a job and get paid while still paying bills.
Seasonal Lines of Credit
The purpose of this loan is to assist seasonal small businesses. It enables the small business to pay bills for inventory, accounts receivable, and occasionally labor costs during seasonal work.
However, you should be aware that a small business cannot use this type of loan to continue operating during the off-season.
Builder Lines of Credit
Builders and contractors only are eligible for this line of credit. It allows them to access a line of credit for:
A builder or contractor may occasionally use this line of credit for the purchase of land. The amount of the loan that may be used for this purpose is subject to limitations.
Working Capital Lines of Credit
This credit line is meant to serve as working capital for operational expenses. You must meet the same requirements as the standard SBA 7(a) loan in order to be eligible for this line of credit, as well as demonstrate that you have accounts receivable. This demonstrates to the SBA that you can anticipate financial inflow into your business. Additionally, you must demonstrate that your company has inventory as assets.
The development of real estate for small businesses is the purpose of the CDC/504 SBA loan. CDC stands for Certified Development Company. You actually need to receive approval from the bank and a Certified Development Company in order to be eligible for this type of loan.
Rates, terms, fees, and loan limits will vary depending on which of the two lenders you borrow from. They together make up the CDC/504 SBA loan terms.
The purpose of these loans is to assist businesses in purchasing existing commercial or industrial real estate. Additionally, you can use the loan to upgrade a plot of land or buy a lot. Additionally, the SBA permits this loan for the renovation of an existing structure or for the purchase of durable equipment for the business.
Small businesses can apply for a smaller loan through the SBA Microloan program for operational purposes. The loans can be obtained for up to $50,000 with a maximum 6-year repayment period. This kind of loan typically has an interest rate between 8% and 13% and necessitates a credit score of at least 640.
Microloans can get used for:
This kind of loan is designed to help start-up non-profit organizations and small businesses.
This type of SBA loan is distinct from all the others because a small business would apply for it directly with the SBA. Small businesses that are affected by calamities like a tornado, hurricane, fire, or drought are supposed to benefit from it.
Depending on its needs, a small business may submit multiple disaster loan applications at once. A small business would have up to 30 years to repay a loan of up to $2 million.
To assist small businesses in surviving the effects of the Covid-19 pandemic, there are several options. For instance, the Paycheck Protection Program, a forgivable loan, enables businesses to cover their payroll even when they are closed.
The SBA is offering some other forms of relief too, including help for restaurants and debt forgiveness. Visit their website for more specific details.
SBA Loans for Your Small Business
Small businesses can apply for SBA loans to help them with their financial needs so they can thrive and even expand. Because small businesses have such a wide range of needs, the SBA offers a wide variety of SBA loans.
We can assist if you would like more information on SBA loans or, more specifically, on repaying SBA loans. Contact us today to discuss your SBA loan needs.
Why Hire Us to Help You with Your Treasury or SBA Debt Problems?
Without our clients declaring bankruptcy or having their homes foreclosed upon, millions of dollars in SBA debts were settled through offers in compromise and negotiated repayment agreements.
AWG Hearings, Treasury Offset Program Resolution, Cross-Servicing Disputes, Private Collection Agency Representation, Compromise Offers, and Negotiated Repayment Agreements have all been used to defend against millions of dollars in Treasury Debts.
Our attorneys are permitted to represent federal debtors across the country before the SBA, the SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service under the Agency Practice Act.
$300,000 SBA 7A LOAN – SBA OIC TERM SETTLEMENT
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their home as additional collateral. Acceptance of the SBA OIC for $87,000 included full release of the mortgage lien.
$750,000 SBA 504 LOAN – NEGOTIATED TERM REPAYMENT AGREEMENT
Clients personally guaranteed SBA 504 loan balance of $750,000. Additionally, clients pledged their homes and the company’s inventory and equipment. Clients had consented to a voluntary home sale to reduce the balance. We intervened and rejected the proposed home sale. Instead, we negotiated the release of the mortgage lien and a reasonable term repayment agreement.
$1,200,000 SBA 7A LOAN – SBA OHA LITIGATION
An SBA 7(a) loan was personally guaranteed by the client to support a relative’s new business venture. Following the failure of the company, Treasury was able to obtain a Treasury Offset Program (TOP) levy against our client’s monthly Social Security benefits on the grounds that he allegedly owed more than $1. 2 million dollars. When we prepared and submitted an appeals petition to the SBA Office of Hearings and Appeals (SBA OHA), we had initially submitted a Cross-Servicing Dispute. Through our efforts, we were successful in persuading the SBA to not only cancel the $1 claimed debt 2 million against our client (without requiring him to file for bankruptcy), as well as reimburse the past recurring sums deducted from his Social Security benefits due to the TOP levy.
FAQ
Do SBA loans have to be paid back?
Key Takeaways. Small businesses can grow their operations with SBA loans for long- or short-term capital, asset purchases, or startup costs. Small businesses are required to repay loans from SBA partner lenders that they receive.
How hard is it to get a loan from SBA?
When compared to other business loans, the SBA loan application process is the most challenging. This is true due to the extensive length of the application and underwriting processes as well as the eligibility requirements.
How much do you pay back on a SBA loan?
Due to the COVID-19 crisis, an SBA EIDL loan has a 30 year repayment period and a 3 percent interest rate. 75% (or 2. 75% for non-profits. Currently, there is no loan forgiveness available for these loans; they must be repaid.
How much money do I need for SBA loan?
For its well-known loan programs, the Small Business Administration (SBA) requires a down payment. The down payment for an SBA loan for business owners should range from 10% to 30%; the exact amount can change depending on the loan type and the borrower’s qualifications. Some SBA loan programs require no down payment at all.