What is an SBA Loan?
You might have heard SBA loans are the gold standard for small business owners who want to expand. It’s true. Funds from these loans can be used in a multitude of ways to help a small business grow.
What exactly is an SBA loan? We’ll go over the costs, qualifications, use of proceeds and more to help you determine if this type of loan is the best option to fund your small business.
SBA Loans: The Basics
An SBA loan is a government-guaranteed small business loan that has a long-term and low-interest rates. The Small Business Administration (SBA) is the government agency that partially guarantees SBA loans and was founded in 1953 to support small business owners across the United States.
The most common misunderstanding about these loans is that the agency lends money directly to small businesses. However, the agency does not make direct loans. The SBA provides a guarantee on the loan, promising to reimburse the bank for a certain percentage of your loan if you default on that loan. This guarantee lowers the risks to banks and other lenders, encouraging them to offer these loans to more American small businesses. Many banks and other financial institutions offer SBA loans, but their process, requirements and fees can vary.
Now for the good stuff: How much is an SBA loan going to cost you? The news here is positive – it’s tough to beat the low interest rates and long repayment terms for these loans. SBA loans tend to be the least expensive financing available to small business owners.
SBA loans come with different rates depending on the lender you work with; however, the SBA establishes the maximum amount that can be charged for these loans. SmartBiz SBA loan interest rates are variable and depend on the loan amount:
6.00% to 7.25% (Prime Rate plus 1.50% to 2.75%) for commercial real estate loans $500,000 – $5 million
7.25% to 8.25% (Prime Rate plus 2.75% to 3.75%) for loans $30,000 – $350,000
As with other types of small business loans, there are several fees associated with SmartBiz SBA working capital loans. SmartBiz charges a one-time referral fee of no more than 2% the loan amount and a one-time packaging fee of no more than 2% the loan amount for non-commercial real estate loans. For working capital loans between $150,000 and $350,000 there is a 2.25% guarantee fee paid to the SBA. Bank closing costs for working capital loans typically add about another $450 and include standard bank fees, though additional 3rd party report charges may apply. SmartBiz fees are deducted from loan proceeds so you get the net amount when your SBA loan is funded.
For commercial real estate loans, SmartBiz charges no more than a one-time 0.5% referral fee of the loan amount and no more than a one-time 0.5% packaging fee of the loan amount. Commercial real estate loans have a guarantee fee paid to the SBA between 2.25% and 2.76%, depending on the loan amount. Bank closing costs typically add about another $5,000 and include standard bank fees, appraisal, and title fees though additional 3rd party report charges may apply. SmartBiz fees are usually deducted from loan proceeds so you get the net amount when your loan is funded.
How can you use SBA loan proceeds to save money and grow your small business?
Commercial Real Estate (CRE)
Inventory and Operational Expense
In the not-so-distant past, small business owners had one option when looking to secure an SBA loan – walking into a bank. However, many businesses might not know that while one bank may say ‘no’, another bank will say ‘yes’ to the same potential borrower. Technology now gives loan-seekers the ability to find an SBA loan provider online that is a good fit. In fact, SmartBiz has created the first online marketplace of Preferred SBA lenders for small businesses. With multiple banks with varying credit requirements on our platform, we’ve been able to secure loans for many applicants who were initially rejected by their local banks. What’s our secret? It’s no mystery – our sophisticated software allows us to match borrowers with the bank most likely to approve and fund their loan. Don’t waste your time going from bank to bank. SmartBiz does it for you quickly and efficiently.
Application Criteria for a SmartBiz SBA loan of up to $350,000 are:
1. Time in Business: 2+ Years
2. Business owners must be U.S. citizens or legal permanent residents
3. Business owners must have personal credit scores above 650
4. Cash Flow: Sufficient business and personal cash flow to service all debt payments demonstrated by tax returns and interim financial data
5. Public Records: No bankruptcies or foreclosures in the past 3 years; no outstanding collections; no open tax liens
6. SBA Specific Requirements: no delinquencies and/or default on government loans
The eligibility requirements for an SBA commercial real estate loan above $500,000 are:
1. The real estate must be majority owner-occupied. This means at least 51% of the square footage of the property you’re buying or refinancing must be occupied by and used by your business.
2. Time in Business: 2+ Years
3. Business owners must be U.S. citizens or legal permanent residents
4. Business owners must have personal credit scores above 660
5. Cash Flow: Sufficient business and personal cash flow to service all debt payments demonstrated by tax returns and interim financial data
6. Public Records: No bankruptcies or foreclosures in the past 3 years; no outstanding collections; no open tax liens
7. SBA Specific Requirements: no delinquencies and/or default on government loans
8. The rent replacement option requires a loan payment that does not exceed the current monthly lease expense
Min Loan Amount $30,000
Max. Loan Amount $5,000,000
Min APR From 6.36%
Minimum Loan Term 10 years
Maximum Loan Term 25 years
417 Montgomery Street
San Francisco, CA 94104
1(866)283 87 26