SBA loans are loans provided through the Small Business Association. The SBA is a government agency focused on assisting small businesses in America acquire funds in order to increase growth and business. In recognition of the importance of small businesses to the American economoy (an estimated 99% of businesses in America are considered “small”) the U.S. Small Business Administration was formed to growth, improve, and ensure the future success of our nation by providing support and resources to small business owners and entrepreneurs that are keeping the American dream alive nationwide. With that being said, SBA Loans have been approved by the Small Business Administration and the SBA is providing the guarantee with a co-sponsored institutional lending source. The SBA guarantees some of the funds being lent, with a co-sponsored institutional lending source guaranteeing the remained. This joint agreement provides the complete amount of the loan providing assistance, together, to the small business owner.
It is a common occurrence for the SBA to guarantee a larger portion of the amount being lent, lowering the risk that the lender may have previously assessed. The SBA offers 3 different types of SBA Loans. The 3 different types of SBA Loans are SBA 7(a), SBA 504, and SBA Express Loans. Each type of sba loans has it's own specific purpose, all having differents term lengths, rates and installment payments. Whatever type of SBA loans product chosen depends on individual and specific requirements you have for your business. Who qualifies?
Unsecured Business Loans are for established companies showing a profit, stable credit profile and can show financial stability to repay this loan. If you have been in business at least 2 years, with above average credit (630+) and can provide 2 years business & personal tax returns, you may qualify. Please note, bankruptcies must be discharged for at least 2 years and tax liens must be on a payment plan.
Why Choose Sba Loans?
Compared to traditional bank loans, SBA loans are easier to obtain. Unfortunately, along with traditional bank loans, small business administration loans are much more paperwork intensive, take up to 60 days to fund, and have a much higher rejection rate than other alternative lenders online. This being said, small business administration loans are some of the most desired financing products for small benefits because of the plethora of benefits they provide. Term lengths and prime interest rates are nearly identical to institutionalized bank sources even if you may have been recently declined by your local bank. The U.S. Small Business Administration incentivizes the loan to the banks in your favor using their guarantee which encourages the lenders to provide you with a better term and rate. Doing this also provides the lender with security being an opportunistic business venture on their part as well. SBA Loans are on monthly payment structures, carry fixed interest rates, term lengths up to 30 years, and provide excellent assistance with improving one's overall credit profile so that you can work towards your goal of obtaining a loan from the bank.
SBA 7(a) Loans
SBA 7(a) loans are considered to be some of the most efficient and effective loans on the alternative lending market. These loans have bank quality rates and terms, and have virtually no restriction put on the usage of the funds. As long as the money is going for business purposes no restrictions are placed upon the business owner. This includes, but is not limited to, business acquisition, costs for a startup/franchise, refinancing of existing loans, equipment purchases, and a countless other business related needs. Because of the unparalleled flexibility of SBA 7(a) loans, these small business administration loans are the most common seen on the market. SBA 7(a) loans were originally intended to provide specific industries with assistance in the form of financial assistance. The Small Business Administration 7(a) program is built of a few different subsidiary programs:
- Export Loan Program
- Rural Business Loan Program
- Express & Pilot Programs
- Special Purpose Loans Program
The intention behind this loan product was to assist businesses with unique requirements meet their financial needs. SBA 7(a) loans are now available to nearly all types of businesses, and serve a vital role in sparking economic growth by committing more capital to small businesses and entrepreneurs in underserved communities.SBA 7(a) loans can range between $50,000-$5,000,000, with a loan term that ranges from 10 to 25 years depending on what the loan will be used for, along with other details. Also, your loan will be repaid monthly.
SBA 504 Loans
For all intents and purposes, SBA 504 loans are just like SBA 7(a) loans, only optimized around real estate. Because of this, SBA 504 loans are limited to real estate only. However, they are some of the best loans on the market when it comes to acquiring major fixed assets, expanding, or modernizing your current business property. For example, SBA 504 loans allows you to finance up to 90% of the appraised property value, or 100% of the outstanding principal, whichever is lower. They will also include eligible refinancing costs.There are a few eligibility requirements for this kind of loan however:
- Your business must operate for profit
- Your business must meet fit and size guidelines set by the SBA for the 504 program
- Tangible net worth can’t exceed $7.5 million
- Net income can’t exceed $2.5 million after taxes
- 504 loans can’t be given to businesses that speculate
- 504 loans can’t be given to businesses that invest in rental real estate
SBA 504 loans can range between $50,000-5,000,000. The loan term is also 20 years, to be repaid in monthly payments.
SBA Express Loans
In the same way the SBA 504 loans are basically an SBA 7(a) loan optimized for real estate, an SBA Express loan is the SBA loan fine-tuned for speed and efficiency. Typically, the more expediently a loan is processed, the worse the terms and rates, and the less desireable the lender. SBA Express loans function to offer funding for businesses that require fast financing while still providing bank-like rates and terms.In order to decrease approval time, the maximum amount of the loan is reduced, and the usage is limited to financing equipment, debt consolidation, and increasing working capital. Here are some good facts to know about SBA Express loans:
- Can be pre-approved in less than 2 days
- Maximum loan amount of $350,000
- Maximum SBA guarantee is 50%
- Interest rate is negotiable between borrower and lender
- Rates can be variable or fixed, tied to a prime rate, LIBOR, or the optional peg rate
- Rates may not surpass SBA’s maximum rates
- Lenders are not required to take collateral for loans up to $25,000
Additionally, you can get an SBA Express loan from as little as $5,000 up to $350,000, and the loan term is typically 10 years, repaid in monthly payments.
Getting Sba Loans
Step 1- Application
The first stage in your loan approval process involves meeting your SBA lender and giving him or her enough information to assess your loan application for a pre-approval letter. Items you’ll want to have with you include (but are not limited to)
- Business and personal financial statements
- Business and personal tax returns for the last three years
- Completed application outlining how the proceeds will be used
- Signed authorization for background and credit checks
- Resumes for your primary managers and your owners
- You can use AMP Advance’s platform to connect with lenders that offer these long-term, low-interest loans. In order to expedite the process, follow the SBA’s recommended business plan outline. This will likely save you further questions and time down the line.
Step 2- Approval
Time to approval always varies from one small business to another based on the loan type being applied for. Once the completed sba loans package is complete an approval will come through sooner than you think. Generally, the time frame of the entire process, start to finish, takes thirty to sixty days, dependant on the overall complexity of the loan you are trying to secure. If an SBA approval is secured, a proposal will be presented to you. Apply to multiple lenders no matter if you have received an offer yet or not. Some lenders can take up to six weeks to even respond with a decline so due your due diligence and protect your best interests at all times.
Step 3- Underwriting
Now the process of underwriting will occur once you have accepted the offer that has been provided to you. For SBA Loans this process is comprised of the collection of necessary financial documents, a complete analysis of the small business' financials, and an official decline reason or approval will be provided in response to your application. Try to provide an adequate down payment in order to improve your chances of securing an offer for a small business administration loan. The normal down payment requested on the market is on average 10 percent. Mitigating the lender's risk with an increased down payment amount or providing a personal guarantee or collateral, small businesses succeed with receiving their small business administration loan quicker and with fewer instances of denial.
Step 4- Closing
During the final step, the closing, details are put onto a contract and the contract is executed including all fees and handling charges. The length of the closing process is directly correlated by the overall complexity of the contract. SBA Loans as little as $150,000 take as long as 30 days from the submission of the application to the date of the transfer of funds and can sometimes take even longer. The length of the process is dependant upon the small business owner's speed of correspondence, as well as the length of the lender's due diligence process.
If you choose to work with AMP for your SBA Loans needs we make it our duty to advance you from application to funding as quickly as possible, regardless of the loan size. Keep in mind that each loan is different, and yours may be difficult or complicated. However, our funding managers know exactly what is required to expedite the SBA loan process, and will help you every step of the way to ensure your funds are processed and received as fast as possible.