Six Types of SBA Loans: An extensive Overview

You've probably heard that there are several types of SBA loans available when seeking funding for the small business. Although it might take time for you to find the right loan for your business, in reality, it's easy to find the right SBA loan. A helpful guide is below.

What Is an SBA Loan?

SBA loans are small company loans backed through the U.S. Sba (SBA). Though banks typically issue these loans, the SBA guarantees the majority of the money active in the issuance of SBA loans. By doing this, if you can't pay your loan, the SBA stages in to ensure the bank can recoup any unpaid funds. It makes sense a lower-risk lending procedure that incentivizes banks to provide these financing options to high-qualified borrowers.

The Six Kinds of SBA Loans

The six at their peak SBA loan programs are detailed below.

1. SBA 7(a) Loans

SBA 7(a) loans in many cases are regarded as probably the most borrower-friendly business loan. Actually, SBA 7(a) loans are not just much better than every other SBA loan – they're better than non-SBA loans too.

Overview:

Small business people often choose SBA 7(a) loans to pay for working capital, debt refinancing, or real estate purchases. A standard 7(a) loan has low interest and long repayment terms, having the ability to choose from fixed and variable rates of interest. The latter could keep your costs reduced the long term since SBA 7(a) loans are fully amortizing. Which means you pay interest in your remaining principal, not the entire amount borrowed.

Key rates and figures:

• Interest rates: 6.25% – 8.50%
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: 2% to 3.75%
• Loan amounts:
  • $30,000 to $350,000 for capital and debt refinancing
  • $500,000 to $5 million for commercial real estate
• Repayment terms: 10 years, aside from real estate loans (25 years)
• Minimum requirements:
  • Credit score with a minimum of 680 (a minimum of 675 for real estate loans)
  • 10% to 20% deposit (or greater for startups)
  • Collateral
  • At least two years in business
  • U.S.-based, with U.S. citizen ownership
  • Owner a minimum of 21 years old
  • No outstanding tax liens
  • No recent charge-offs or settlements
  • No foreclosures or bankruptcies within the last 3 years
  • Up up to now on government loans

Who it is best for:

SBA 7(a) loans are the most useful choice for any business that qualifies based on the above criteria.

How to apply:

The SBA 7(a) application for the loan process is known to be lengthy, also it requires plenty of paperwork. To apply, you need to first gather your accounting and tax paperwork. A few of the paperwork you might need includes personal and business tax statements, personal financial statements, an account balance sheet, an income and loss statement, and collateral documents.

You also needs to prepare to reply to questions about how the COVID-19 pandemic has affected your company. You need to discuss the changes you've made to support any disruptions and how the pandemic has affected your industry in particular. Next, you need to connect with an SBA loan lender like SmartBiz(R) – mostly of the that won't make you give a business plan.

2. SBA 504 Loans

The SBA 504 program minimizes your financial burden because of the involvement of community development corporations (CDCs). It's a great choice for buying commercial real estate in case your business objectives would clearly benefit your area.

Overview:

If you need funding for a commercial real estate purchase, equipment purchase, or facility modernization, SBA 504 loans could be a great fit. The issuing bank covers 50% of the loan's total, as well as your local CDC will cover 40%. That means you're playing just a 10% down payment in the short term. Your loan comprises the remaining 90%, which you'll want to repay in the long run.

Key rates and figures:

• Interest rates:
  • 3.775% to 3.939% for the CDC portion of the loan (as of March 2022)
  • 4% to 9.5% for that bank part of the loan; the financial institution may change this rate after 5 or 10 years
• CDC fees: 1.5% to 2%
• SBA guarantee fee: 0.5%
  • Loan amounts: $125,000 to $5 million, with rare $5.5 million exceptions for energy-efficient or manufacturing projects
• Repayment terms: 10, 20, or 25 years
• Minimum requirements:
  • U.S.-based for-profit business
  • Tangible net worth under $15 million
  • Average post-tax net gain under $5 million for the 2 yrs prior to your application
  • Business size within SBA guidelines
  • Qualified management expertise
  • Ability to repay the borrowed funds promptly based on cash flow
  • Serviceable business plan
  • Non-passive, non-speculative business activities

Who it's best for:

SBA 504 loans are perfect for qualifying businesses whose real estate or equipment purchase or modernization plans match their local CDC's public policy goals.

How to apply:

The procedure for applying for an SBA 504 loan mostly resembles that of SBA 7(a) loans. However, you will need additional paperwork regarding your real estate or equipment.

3. SBA CAPLines

The SBA offers loans specific to short-term and cyclical working capital needs. These CAPLines loans have to do with four classes of borrowers. Some of them are inherently business lines of credit, whereas others can be revolving or installment loans.

Overview:

The SBA CAPlines program comprises the below four kinds of loans.

• Contract loans. Any contractor or subcontractor who has profitably completed similar contracts can use for funding on a project. The loan proceeds can cover the cost of anything, subcontract, or any related purchase orders.
• Builders lines. Any construction contractor or homebuilder with at least one supervisory employee on-site during construction can be eligible for a this loan. The loan can cover direct construction costs or renovation costs more than the fair market price or one-third from the property purchase price.
• Seasonal lines of credit. Any business with a definite, provable pattern of seasonal activity qualifies with this SBA credit line. Loan proceeds can cover seasonal increases in inventory or a / r.
• Working capital lines of credit. Any business that generates accounts receivable or keeps inventory qualifies with this credit line. Proceeds will go toward short-term operational and working capital needs.

Key rates and figures:

• Interest rates: 2.25% to 4.75% plus current prime rate
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: At most 3.75%
• Ongoing service fee: Up to 2%, with rare exceptions for capital lines
• Loan amounts: Up to $5 million
• Repayment terms: 5 years for contract loans; Ten years for those other loans
• Minimum requirements: Same as SBA 7(a) loans as well as the criteria explained above

Who it is best for:

SBA CAPLines loans are perfect for contractors, subcontractors, seasonal businesses, construction contractors, or homebuilders. They're also well suited for companies that keep inventory or generate a / r. Of these businesses, the ones that need short-term, cyclical capital are the most useful prospective borrowers.

How to apply:

The application is around the same as with an SBA 7(a) loan. In fact, SBA CAPLines loans often come attached to SBA 7(a) or 504 loans. However, businesses in exceptionally good standing may qualify for standalone SBA CAPLines.

4. SBA Export Loans

According towards the SBA, 70 % of U.S. exporting companies comprise groups of under 20 people. SBA's three export loans might help these small businesses – and slightly larger small exporters – expand or develop their operations. They can also help you begin a new export business of your.

Overview:

The SBA Export Loans program comprises the below three loans.

• Export Express Program. Through SBA express loans, small exporters can learn within 36 hours whether they'll receive as much as $500,000 in funding. Proceeds can go toward any activity that develops their exporting capabilities. This loan is available as a credit line or perhaps an installment loan.
• Export Capital Program (EWCP). The EWCP program lends exporters up to $5 million as a credit enhancement. This enhancement can open exporters to traditional loan opportunities they might otherwise struggle to access. It can also give exporters more leverage to negotiate export payment terms.
• International Trade Loan Program. Exporters whom import competition has negatively impacted can use for SBA international trade loans. So too can exporters seeking to develop new markets or expand existing ones. Recipients can use their proceeds to get, construct, renovate, modernize, improve, or expand assets and operations. Debt refinancing can also be allowed.

Key rates and figures:

• Interest rates (as of March 2022):
  • Export Express: 8% to 10%
    • EWCP: 6% to 10%
    • International Trade: 7.5% to 10%

• Loan amounts:
  • Export Express: Up to $500,000
  • EWCP: Up to $5 million
  • International Trade: Up to $5 million

• Repayment terms:
  • Export Express: Up to seven years if line of credit; 10 to Twenty five years for installment loan
  • EWCP: Typically one year but could increase to 3 years
  • International Trade: 10 to 25 years

• Minimum requirements:

• • Credit score with a minimum of 680
  • Export-related current or in-development services
  • For Export Express, at least one year in business

Who it is best for:

SBA Export Loans are best for any small business that currently exports goods or plans to achieve this soon. They're also ideal for entrepreneurs who plan to launch, and have just launched, a company which involves exporting goods.

How to apply:

The SBA recommends applying through banks that have fun playing the Export Loans program.

5. SBA Microloans

Sometimes, your very small business doesn't need millions of dollars to obtain all things in order. And when you only need around $10,000, getting an enormous loan can seem risky. SBA microloans are the solution – in fact, they're so small the SBA doesn't guarantee them.

Overview:

Think of SBA microloans as a tiny version of SBA 7(a) loans. They have the majority of the same advantages – reasonable rates of interest and repayment terms, many allowable uses – but on the smaller scale. You should use their proceeds toward capital, fixtures or furniture, inventory or supplies, and equipment or machinery.

Key rates and figures:

• Interest rates: 6% to 9% (as of March 2022)
• Loan amounts: As much as $50,000, though typically closer to $13,000
• Repayment terms: At most six years
• Minimum requirements:
  • Credit score of 620 to 640 or greater
  • Collateral or personal guarantee

Who it's best for:

The SBA microloan program is best for very small companies that need tiny levels of cash for working capital, inventory, equipment, supplies, or furniture.

How to apply:

You can use for SBA microloans with an SBA-approved intermediary. Although SmartBiz doesn't offer microloans, SBA 7(a) loans that start at $30,000 are available.

6. SBA Disaster Loans

No small business operator can plan for everything – for instance, you cannot predict that a tornado will head your way next week. However, such disasters can leave your business reeling. Recovery can be easier if you obtain SBA disaster loans, which the SBA issues directly rather than through banks.

Overview:

You may use SBA disaster loans to pay for property damage and asset repair or replacement following a disaster. They can also cover operating expenses you could've afforded without a disaster. However, your proceeds have to go to costs not covered beneath your insurance policy or through the Federal Emergency Management Agency (FEMA). A unique class of disaster loans, the military reservist loan, can cover operating expenses lost to employees who're on active military leave.

Notably, SBA disaster loans can also cover economic disasters. The COVID-19 pandemic is a great example. In fact, it led to a well known but temporary (and now-ended) new type of loans known as the Paycheck Protection Program (PPP). Some PPP loans are forgivable, and some business people are still repaying them. The pandemic also led to a COVID EIDL program that closed on January 1, 2022.

Key rates and figures:

• Interest rates by March 2022:
  • 2.75% to 3.75% for Economic Injury Disaster Loans (for covering property damage expenses)
  • 4% for military reservist loans
  • 4% to 8% for other loans
• Loan amounts: As much as $2 million
• Repayment terms: Up to 30 years
• Minimum requirements:
  • Credit score with a minimum of 575 for loans up to $500,000; credit rating of 625 otherwise
  • Business situated in declared SBA disaster zone
  • Physical or economic damage after a disaster
  • For military reservist loans, essential employee called to active military duty
  • Collateral of at least $25,000 (a minimum of $50,000 for reservist loans)

Who it's best for:

SBA disaster loans are equipped for small businesses whose property and assets are damaged or destroyed after a physical or economic disaster. They're also designed for employers who temporarily or permanently lose an important employee to active military duty.

How to apply:

Check to see whether the SBA has declared where you are a disaster site. Then, obtain a disaster loan and frequently log into your account for updates.

Apply for SBA loans with SmartBiz

Among the six above kinds of SBA loans, SBA 7(a) loans would be the most versatile. Anyone in almost any industry can use for them and use them for a lot of purposes, although the process is easier having a dedicated partner. SmartBiz can be that partner – you'll have a real person to contact along the way whenever questions arise. Check whether you pre-qualify*, then take your final steps toward the funding you need and deserve.