SBA loans offer low rates and fees, longer terms, and more flexibility to help your business thrive and grow. We’ve evaluated the best SBA loans based on loan terms, fees, rates, customer satisfaction, and overall quality.
If you require cash due to a cash flow shortfall or have a less than perfect credit score, American Express Business Blueprint™ could be a promising option.
Fundera does not lend money directly but offers a digital marketplace where you can connect with lenders to provide a financing solution for your business.
National Funding offers small businesses working capital and equipment financing loans that are suitable for a broad range of businesses, and you could receive approval and funding within 24 hours.
The Small Business Administration (SBA) is an arm of the U.S. government that helps American businesses to get started, grow, and succeed. An SBA lender has been approved to offer government-backed SBA loans to small businesses at competitive rates and terms. These loans are directly provided by banks, credit unions, and other financial institutions.
Types of SBA loans
There are various types of SBA loans:
SBA 7(a) standard loan: This is the most common type of loan from the SBA. It has a low-interest rate and can be used for buying equipment, inventory, improving your building, etc. The SBA 7(a) loan is for businesses with less than $5 million in total sales or assets.
SBA 7(a) small loan: This type of SBA loan was created to help smaller businesses start or expand their operations. This program is ideal for businesses with fewer than 100 employees or annual revenues under $7 million who don’t require complex financial analysis or creditworthiness requirements. Depending on the business size, it allows borrowers to qualify for a loan between $50,000 and $350,000.
SBA 7(a) express loan: These loans have the lowest interest rates and have no application fee. They’re designed for small businesses with less than $350,000 in revenues that need financing to start or grow their business.
SBA 504 loan: Established companies typically use these loans for long-term debt financing for real estate purchases, refinances, or construction projects. Unlike traditional mortgages, 504s allow borrowers to use equity and debt in their projects without having to repay the debt until after the project is complete — usually three years later — or when the property is sold.
SBA export working capital, export express loans: These loans are available for export-related purposes such as inventory or accounts receivable financing, working capital for new or expanding exports, debt refinancing for export-related purposes, and short-term trade credit lines for foreign buyers’ purchases on terms longer than 180 days. The maximum amount for each transaction is up to $5 million.
SBA CAPLines loan: The SBA CAPLines loan is a short-term, fixed-rate loan that can be used for working capital and inventory financing. The maximum amount available is $5 million with terms up to seven years. Interest rates vary, depending on the term and purpose of the loan. The interest rate is fixed during the life of the loan, so it will not change over time. This type of loan must be paid back within ten years after closing. The repayment schedule is set up so that you pay both principal and interest each month with no prepayment penalty if you pay off early.
What are the requirements to get an SBA loan?
The SBA offers several loan programs, each with unique requirements. However, most of the loan programs require you to provide the following:
Business overview and history: The lender will want to see your business history, including how long you’ve been in business, your annual revenues, and how much money you make each year. If you are a startup company, the lender will want to see a detailed business plan that includes projected income statements and balance sheets for at least three years. These projections should be based on your current business plan, including information about anticipated sales growth and profitability.
Borrower information form: This form will determine if you are eligible for a loan from the SBA. The form asks for basic information about your business, such as the type of industry and projected sales.
Personal background and financial statement: This document includes your personal background information, such as age, education level, address history, etc., and details on your current financial situation, assets, liabilities, and income. The SBA uses this information to assess your ability to repay the loan.
Business financial statements: You must provide several years’ worth of financial statements for both your business and personal finances. These include balance sheets, income statements, and cash flow statements for each year covered by the loan application.
Business license: You’ll need to prove that your business is legally operating in your state by providing a business license or certificate from your state’s Secretary of State office. If you’ve been in business for less than one year, you must obtain this document before applying for an SBA loan.
Loan application history: A loan history is essential for applying for a loan from an SBA lender. This document contains information about all the loans applied by a person, including details like the name of the applicant, the amount applied for, and the date of application, along with other information like the purpose of the loan, etc.
Income tax returns: An income tax return is also an important document that provides proof of income and tax rate of an individual or company, which will help in understanding your financial status and creditworthiness.
What do SBA lenders look for?
Here are some of the factors that lenders look for when evaluating your application:
Creditworthiness: Lenders’ ability to repay the loan is one of the most important factors when deciding whether or not to approve your application. Creditworthiness takes into account your past payment history, current debt load, and current income and assets.
Credit capacity: Lenders also look at how much money they have available for borrowing purposes to determine whether or not they should extend credit in the form of an SBA-guaranteed loan. To calculate this figure, they look at personal assets like savings accounts and retirement funds and business assets such as equipment and inventory.
Capital invested: The lender will want to know how much capital has already been invested in your company, including what percentage of this capital has come from owners’ equity vs. outside investors, e.g., loans from friends and family.
Collateral: As a lender, they want to be sure that they will get paid back so they might ask for collateral. If you are dealing with SBA financing, the collateral is typically personal or business assets the borrower owns.
Company conditions: The lender looks closely at the business and its financial condition as part of its due diligence process, so they can make an informed decision about whether or not to lend money to the borrower. The lender will also want to know more about how well your company has been doing financially over the past few years and your cash flow projections for the future years ahead.
Benefits of an SBA loan
An SBA loan can be a smart option if you’re looking for a way to start or expand your business. Here are some reasons why:
Easy to apply: You can apply online or over the phone, and if approved, the money will be deposited directly into your bank account within 48 hours.
Use it for anything: Many SBA loans are available, including equipment purchases, real estate acquisitions, and working capital needs. You can even get an SBA loan to buy out another company or purchase real estate that will become part of your business operations.
Save on interest rates: Compared with other types of loans, such as personal lines of credit or credit cards, an SBA loan has lower interest rates because it’s backed by the U.S government and considered less risky for a lender.
How to choose the best SBA loans
There are multiple factors to consider when taking out an SBA loan, and it can be overwhelming if you don’t know where to start. Here are a few tips to consider:
Why you need a loan: You might choose to get an SBA loan, but you must nail down your needs. Are you looking for working capital? Do you want to expand your current business? Is it time for new equipment or building repairs?
Figure out how much you need: Once you know why you need a loan, the next step is figuring out how much money you’ll need. Research what similar businesses have received in terms of loans and what interest rates they were charged. Compare that with your numbers to know exactly how much money you should ask for during the application process. Most of the time it’ll be based on your financials and background.
Look at repayment terms: The repayment period is the length of time that it takes to repay a loan. A shorter repayment period can help you pay off your debt sooner, but it will impact your cash flow since payments are not stretched out as much.
Consider the interest rate: The lower the rate, the less you pay in interest over time, and the more affordable your payments. Most SBA loans have fixed rates, but some can have variable rates that change periodically with market conditions or other factors. Some variable-rate loans have caps on how much they can increase or decrease over time, so there’s less risk involved if rates rise or fall dramatically during the life of your loan.
