What is an SBA loan?
An SBA loan is a type of government small-business loan that’s issued by lenders but backed by the federal government. The SBA has several loan programs, including 7(a) loans, 504 loans and microloans.
You apply for an SBA loan via a lending institution like a bank or credit union. That lender then applies to the SBA for a loan guarantee, which means if you default on an SBA loan, the government pays the lender the guaranteed amount.
The SBA requires an unconditional personal guarantee as business collateral from everyone with at least 20% ownership in a company. This guarantee puts you and your personal assets on the hook for payments if your business can’t make them.
Types of SBA loans
There are multiple types of SBA loans — each with its own terms and conditions. The best SBA loan for you will depend on what you plan to use the funding for.
Benefits of SBA loans
Competitive rates
Per federal rules, participating lenders base SBA loan interest rates on the prime rate plus a markup rate known as the spread.
Note that the APR on a loan is different from the interest rate. The APR is a percentage that includes all loan fees in addition to the interest rate.
APRs can vary substantially between SBA lenders and non-SBA lenders. For example, an online lender that specializes in SBA loans may cap its APR around 10%, while major online small-business lenders that don’t offer SBA loans have loans with APRs as high as 99%.
Low fees
Fees for SBA loans usually consist of an upfront guarantee fee, based on the loan amount and the maturity of the loan, and a yearly service fee, based on the guaranteed portion of the outstanding balance. The SBA reassesses its fee structure each year.
Longer terms
Another perk of SBA loans is that you get more time to repay them, which means you’ll have more money available for other business needs. The loan term will depend on how you plan to use the money. The current maximum maturities are:
- Working capital or inventory loan: 10 years.
- Equipment: 10 years.
- Real estate: 25 years.
- Business acquisition: 10 years
How to apply for an SBA loan
Give us a call or fill out a loan inquiry form below: