The Small Business Administration has several loan programs. Choosing the wrong one could mean losing out on important benefits. In this article, we’ll cover the 6 types of SBA loans in detail and show you what you need to know to pick the best SBA loan for your small business.
Can’t wait? Our recommend SBA loan provider is SmartBiz. They can prequalify you for an SBA 7(a) loan of up to $350k in minutes. If you have been in business 2+ years, are profitable, and have a credit score above 680, get started here.
Types of SBA Loans
There are 6 types of SBA loans:
1. SBA 7(a) Loans
- SBA 7(a) loans are the most common type of SBA loan. The loans of up to $5,000,000 can be used for working capital, to refinance debt, or to buy a business, real estate, equipment, etc. The SBA 7(a) program includes the SBA Express Loans and SBA Advantage Loans. Read more…
2. CDC / SBA 504 Loans
- CDC / SBA 504 loans combine a loan from a nonprofit CDC with a loan from a bank to create a long term, low interest rate loan for up to $20,000,000 for the purchase of owner occupied commercial real estate and heavy equipment. Read more…
3. SBA CAPLines Lines of Credit
- CAPLines are SBA lines of credit meant to help small businesses meet short-term and seasonal working capital needs. The SBA offers 5 types of these lines of credit. They can be fixed or revolving, have a max term of 5 years, and otherwise adhere to SBA 7(a) rules. Read more…
4. SBA Export Loans
- Export loans are designed to help small businesses fund new exporting operations and offer cash flow solutions to small business so they can be more flexible with the terms they offer their international customers. Read more…
5. SBA Microloan Program
- Microloans are up to $50,000 with up to 6-year terms.They have higher interest rates (8% -13%) than most other SBA loans. The SBA issues Microloans through nonprofit, community-based organizations. Microloans cannot be used to refinance debt or purchase real estate. Read more…
6. SBA Disaster Loans
- Disaster loans are available to small businesses and organizations that are located in a declared disaster zone and suffered damage to property, businesses that incurred economic losses because of a disaster, and businesses that lose a key employee who is a military member and is called to active duty. Read more…
Now that you have a general overview of the six primary kinds of SBA loans, let’s talk about the difference between SBA loans and the traditional commercial loans issued by banks, and go in-depth into each type of SBA loan.
SBA Loan vs. Bank Loan
The difference between an SBA loan and a conventional business loan from a bank is the SBA guarantee.
Contrary to what many people think, the SBA itself does not issue loans. Banks, credit unions, community development organizations, microlending institutions, and other partners actually make the loans. For those qualifying loans, the SBA guarantees part of their repayment (the maximum guarantee is 85 % for loans under $150,000 and 75 % for loans over $150,000).
The SBA guarantee reduces the risk for lenders, allowing lenders to make loans to businesses that they would otherwise not lend to. For example, businesses with insufficient down payments or collateral for conventional bank loans may be able to qualify for a loan that’s backed by an SBA guarantee. Similarly, borrowers usually receive loans with lower interest rates and longer repayment terms than they would with conventional commercial loans.
The trade off is that the SBA, as a federal agency, is promoting certain policy agendas. This results in SBA loans having strict requirements that the borrower must meet in order to qualify for the loan, including what how the proceeds of the loan can be used. Navigating these requirements and the accompanying paperwork can be difficult and is the main reason people think of SBA loans as slow and hard to get. Some SBA loan providers, like SmartBiz, have streamlined this process and drastically cut down paperwork and application times.
In-Depth Look at the 6 Types of SBA Loans
1. SBA 7(a) Loans – General Small Business Loan
|Use of SBA 7(a) Loan Proceeds||Working capital, equipment, refinance, buy a business or franchise, commercial real estate, leasehold improvements etc.|
|SBA 7(a) Minimum Requirements||Good credit score (over 680 - check your for free here)
10 % down payment
Collateral (but loan doesn’t have to be fully collateralized)
|Current SBA 7(a) Interest Rates||5.75 - 8.25%
(8-10% for SBA Express loans)
|SBA 7(a) Loan Amount||Up to $5 million|
|SBA 7(a) Loan Terms||Up to 10 years for general purpose
Up to 25 years for commercial real estate
SBA 7(a) Loan In-Depth Overview
When people talk about SBA loans, they’re usually referring to SBA 7(a) loans. SBA 7(a) loans are by far the most common SBA loan and what most people (business owners and lenders) are most familiar with.
What is the SBA 7(a) Loan Used For?
The SBA 7(a) loan is appropriate for most types of small businesses and can be used for a wide range of purposes, including:
- Working Capital
- Debt Refinancing
- Marketing / Advertising
- Equipment Purchase
- Commercial Real Estate Purchase
- New Construction
- Leasehold Improvements
- Furniture and Fixtures
- Business Acquisition
- Franchise Purchase
- And more…
For a comprehensive list of SBA 7(a) loan uses, visit the SBA’s website.
What are the SBA 7(a) Loan Qualifications?
SBA 7(a) loans are available to both startups and more established small businesses. To qualify for an SBA 7(a) loan, you will generally need to have:
- A good credit score (above 680 is ideal – check your score for free here)
- No recent bankruptcies, foreclosures, or tax liens
- Collateral: While the SBA will not refuse to guarantee a loan due to insufficient collateral, a lender is less likely to approve a loan that isn’t backed by sufficient collateral. Loans under $25K don’t need to be collateralized
- 10% down payment if you are using the loan to purchase a business, commercial real estate, or equipment
Startups will need to meet the above requirements and also show the lender that they have sufficient industry or business management experience. In our experience, it is very difficult for anyone other than the best borrowers (700+ credit score, high net worth, real estate with significant equity) to get approved for an SBA loan as a startup.
In addition to the credit requirements listed above, the SBA also has other eligibility requirements, including things such as:
- Be a small business as defined by the SBA
- Under 500 employees,
- Average annual revenue under $7.5 million (for past 3 years)
- Average net income under $5 million (after federal income taxes, excluding carry-over losses)
- Tangible net worth under $15 million
- Be a for-profit business with a location in the U.S. and operate primarily within the U.S.
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for the loan proceeds
- No defaults or bankruptcies on prior SBA loans
- Not delinquent on any existing debt obligations to the U.S. government (including taxes and student loans)
For a comprehensive list of eligibility requirements, visit the SBA’s website.
Think you qualify? Been in business 2+ years? Have a profitable business and good credit? Prequalify in less than 5 minutes for a fast-tracked SBA 7(a) loan with SmartBiz.
SBA 7(a) Loan Interest Rates, Terms, and Limits
Interest rates on SBA 7(a) loans currently range from 5.75% – 8.25%. The interest rate depends on a variety of factors, such as your credit score and the length of the repayment term. The interest rate may be fixed for the life of the loan or variable based on market rates. The SBA limits rate that lenders can charge for an SBA 7(a) loan with a maximum rate set at 2.75% + prime. SBA Express Loans (see below) have slightly higher rates than standard 7(a) loans.
In addition to interest, you’ll have to pay fees on your SBA loan, including the SBA guarantee fee (for loans above $150K), referral and packaging fees, and closing costs. These fees are explained in detail in our article on SBA Loan Rates. We also offer an SBA Loan Calculator if you want to estimate monthly payments on an SBA 7a loan.
The maximum amount that can be borrowed with an SBA 7(a) loan is $5,000,000. While the SBA does not set a minimum loan amount, most lenders will not consider loans under $30,000. The average SBA 7(a) loan amount in fiscal year 2015 was $371,628.
The SBA sets maturity terms according to the planned use of the loan proceeds. Most common maturity terms for SBA 7(a) loans are 7-10 years. However, 25 year terms are available for the purchase of commercial for real estate.
SBA Express Loan Program
One drawback of the standard SBA 7(a) loan is that the application process can take months. In order to address this problem, the SBA offers an expedited processing service called the SBA Express Loan, which guarantees a response to an application within 36 hours (note: this means the SBA will let you know in 36 hours if your application has been approved, but it may take significantly longer for the bank to process and fund your loan).
The SBA Express Loan generally follows the same guidelines as the standard SBA 7(a) loan, but the maximum loan amount is $350,000, and only select lenders are qualified to participate in the SBA Express program. The SBA guarantees a maximum of 50% for SBA Express loans. As a result, interest rates on an SBA Express loan can be a bit higher, with the max rates at 6.5% + Prime for loans under $50k and 4.5% + Prime for loans over $50k.
The SBA has also put in place a Veterans’ Advantage for SBA Express loans. The guaranty fee for SBA Express loans (3% for loans over $150k) is completely waived if the borrower is a veteran (with honorable discharge), reservist or National Guard Member, or spouse of any of the former.
Read our detailed article more information on SBA Express loans.
Note: The guaranty fee for SBA loans under $150K is currently waived for all borrowers.
SBA 7(a) Advantage Loans
The SBA’s Community Advantage Loans are designed to help businesses in underserved markets get access to financing. These programs are available to borrowers who meet the SBA eligibility criteria but are not able to qualify for a standard SBA 7(a) loan because of low revenues, low collateral, or other reasons.
Under the Community Advantage Program, the SBA offers the same expedited application and approval process that comes with an SBA Express loan but will guarantee 85% of the loan for loans up to $250,000. This further reduces the risk to lenders, thereby increasing a lender’s appetite to make the loan under the SBA Express program. More information and a list of Community Advantage lenders can be found on the SBA’s website.
How to Apply for an SBA 7(a) Loan
The top three SBA lenders in the country are currently Wells Fargo, Live Oak Bank, and US Bank. Between them, they’ve done over 9,500 SBA 7(a) loans totaling more than $2.8 billion in 2016. Many other banks and credit unions offer SBA 7(a) loans.
In fact, nearly all national and regional lenders participate in the program. Your regional SBA office can refer you to participating lenders in your area or you can work with a nationwide SBA loan provider like SmartBiz.
If you’d like to learn more about the SBA 7(a) application process, click here for step-by-step instructions. If you’re ready to start your application, we recommend the streamlined process at SmartBiz.
2. CDC / SBA 504 Loan – Owner Occupied Commercial Real Estate Loans
|Use of CDC / SBA 504 Loan Proceeds||Purchase, construction, or renovation, of owner occupied commercial real estate; purchase of other fixed assets.|
|CDC / SBA 504 Minimum Requirements||Good credit score (over 680 - check your credit score for free here)
10% down payment
Meet job creation or public policy goals
Real estate must be at least 51% owner occupied
|Current CDC / SBA 504 Interest Rates||3.78 - 5.39%|
|CDC / SBA 504 Loan Amount||Up to $14 million|
|CDC / SBA 504 Loan Terms||10 or 20 years|
CDC / SBA 504 Loan In-Depth Overview
The CDC / SBA 504 loan program is designed to get affordable, long term loans to small businesses looking to buy or build facilities to operate out of as well as outfit those facilities with heavy equipment with long lifespans.
The program actually pairs two lenders together to fund these projects:
- Bank, Credit Union, or Non-Bank Lender – Lends up to 50% of the project costs
- Community Development Corporation (CDC) – Lends up to 40% of the project costs
The remaining 10% of project costs comes from the borrower, typically in the form of a cash down payment.
What is a CDC / SBA 504 Loan Used For?
According to SBA guidelines, CDC / SBA 504 loan uses include:
- Buy real estate (land and buildings)
- Real Estate Improvements (like upgrading roads, utilities, etc.)
- Construction of new facilities
- Modernization of existing facilities
- Conversion of existing facilities
- Long lifespan equipment and equipment
The important takeaway is how much more restrictive a CDC / SBA 504 loan is compared to an SBA 7(a) loan. You can not use the proceeds of a 504 loan for working capital, debt refinance, non-owner occupied / investment real estate, etc. You can read more on the SBA’s website.
What are the CDC / SBA 504 Loan Qualifications?
To qualify for a CDC / SBA 504 loan, your business must:
- Credit score above 660 (check yours here for free)
- Down payment of 10% of the project cost
- Meet the job creation or public policy goals (explained below)
- Have a tangible net worth less than $15 million and an average net income less than $5 million after taxes for the preceding two years
- Not be engaged in speculation or investment in rental real estate
- Not have funds available from other sources
- Have the ability to repay the loan on time from the projected operating cash flow of the business
In addition to the above, if you are using the loan to purchase an existing building it must be at least 51% owner occupied. For example, you cannot use a 504 loan to purchase a hotel that you will fully rent out to tenants. But you can use a 504 loan to purchase retail space that you will use most of and rent out a small part of to another tenant. New construction has even higher owner occupancy requirements. To view a comprehensive list of CDC / SBA 504 eligibility requirements, visit the SBA’s website.
If you’re in the market for commercial real estate and will occupy at least 51% of the space, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have a credit score above 680 (check here for free), you’ve been in business 3+ years, are profitable, and need more than $500k, speak with Liberty SBF today.
CDC / SBA 504 Loan Interest Rates, Terms, and Limits
When we talk about an SBA 504 loan, we’re really talking about two different loans. One loan for 50% or less of your deal is issued by a traditional lender like a bank, credit union, or non-bank lender. The other loan is issued by a CDC for 40% or less of your deal. The difference of at least 10% is made up by you, the borrower. The two loans will have different rates, terms, fees, and limits. We’ll discuss both below.
CDC Portion of the SBA 504 Loan
The CDC loan can cover up to 40% of the total project cost.
The SBA sets limits on the interest rates, terms, and fees that the CDC must abide by. The loans must have terms or 10 or 20 years and the interest rate must be fixed. The interest rate is pegged to 5-year and 10-year US Treasury rate with 10-year term loans, adding .38% to a 5-year treasury and 20-year term loans adding .48% to a 10-year treasury. Plus there are ongoing fees.
If that seems complicated, don’t worry, the bottom line is this:
- Current 10-year CDC loans: ~3.2%, fixed
- Current 20-year CDC loans: ~3.7%, fixed
Bank / Non-Bank Lender Portion of the SBA 504 Loan
The bank, credit union, or non-bank lender issuing the other loan will cover up to 50% of the total project cost.
The SBA does not set limits on the rates, terms, and fees for the traditional lender. That leaves the details of the loan up to negotiation. In general, interest rates will be between 4% – 8% and will have a reset point. Typically the loan will have a 5-10 year term but will be amortized over 20-25 years. This amortization schedule will mean a lower monthly payment but also result in large balloon when the loan matures.
Combined, the maximum loan size for project is $14 million. However, while there is a limit on how much can be loaned per project, borrowers can take out multiple SBA 504 loans at the same time for different projects. This raises the maximum amount to $20 million and up.
CDC / SBA 504 Loan Public Policy Goals
The SBA has set rules to promote job creation, community development, and other public policy goals.
Job creation is promoted by requiring businesses to create or retain one job for every $65,000 that is loaned, except for small manufacturers, which can receive $100,000 for each job created or retained.
Community development goals include promoting business district revitalization, expansion of exports, expansion of minority, women, or veteran owned businesses, rural development, energy efficiency or clean energy production, and more (for a comprehensive list, see visit the SBA).
How to Apply for a CDC / SBA 504 Loan
We recommend working with Liberty SBF for SBA 504 loans. If you have a credit score above 680 (check here for free), you’ve been in business 3+ years, are profitable, and need more than $500k, speak with Liberty SBF.
3. SBA CAPLines Program – SBA Line of Credit
|Use of SBA CAPLines Proceeds||Line of credit for short-term and seasonal
working capital needs and to fulfill contracts
and purchase orders
|SBA CAPLines Minimum Requirements||Credit score above 660 (check your score for free here)
Business must pledge accounts receivable, inventory, purchase orders, or contracts as collateral for the loan.
For Seasonal Line of Credit program, the business must be at least 1 year old and show a seasonal pattern to revenue
|SBA CAPLines Interest Rates||5.75 - 8.25%|
|SBA CAPLines Amount||Up to $5 million
(except Small Asset-Based Lines which have a limit of $200k)
|SBA CAPLines Terms||Up to 5 Years|
SBA CAPLines Program In-Depth Overview
The SBA CAPlines program has five SBA line of credit products that are designed to provide up to $5 million to help small businesses meet their short-term and cyclical working capital needs. The five types of SBA CAPLines are:
- Seasonal Line of Credit
SBA line of credit used for seasonal increases in accounts receivable, inventory needs, or related increased labor costs. Up to $5,000,000.
- Contract Line of Credit
SBA line of credit used for the materials and labor associated with assignable contracts. Up to $5,000,000.
- Builders Line of Credit
SBA line of credit for contractors that build / renovate residential or commercial buildings used for materials, equipment, permitting, labor, and even land associated with a project. Up to $5,000,000.
- Standard Asset-Based Line of Credit
SBA line of credit that allows small businesses to convert short-term assets (like pending invoices) into cash. Up to $5,000,000.
- Small Asset-Based Line of Credit
SBA line of credit that that allows small businesses to convert short-term assets (like pending invoices) into cash. Stricter servicing requirements are waived by the SBA in return for offering a smaller credit line. Up to $200,000.
What are SBA CAPLines Used For?
The SBA line of credit offered through the CAPLines program can be used to help small businesses, like manufacturers, contractors, and exporters, cover the costs of labor and materials required to fulfill contracts and purchase orders.
Small businesses in industries that have periods of boom and bust every year (in other words, busy seasons and slow season) often face cash flow problems when business is entering the busy season. They needs to hire workers and buy materials but likely won’t be paid for their work for 30-90 days. The SBA CAPLines allows small businesses grow as fast as possible and not run into cash flow issues.
The Builders CAPLine is an SBA line of credit that can be used to cover the widest range of project related expenses. Materials, permitting, labor, equipment and even land are all potential uses. However, with this is also the most closely regulated CAPLine program and the proceeds can be disbursed on a draw schedule.
A big advantage of getting a business line of credit as opposed to a term loan is that you don’t pay interest on a business line of credit unless you actually use the funds. Meeting short term working capital needs without taking in long term debt can save businesses on interest and help the balance sheets.
While technically SBA CAPLines can be issued as stand alone products, typically these are only offered to borrowers in conjunction with a traditional SBA 7(a) loan or a CDC / SBA 504 loan. Very well qualified borrowers or those businesses that have the potential to bring in a great deal of other business to a bank may be able to find a lender willing to issue a stand alone CAPLines line of credit.
Did you know? If you’re a B2B or B2G business that invoices your customers, invoice factoring is a faster alternative to SBA lines of credit. Read more about turning your short-term assets like invoices into cash here or apply for invoice factoring with BlueVine.
What are the SBA CAPLines Qualifications?
Qualifications for the SBA CAPLines program are the same as they are for the SBA 7(a) program with a few additions. You will generally need to have:
- A good credit score (above 660 – check your score for free here)
- No recent bankruptcies, foreclosures, or tax liens
- Short-term collateral, like invoices or assignable project contracts
- Personal guarantee from owners of 20% or more
- Some additional collateral (the more, the better)
Additional requirements will vary depending on the SBA line of credit that you’re applying for.
The SBA Seasonal Line of Credit requires that your business must be in operation for at least 1 year and that you demonstrate the seasonal nature of your business.
The SBA Contract Line of Credit requires the small business have won a contract / subcontract or received a purchase order that can be used to base a line of credit on.
The SBA Builders Line of Credit is designed to help small contractors or developers to construct or rehabilitate residential or commercial property that will be sold to a third party that is not known at the time construction or rehabilitation begins. The purchase of land cannot exceed 20% of the CAPLine proceeds.
The Standard and Small Short-Term Asset CAPLines can’t be used for delinquent taxes, floorplanning, or to buy fixed assets.
To learn more about CAPLines loans, click here.
SBA CAPLines Loans Interest Rates, Terms, and Limits
The SBA CAPLines program hase interest rates that mirror the SBA 7(a) loan program. Currently, interest rates range from 5.75% to 8.25 %.
Ongoing maintenance fees for an SBA line of credit through the CAPLines program will be higher than ongoing fees with an SBA 7(a) loan. This is because the lines of credit are extended based on short-term assets, like invoices and contract, which require continuous verification.
The most you can borrow through the SBA CAPLines program is $5 million. The exception to the is the Small Short-Term Line of Credit which has significantly lower servicing requirements but also has a credit limit of $200k.
Any SBA line of credit through the CAPLines Program will have a term of 5 years or less.
How to Apply for an SBA CAPLines Line of Credit
The application process for an SBA line of credit through the CAPLines Program is similar to that for an SBA 7(a) loan. Lenders, like banks and credit unions, that participate in the SBA 7(a) program are likely to also participate in the CAPLines program. However, as we mentioned earlier, these lines of credit can be difficult to get as standalone products. Typically you’ll need to bring a lot of other business to a lender to have them find underwriting an SBA line of credit to be worth it.
Alternatives to an SBA line of credit based on short-term assets is traditional invoice factoring which you can read more about here. Some invoice factoring companies, like BlueVine, also issue business lines of credit so long as you’re invoicing B2B and B2G customers.
4. SBA Export Loans
|Use of SBA Export Loan Proceeds||Develop or expand small business exporting|
|SBA Export Loan Minimum Requirements||Credit score above 660 (check your score here for free)
Business must be involved in exporting goods or services to foreign countries
For the Express Export loan, the business must be at least 1 year old.
|SBA Export Loan Interest Rates||SBA Export Working Capital Loan: no limit (but monitored for reasonableness)
SBA Export Express Loan: 8% - 10%
International Trade Loan: 5.75% - 8.25%
|SBA Export Loan Amount||Up to $5 million
(SBA Export Express: up to $500k)
|SBA Export Loan Terms||SBA Export Working Capital Loan: up to 7 years
SBA Export Express Loan: up to 3 years
International Trade Loan: up to 25 Years
SBA Export Loans In-Depth Overview
There are three types of SBA Export Loans:
1. SBA Export Express Loan
Streamlines funding up to $500k in working capital to promote small businesses with export activities. Terms up to 7 years.
2. SBA Export Working Capital Loan
Funding up to $5 million in working capital to fund export transactions with long when the small business has a purchase order from a foreign customer. Terms typically under 12 months, but up to 3 years.
3. SBA International Trade Loan Program
Funding up to $5 million in working capital and/or fixed assets for businesses that export or for businesses negatively impacted by imports. Terms up to 25 years.
In general, SBA Export Loans are designed to help American small businesses expand their export activities, engage in international transactions, and enter new foreign markets.
What are SBA Export Loans Used For?
The SBA Export Express Loan is quite flexible in what the proceeds can be used for. From covering the cost of participating in foreign trade shows, producing promotional materials for foreign markets, or buy equipment and expand your facilities.
The SBA Export Working Capital Loan (EWCP) can be used to pay suppliers, buy inventory, or cover the production costs for goods/services you will be exporting. All of this has the goal of allowing your business to be able to offer more favorable/flexible terms to your foreign customers.
The SBA International Trade Loan (ITL) can be used to buy, renovate, or repurpose facilities and/or equipment located in the U.S. in order to expand into new or existing foreign markets. This loan can also be used to to refinance existing debt.
What are the SBA Export Loan Qualifications?
Qualifications for an SBA Export Loan closely resemble the requirements for an SBA 7(a) loan with a few variations depended on which SBA Export Loans you apply for. In general, you’ll need:
- A good credit score (above 660 – check your score for free here)
- No recent bankruptcies, foreclosures, or tax liens
- Personal guarantee from owners of 20% or more
- Collateral (the more, the better)
In addition, the Export Express Loan provides requires businesses be at least one year old and export products overseas. You don’t necessarily have to have a year’s history in exporting so long as your principles can show significant experience exporting.
The SBA Export Working Capital Loan doesn’t have borrower requirements beyond the SBA 7(a) program other than you must show a need for short-term working capital for the purpose of export expansion.
Finally, the SBA International Trade Loan Program you must show that you can develop new foreign markets, expand existing foreign markets, and/or that your small business was adversely affected by imports and that the loan will increase your competitiveness.
To learn more about SBA export loans, visit the SBA website.
SBA Export Loan Interest Rates, Terms, and Limits
SBA Export Express loans currently have interest rates between 8-10 %, which are the same rates as SBA Express loans and come with terms up to 7 years.
The SBA Export Working Capital loans do not have a restricted interest rate. In theory this means the rate could be very high, but in practice the rates are usually in the range of 6-10%. The SBA reviews each deal and must deem the rates “reasonable.” The term on this loan is most often under 12 months, but can be up to 3 years.
The SBA International Trade Loans have rates between 5.75 % and 8.25 %, which are the same rates as SBA 7(a) loans. Terms can be up to 25 years.
How to Apply for an SBA Export Loan
You can apply for an SBA Export Loan with most SBA-approved 7(a) lenders.
As you can see, the SBA Export Loan program very closely resembles the SBA 7(a) loan program. If exports make of some of your business but are not a major portion, an SBA 7(a) loan will offer almost all of the same benefits. We recommend working with SmartBiz for SBA 7(a) loans because their speed and efficiency make what can be a grueling process very easy.
5. The SBA Microloan Program
|Use of SBA Microloan Proceeds||Flexible working capital to help small business start up and expand.
Can’t be used to refinance debt or buy real estate.
|SBA Microloan Minimum Requirements||Typically need a credit score above 640 (check yours here for free)
Typically need some collateral
Non-profit Childcare Centers are eligible in some cases.
|SBA Microloan Interest Rates||8% - 13% typically|
|SBA Microloan Amount||Up to $50,000|
|SBA Microloan Terms||Up to 6 years|
SBA Microloan In-Depth Overview
The SBA Microloan program provides loans to nonprofit intermediary lenders who inturn lend amounts under $50,000 to for-profit small businesses and nonprofit child care centers. The SBA does not guarantee any portion of the loans made under the SBA Microloan program. Microloans have terms up to 6 years and the average size is $14,215.
The nonprofit intermediaries can borrow up to $750k from the SBA its first year and up to $1.25 million each year after that but can have no more the $5 million borrowed at any one time. In 2014, only $56 million was issued in Microloans.
What is the SBA Microloan Used For?
An SBA Microloan can be used as working capital to buy:
- Materials and supplies
- Furniture and fixtures
- Marketing and advertising
- And much more…
The only thing you aren’t able to use the SBA Microloan proceeds for is real estate and refinancing debt. That said, how you plan to use the proceeds of the loan will be closely scrutinized by the nonprofit intermediary lender and can have an impact on approval.
What are the SBA Microloan Qualifications?
SBA Microloan qualifications will vary from intermediary to intermediary. Unlike most of SBA loan programs, the SBA leaves qualifications up to the intermediary which set all eligibility requirements and make all credit decisions.
Basic requirements are:
- Credit score above 640 (check yours for free here)
- Some collateral
- Personal guarantee
In other words, an SBA Microloan is by no means a giveaway. The intermediary lender has a little more flexibility in determining who seems creditworthy that larger, rigid lending institutions but they still need to feel extremely confident of your ability to repay the loan.
SBA Microloan Interest Rates, Terms, and Limits
The partner institutions set their own interest rates according to the creditworthiness of the borrower and the specifics of the startup or small business. However, on average, the interest rates range from 8% -13%.
You can borrow up to $50,000 with an SBA microloan, but the average loan size is currently $14,215. The maximum loan term is 6 years.
Note: The rates and terms of SBA Microloans are similar to those with most peer-to-peer loans. But peer-to-peer loans can be approved in minutes without much paperwork whereas SBA Microloans can take months to get approved and require extensive documentation. If your credit score is above 660 (check here for free) then see what you prequalify for with Lending Club.
How to Apply for an SBA Microloan
To apply for an SBA microloan, you must work with an SBA-approved intermediary in your area. Here’s a list of SBA-approved intermediaries.
While SBA Microloans are smaller in size, they typically take just as long as SBA 7(a) loans to obtain, which can mean several months. If you’re an existing business and need funding quickly, you may want to read our article on fast business loans. Startups who need funded quickly would do well to read our article on startup business loans.
One way to improve your odds of being approved for an SBA microloan is to present a professional application. Have all of your financials together and develop a clear, presentable business plan with financial projections. Business plan software, like LivePlan (which has a 60-day moneyback guarantee) can help ensure you cover all your bases.
For a faster alternative with similar rates and terms, those with credit score above 660 can look into a peer-to-peer loan. You can get funded in a matter of days. Seeing what you’re prequalified for with Lending Club takes just a few minutes.
6. SBA Disaster Loans
|Use of SBA Disaster Loan Proceeds||To repair or replace damaged property,
working capital, operating expenses.
|SBA Disaster Loan Minimum Requirements||Credit score above 660 (check here for free)
Your business must have suffered physical or economic damage from a disaster
Your business must be located in an SBA declared disaster area
For Military Reservist loans, an essential employee must have been called to active duty
|SBA Disaster Loan Interest Rates||4% - 8%|
|SBA Disaster Loan Amount||Up to $2 million (in most cases)|
|SBA Disaster Loan Terms||Up to 30 years|
SBA Disaster Loans In-Depth Overview
There are three types of SBA Disaster loans for small businesses:
1. SBA Business Physical Disaster Loans (BPDLs)
Long-term, low-rate loans designed to help businesses that suffered physical losses and damages due to a declared disaster replace or repair that property not covered by insurance. Do not need to be a for-profit business.
2. SBA Economic Injury Disaster Loans (EIDLs)
Short- to medium-term working capital loans to help businesses that have suffered significant economic injury meet normal operating expenses. Do not need to be a for-profit business.
3. SBA Military Reservists Economic Injury Loans (MREIDLs)
Short- to medium-term working capital loans to help businesses that lose an essential employee due to being called-up for active military service meet normal operating expenses.
What are SBA Disaster Loans Used For?
In general, SBA Disaster Loans are used to recover from a declared disaster or, in the case of the MREIDL, the loss of a key employee. But each Disaster Loan can be used differently and you can apply for multiple types of Disaster Loans at the same time to meet your needs.
Proceeds from an SBA Business Physical Disaster Loan can be used to repair or replace:
- Real estate and buildings
- Machinery and equipment
- Furniture and fixtures
- Materials and supplies
- Leasehold improvements
The one catch here is that you can’t borrow to replace or repair things that insurance fully covered. Only uninsured or otherwise uncompensated disaster losses are eligible.
The SBA Economic Injury Disaster Loans (EIDLs) are general purpose working capital loans that can be used to help cover normal operating expenses of a business that suffered an economic injury due to a declared disaster. This might include covering rent or payroll or making sure you’re able to pay vendors and partners. The proceeds are not intended to cover costs of property damage, but rather compensate for the loss in revenues that would normally be sustaining your business.
The SBA Military Reservists Economic Injury Loans (MREIDLs) are also general purpose working capital loans that are meant to help business meet normal operating expenses. The difference between an EIDL is that the economic loss the business has suffered is due to a key employee being called-up to active duty in the military.
Businesses can apply for multiple types of SBA Disaster Loans at the same time to meet their various needs. Proceeds from disaster loans can also be used to relocate your business with approval from the SBA.
What are the SBA Disaster Loan Qualifications?
The qualifications for each type of SBA Disaster Loan are slightly different. One key difference shared by all of them is that your will be applying for a loan when your may not be in great shape. Despite this fact, the SBA still requires that:
- Applicants have acceptable credit history (check your credit score for free here). In other words, no recent bankruptcies, foreclosures, tax liens, or excessive debt loads.
- Applicants can show an ability to repay the loan (as well as all other obligations)
- Collateral is required to secure the loans to the extent possible (using personal and business assets.
- Do not need to be a for-profit business (except for the MREIDL).
After those common requirements are meant, qualification is based on what injury your business has suffered.
You may be eligible for a SBA Business Physical Disaster Loan if your business has been physically damaged by a disaster that is in a declared disaster area.
You may be eligible for an SBA Economic Injury Disaster Loan if your small business has suffered substantial economic injury as a result of a disaster and are unable to meet your normal operational expenses.
You may qualify for an SBA Military Reservist Economic Injury Loan if an essential employee is called for active military duty and the loss results in an inability to meet normal operating expenses. If the business is already covered by key man insurance or other business interruption insurance, the amount of the loan will reduced by the amount of coverage.
SBA Disaster Loan Interest Rates, Terms, and Limits
For Business Physical Disaster Loans interest rates will be less than 4 percent if credit is not available elsewhere, and less than 8 percent if credit is available elsewhere. For Economic Injury Disaster Loans interest rates will be less than 4 percent. For Military Reservist Economic Injury Loans, the interest rate is 4 percent.
The maximum amount you can borrow with an SBA disaster loan is $2 million. The maximum repayment time is 30 years, though the SBA will determine the repayment time on a case-by-case basis depending on your ability to pay back the loan.
How to Apply for an SBA Disaster Loan
Before applying for an SBA Disaster Loan, verify that the disaster impacting your business qualifies for SBA Disaster loan support by checking the SBA’s disaster database. If believe you’ll qualify, apply for an SBA disaster assistance loan online at the SBA’s website.
6 SBA Loan Programs: Article Recap
|SBA Program Overview||SBA Program Details|
|SBA 7(a) Loans||These loans, as large as $5,000,000, can be used for working capital, to refinance debt, or to buy a business, real estate, equipment, etc. The 7(a) program includes SBA Express Loans and SBA Advantage Loans.||Rates: 5.75% - 10%
Terms: 7 year, 10 year, and 25 year terms are most common
Qualifications: Good credit, 10% down payment, and some collateral
|CDC / SBA 504 Loan||This program combines a loan from a nonprofit CDC with a loan from a bank to create a long term, low interest rate loan for up to $20,000,000 for the purchase of owner occupied commercial real estate and heavy equipment.||Rates: 3.78% - 5.39%
Terms: 10 years or 20 years
Qualifications: Good credit, 10% down payment, meet job creation/retention requirements
|SBA CAPLines Program||SBA lines of credit to meet short-term and seasonal working capital needs. There are 5 types of these lines of credit. They can be fixed or revolving lines and otherwise adhere to SBA 7(a) rules.||Rates: 5.75% - 10%
Terms: Up to 5 years
Qualifications: Good credit and short-term collateral, like invoices or assignable contracts
|SBA Export Loans||Designed to help small businesses fund new exporting operations and offer cash flow solutions to small business so they can offer more flexible terms to their international customers.||Rates: 5.75% - 10%
Terms: Up to 25 years
Qualifications: Good credit and involved in exporting goods or services to foreign countries
|SBA Microloan Program||Issued through nonprofit, community-based organizations in amounts up to $50,000. Microloans cannot be used to refinance debt or purchase real estate.||Rates: 8% -13%
Terms: Up to 6 years
Qualifications: Good credit and some collateral
|SBA Disaster Loans||Up to $2 million available to small businesses and organizations that are located in a declared disaster zone and suffered damage to property or economic losses, and businesses that lose a key employee who is a military member and is called to active duty.||Rates: 4% - 8%
Terms: up to 25 years
Qualifications: Good credit and ability to repay loan
This article should have armed you with all the basics on the 6 types of SBA loans. This foundation will help you decide which SBA loan is the best choice for your business.
If you have a credit score above 680, have been in business for 2 years, are profitable, and need up to $350K, we recommend applying with SmartBiz for a streamlined SBA 7(a) loan.
If you’re a small business owner looking to build net-worth and ease cash flow by purchasing owner-occupied commercial real estate, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have a credit score above 680 (check here for free), you’ve been in business 3+ years, are profitable, and need more than $500k, speak with Liberty SBF today.
Didn’t find what you’re looking for? If you’d like to learn more about other kinds of business loans, read our article here.