Financing

SBA Form 159 is required if you or your lender hire a loan packager, referral agent, broker, accountant, attorney, or consultant to help prepare or secure your SBA loan. SBA Form 159 is less common than other SBA forms, only being filled out with less than 40% of SBA loan applications annually. The purpose of SBA Form 159 is to report any fees paid in the transaction for the origination of SBA financing. When SBA Form 159 Is Required Due to the complexity and time that it takes to complete an SBA loan application, some borrowers, or lenders, hire a professional to help. This often falls into one of two categories: You paid an agent: You pay compensation to an agent or the lender for help with your loan application. Your lender is paying a referral fee: Lenders may occasionally pay referral fees to agents who have brought your loan to them. Also, the lender may pay a third party to handle the administrative portion of the lending process. Your lender should disclose this information to you upfront. If multiple agents were hired, a separate form must be submitted for each one. To determine if you need to fill out SBA Form 159, you must first decide whether you have paid someone who meets the SBA’s legal definition of an “agent.” Defining an ‘Agent’ According to the SBA, loan packagers, referral agents, brokers, accountants, attorneys, consultants, and “any other party that receives compensation from representing an applicant or lender in connection with an SBA loan” may all qualify as agents. However, many services performed by those individuals as part of the loan application process are exempt from SBA Form 159. Some examples include: Your accountant prepares financial statements required in the normal course of business and not related to the loan application. A state-certified or state-licensed appraiser employed by the lender appraises collateral in connection with the SBA loan. You work with a lender service provider operating under an SBA-approved lender service provider agreement. This includes SCORE, the Small Business Development Centers, and others. An individual performs a business valuation, with no additional services performed in connection with the loan application. An environmental professional is employed by the lender to conduct an environmental assessment of the collateral in connection with the SBA loan. A real estate agent receives a commission in connection with the sale of real estate. You work with an attorney in connection with an SBA loan closing. How To Fill Out SBA Form 159 You must fill out one Form 159 for each agent used. There are two different versions of Form 159: one that covers both 7a and 504 loans, and one for SBA disaster loans. SBA Form 159 (7a and 504) First, on page 2, identify whether you have applied for an SBA 7(a) loan or a 504 loan. If the loan application is under your personal name, use that. If the loan application is under the name of a partnership, corporation, or limited liability company (LLC), use this name as it appears on your SBA loan application and tax forms. You will then include your SBA loan number. Your SBA lender will provide their legal business name and FIRS, which is their identification number for the SBA. Then, you list the corporate name of the agent that assisted you, the individual agent’s name, and the agent’s address. The type of agent then needs to be marked. In the “Type of Service” table, the fees paid by both applicant and the SBA lender for various services are broken down. If the amount paid totals more than $2,500, itemization and supporting documentation of the fees are required. The itemization needs to include details on the work performed, along with an hourly rate and the number of hours spent on each activity. Even if the amount does not exceed $2,500, the SBA may request this documentation from you. With 504 loans, the certified development company (CDC) may act as a referral agent to a third-party lender (TPL). If this is the case, make sure that the CDC discloses any fees it received from the TPL. The applicant, the agent, and the SBA lender must all sign this form. SBA Form 159D for Disaster Loans SBA Form 159D is used for both personal disaster home loans and business disaster loans. This form has less information to fill out and also has different requirements than the form for 7(a) and 504 loans. First, the only personal or business information needed from the applicant is the loan applicant’s name and the business name. Second, the information required on Form 159D regarding compensating an agent involves checking any appropriate boxes and listing the total compensation amount. Like SBA Form 159, the SBA requires itemization of all services that exceed $2,500 on disaster business loans. Since this form is also used with home loans, in those situations, the itemization requirement is $500. Only the applicant and the agent would be required to sign SBA Form 159D. Bottom Line Overall, SBA Form 159 is one of the simplest forms to fill out, but it’s only used by less than half of all SBA loan applicants. If any third parties are getting paid in the loan transaction, or have already been paid, then you may need to fill out the form.

Small Business Administration (SBA) 7(a) loans are good for businesses in need of long-term working capital, equipment purchases, or commercial real estate acquisition. The SBA 7(a) loan program provides up to $5 million in financing, with repayment terms of up to 10 years for working capital and 25 years for real estate. These loans feature relatively low interest rates ranging from 5.5% to 8%. It can be difficult for businesses to get traditional loans, making SBA loans advantageous to small businesses. According to data from the SBA, the SBA has guaranteed more than 250,000 small business loans, with guaranteed loan amounts totaling more than $100 billion since 2016. Without SBA 7(a) loans, the small businesses that qualified may not have been able to acquire the affordable financing needed to keep their businesses operational. Most SBA 7(a) loans are for less than $350,000. If that’s you, we recommend SmartBiz. With , you can get SBA working capital loans up to $350,000 and commercial real estate loans up to $5 million, with loan terms of 10 to 25 years. SmartBiz can have you prequalified online in minutes and funded in weeks. SBA 7(a) Loan Requirements Since the SBA is promising to cover some of your lender’s losses if you don’t pay―75% to 85% of the loan amount―the SBA’s requirements specify that only some businesses qualify for financing. The SBA 7(a) loan program requirements focus on your business location, the characteristics of your business and its owners, and the creditworthiness of your business and its owners. SBA 7(a) Loan Eligibility Requirements The SBA has a prescribed list of requirements your business must meet to be eligible to receive SBA funding. These requirements pertain to the size, management, and organizational structure of your business as well as citizenship status and need for financing. The six primary SBA 7(a) loan eligibility requirements are: Management: Your business needs to be actively managed and operated, and you need to have experience owning and/or managing the business type. Organizational structure: Businesses need to have a for-profit organizational structure. Location: Only businesses located in the United States and its territories are eligible for SBA 7(a) loans. US citizenship status: Business owners need to be US citizens, be legal permanent residents, or meet other citizenship requirements to be eligible for SBA 7(a) loan financing. Small business size: While the SBA’s definition of a small business varies by industry, a business is generally considered small if it has between $750,000 and $38.5 million in annual revenue and fewer than 500 employees. Financing must be needed: You can only get approved for an SBA 7(a) loan if you can’t get financing from another source without it causing your business undue hardship. While these are the basic eligibility requirements a business must meet, the SBA does have a list of businesses that are ineligible for SBA 7(a) loans. Knowing if you meet the basic SBA 7(a) loan eligibility requirements is helpful when considering an SBA loan. SBA 7(a) Loan Qualification Requirements Similar to those of a traditional bank loan, SBA 7(a) loan qualifications are focused on evaluating the creditworthiness of your business and its owners. When evaluating if you qualify for an SBA 7(a) loan, your lender will typically consider several factors: While these are the general qualification requirements for an SBA 7(a) loan, other types of SBA loans may have slightly different qualification parameters. In addition to the financial qualification requirements, you will also need to meet the SBA’s loan eligibility requirements. Uses for SBA 7(a) Loans SBA 7(a) loans are great for businesses that have long-term working capital needs and require long-term financing for fixed assets like equipment or owner-occupied commercial real estate. The SBA 7(a) loan program can provide financing for these loan purposes up to $5 million. The financing needs SBA 7(a) loans can address are: Acquiring land: Businesses can use SBA 7(a) loan proceeds to purchase land. Making site improvements: Some examples of site improvements are grading, parking lots, and landscaping; you can also use up to 5% of your SBA 7(a) loan proceeds to make improvements that are shared by the community, like sidewalks. Purchasing or renovating existing buildings: Your business can permanently lease up to 49% of the rentable square footage of existing buildings to unrelated third-party tenants, provided you will permanently use and occupy at least 51% of the rentable square footage. Constructing new buildings: You need to occupy 60% of the rentable square footage right away; you can permanently lease 20% of the square footage to unrelated, third-party tenants. You can also temporarily sublease 20% of the square footage, so long as you fully occupy the subleased space within 10 years and occupy some of the space within three years. Purchasing fixed assets or leasehold improvements: SBA 7(a) proceeds can be used to purchase equipment, machinery, leasehold improvements, and other fixed assets. Purchasing inventory, supplies, or raw materials: Businesses can use an SBA 7(a) line of credit to buy inventory, supplies, and raw materials. Financing working capital: SBA 7(a) proceeds can be used to finance temporary or permanent working capital. Refinancing existing debt when there is a compelling reason: You can’t use SBA 7(a) loan proceeds to refinance unsecured or under-secured loans, where the risk of loss is shifted to the SBA; you also can’t use SBA 7(a) loan proceeds to refinance debt that was originally ineligible for SBA financing and currently remains ineligible. SBA 7(a) loans are versatile and can be used for most small business financing needs. This flexibility makes them an attractive loan option for many small businesses. In addition to the many allowable uses of the loan funds, borrowers also enjoy the comparatively low interest rates that come with SBA 7(a) loans. SBA 7(a) Loan Rates The maximum SBA 7(a) loan rates your lender can charge are set by the SBA. The SBA 7(a) loan rates are fixed or variable and tied to base rates like the prime rate. The base rates rise and fall with market conditions. SBA 7(a) loan rates typically charged fall in between those of traditional and online loans. The current SBA 7(a) loan rates you can expect to pay as of August 2021 compared to other options are: SBA 7(a) loan rates: 5.5% to 8% Traditional loans: Approximately 5% to 7% Online loans: 10% to 30% or greater SBA 7(a) Loan Fees As with loan rates, the SBA also establishes the maximum amounts your lender can charge in fees. One of the largest fees assessed is an SBA guarantee fee of 2% to 3.5%. This is essentially the fee paid to the SBA in exchange for a promise or guarantee by the SBA to cover a portion of your lender’s losses—up to 85% depending on the amount of the guarantee—in the event you default on your loan. Other SBA 7(a) loan fees that you may be assessed include: Packaging fee: This fee (up to $4,000) varies by lender and cannot exceed the amount charged for similarly sized non-SBA-guaranteed loans. Extraordinary servicing fee: The extraordinary servicing fee―not to exceed 2%―may be charged if your account will require extra work on the part of the lender like monitoring a construction project. Third-party expense reimbursement: This includes all direct costs related to the loan like title fees, appraisal fees, environmental report fees, attorney fees, and business valuation fees. Prepayment fee: On SBA 7(a) loans with terms of 15 years or greater, your lender can charge you a prepayment fee if you prepay more than 25% of your loan in the first three years. The fee is charged against the amount you prepaid and is 5% for prepayments in the first year, 3% for prepayments in the second year, and 1% for prepayments in the third year. With the exception of the guarantee fee, the typical SBA 7(a) loan fees are similar to what you would pay with a traditional loan. The guarantee fee is essentially the price you pay to get a loan that your lender wouldn’t otherwise be willing to make. For most of the other fees, the SBA is clear that your lender can’t charge you more than what they charge for traditional loans. SBA 7(a) Loan Repayment Terms SBA 7(a) loans typically offer longer repayment terms than traditional loans. Maximum repayment terms are based on the type of collateral and are designed to match the expected useful life of that collateral type. Commercial real estate loans, up to 25 years, will get longer repayment terms than loans secured by equipment or machinery for 5 to 10 years. A loan that is collateralized by both equipment and real estate may feature a blended repayment term. In contrast, payments for a traditional loan might be based on a 25-year term, but your loan might be due in full in 10 years. At that time, you’ll have to get reapproved and pay appraisal fees and origination fees again. With SBA 7(a) loans, you won’t have to deal with this hassle. The maximum SBA 7(a) loan repayment term lengths are: Inventory or working capital: Up to 10 years Equipment, fixtures, or furniture: Greater of 10 years or the useful life of the collateral, not to exceed 25 years Leasehold improvements: Generally up to 10 years—may be longer on a case-by-case basis if the leasehold improvements require significant construction Real estate term loans: Up to 25 years, plus any amount of time that’s needed to reasonably complete construction or make improvements When determining the repayment terms of the SBA 7(a) loan, your lender will consider your ability to repay, how you’re planning to use the funds, and the useful life of the asset that’s being financed. Applying for an SBA 7(a) Loan SBA 7(a) loans are issued by traditional banks, credit unions, community development organizations, nonprofit institutions, and online lenders. Working with an experienced SBA lender can make getting an SBA 7(a) loan much easier. Some of the best SBA lenders process hundreds, or even thousands, of SBA loans annually. The process of applying for an SBA 7(a) loan will vary a little bit by lender, although there will be a lot of similarities. You’ll begin by completing an application and will then submit a lot of documentation regarding your business. The process from application to approval takes 45 to 90 days or more. To make the application process easier, we’ve developed a free SBA loan documentation checklist. Ready to get started with an SBA 7(a) loan? With , you can get an SBA 7(a) working capital loan of up to $350,000. After you complete a simple online loan application, SmartBiz can have you pre-qualified in minutes and funded in 30 days or less. Bottom Line Getting funded for an SBA 7(a) loan may take 90 days or more. However, small businesses can get up to $5 million with interest rates that range between 5.5% and 8%. SBA 7(a) loans are best for qualified borrowers that have a good credit score, good repayment ability, and management experience.

Businesses applying for a loan through the Small Business Administration (SBA) can benefit from a well-prepared business plan. An SBA business plan is a strategic document that lays out the objectives of your business and the steps you will take to meet those objectives. Using an SBA business plan template can simplify the task of creating your business plan and possibly improve the odds of your loan application being funded. To assist you, we’ve defined the key components that should be included in your SBA business plan. Why an SBA Business Plan Is Important An SBA business plan is important because it provides a strategic framework for how your business will operate. Taking the time to do research and assemble the various aspects of a business plan forces you to focus on areas of your business operations that you may have otherwise overlooked. Analyzing each section of the business plan and following an approved SBA business plan template can provide answers to questions you weren’t aware you should be asking. Entrepreneurs that take the time to create a business plan are 16% more likely to succeed than their counterparts that don’t put in the effort. Small businesses that seek funding, especially in the form of SBA 7(a) loans, will find that SBA lenders require the submission of a business plan with their SBA loan application. Lenders want to be assured you have a viable plan for success. Your business plan, if properly researched and prepared, can provide that assurance. SBA Business Plan Template Components An SBA business plan template follows the same format as most traditional business plans and is composed of nine major sections that describe your business. We have created a downloadable checklist and SBA business plan template to help assist you. The key components you need to include in your SBA business plan are executive summary, company description, market analysis, organization and management, product or service offered, marketing and sales, financing request, financial projections, and supplemental information. 1. Executive Summary An executive summary is an introduction to your business plan. This summary should not exceed two pages. The aspects of your business that should be mentioned in the executive summary include: Introductory sentence introducing your business, its purpose, and product A short description of the business opportunity Your target market How your product or service meets the needs of the market Your business model and who you are Market competition Your marketing and sales strategy Financial projections How you will implement your plan Use only a couple of sentences to address each aspect of your business. You will explain those in greater detail in the sections that follow the executive summary. This section of your SBA business plan is an opening overview that sets up the rest of your plan. 2. Company Description The company description is the area of your SBA business plan where you detail how your business’ product or service solves a specific consumer problem, who your consumers are, and any competitive advantages your business has. Your company description should emphasize the strengths of your business. The key aspects of your business that should be addressed in the company description are: What your company does The products or services your business offers What consumer problem your company solves Who your consumers are What competitive advantages your business has Strategic partnerships you may have Be specific as you discuss these aspects of your business, and highlight any strengths your business has over its competitors. This section of your SBA business plan lays out the basic framework of your business and sets the stage for the sections that follow. 3. Market Analysis In the market analysis section of your SBA business plan, you will detail the market your business is competing in. This analysis explains to your readers your overall understanding of the current market and how your business fits within this market. The questions you should address in the market analysis section include: What are other businesses in your industry doing? What are the strengths of your competitors? What are the competitors' weaknesses? Are there market trends and themes occurring? Why are others successful? Can you do what the competitors are doing and do it better? Do other businesses have strategic advantages, such as a great location? In some industries, such as restaurants or retail, you should also discuss the number of direct competitors that offer similar products or services within your community. If there are no direct competitors, highlight this as a competitive advantage since your venture will be unique to the community. The intent of the market analysis is to show the reader you have done your research on the current market for your product or service. This section speaks to the viability of your business in the current market, the amount of competition, and how you will position your business for success in the industry. 4. Organization and Management The organization and management section of your business plan is where you will describe how your business is structured. You will want to describe the legal setup of your business, the organizational structure, and the management team of your business. The two most important pieces of this section are: Legal structure: Describe the legal business structure of your company. Will your business be set up as a general or limited partnership, a limited liability company (LLC), a sole proprietorship, or be incorporated as a C corporation (C-corp) or S corporation (S-corp)? Organizational chart: You should include a copy of your business’ organizational chart. The organizational chart for your business shows the management and organizational structure of your business, with job titles and the hierarchy of your management structure. You will also want to describe how the management team of your business will contribute to its success. Provide a background of your management team's successes and experience. This information will help convince lenders that you are prepared to run your business successfully. 5. Product or Service Offered This section will provide insight into the product or service your business offers. The aspects of your business that should be discussed in this section of your business plan include: A description of the product or service you are offering and its pricing How it benefits the customer Explanation of the product life cycle Plans for handling intellectual property, copyright, and patent filings Discussion of any research and development efforts Providing additional information regarding how you plan to protect intellectual property will give funders the assurance that you have a plan to secure these intangible assets for your business. Additionally, research and development efforts show that you are continually evolving and improving your product or service. 6. Marketing and Sales The marketing and sales piece of your business plan will detail how you intend to attract business and generate revenue. This section should include: Information on how you will market toward your target customers A description of the sales process Details about your marketing and sales budget Your sales and marketing goals A discussion of your pricing strategy as it applies to sales and marketing In addition to describing your sales and marketing goals, you should also discuss the efforts you will take to meet those goals. Consideration should also be given to how you will track goal progress for both sales and marketing. 7. Financing Request One of the primary reasons business owners create an SBA business plan is to show lenders they have a viable business. The funding request section of your SBA business plan should include details of: The amount of funding you will need How the funding will be used The type of funding you are seeking Any future financial plans for your business In addition to your current financial needs, you should also use this section to describe future financial plans, including how you will repay debts. You should address both the repayment of existing debt and the repayment of the funding for which you are applying. 8. Financial Projections The financial projections section of your business plan is intended to convince potential funders that your business is financially stable and projected to remain solvent. The information that should be addressed in this portion of your business plan includes: Income statements for the last 3 to 5 years Balance sheets for the last 3 to 5 years Cash flow statements for the last 3 to 5 years Any collateral available Financial projections for the next 3 years, including income statements, balance sheets, cash flow statements, and any budgeted capital expenditures When projecting future financial performance, we recommend you use monthly projections for the first two years and annual projections for the third year. You can use our SBA loan calculator if you intend to apply for the SBA 7(a) loan. Be sure to consider SBA loan rates and the guarantee fee when projecting your loan payment amounts. 9. Supplemental Information The appendix of your SBA business plan is where you can include any additional documentation that may be pertinent to your business or that addresses specific lender requirements. This section may include documents like your credit history, resumes of owners, photos of products, or letters of reference. The appendix is also the proper place to include any legal documents, contracts, licenses, or permits pertaining to your business. Occasionally, a lender may ask you to provide additional information that is not typically part of a business plan, or that you may not have included when drafting your plan. Any information that does not fit into one of the pre-defined sections can be included in the appendix as needed. Resources to Assist With Creating an SBA Business Plan There are several resources available to assist with preparing your SBA business plan. These resources offer free or low-cost guidance that can help in the preparation of the plan, in the vetting of the plan, and possibly in connecting to local lenders. The SBA: The SBA’s website offers an entire section on planning your business. To help you create your business plan, the SBA has an online business plan tool that walks you through the process step by step. SCORE: SCORE offers mentoring, online resources, webinars, and local training events. You can choose to meet with a local mentor, or take an online course on developing a business plan. Small Business Development Centers (SBDC): The SBDC is another organization that offers advice and educational events for small business owners. SBDCs are affiliated with colleges or economic development organizations throughout the country. Business plan software: One of the benefits of using business plan software, like that offered by , is that it guides you through the various pieces of the process and offers a user-friendly interface for formatting your business plan. Bottom Line Using an SBA business plan template can help ensure that you have addressed all the required information in your business plan when applying for an SBA loan. Business plans address all the major aspects of your business and serve as a roadmap for how the business will operate. Putting in the time to research and thoughtfully write your business plan can help increase your odds of getting funding.

Small Business Administration (SBA) loan requirements determine your eligibility to qualify for funding and are focused on your characteristics and those of your business. Borrowers need to have excellent credit and strong financials that demonstrate their ability to repay the loan. Other SBA loan qualifications include having adequate collateral and providing a personal guarantee. SBA-approved lenders originate most types of SBA loans and, for certain types of loans, the SBA guarantees up to 85% of the amount borrowed. SBA loans have terms extending up to 25 years, with loan amounts up to $5 million or more. If you’re considering an SBA loan, a great place to start is with . SmartBiz streamlines the application and lending process by partnering with top SBA lenders. You can prequalify online for an SBA loan up to $350,000 within minutes. SBA Loan Qualifications & Requirements The most popular type of SBA loan is the SBA 7(a) loan, and most SBA loan requirements are based on those for this program. In general, to qualify for an SBA loan, you will need to have good credit and an established business or management experience in the industry. You must also be able to demonstrate your business’s ability to repay the loan, and you will need to provide collateral and a personal guarantee. Business Size and Type of Business Eligibility based on business size is classified by either employee count or revenue. While there is variance in the definition of a small business based on industry type, most businesses with less than 500 employees will meet the employee size requirement. The SBA also classifies a business as small based on annual revenues. This definition also varies by industry and can mean businesses having less than $750,000 to $38.5 million in annual revenue. The vast majority of American-based for-profit small businesses can qualify for SBA loans. Ineligible for-profit businesses include: Lending businesses Gambling businesses Some passive income businesses Multilevel marketing businesses Life insurance businesses Credit Score & Credit History SBA loan qualifications require that borrowers have acceptable credit, but the SBA does not set a minimum credit score requirement. Individual lenders set credit score requirements at which they are comfortable lending. Most lenders require that all primary business owners have a personal FICO credit score of at least 680. In addition to having an acceptable credit score, you must also have a clear credit history with regard to government debt. This includes not having any delinquencies or defaults on debt obligations to the United States government, including student loans. Time in Business The SBA does not set a minimum time-in-business requirement. However, lenders are generally more inclined to lend to established businesses. Most lenders require at least two years of business operations and management experience in the industry. Additional SBA loan requirements apply to startup businesses and require that the business owners be able to demonstrate managerial experience within the industry. Sufficient Equity Typically, a maximum debt-to-equity ratio of three times for new businesses or four times for established businesses is acceptable. Therefore, you need to have $1 in cash invested in your company for every $3 to $4 in loan funds. Ability to Repay Your cash flow must be sufficient to cover all of your loans and other obligations with a cushion. A debt service coverage ratio (DSCR) on your business of at least 1.25 times is generally considered sufficient to demonstrate your ability to repay your debt obligations. Collateral While SBA loans do not necessarily need to be collateralized fully, it’s easier to obtain financing with more personal or business collateral. In general, you can expect that you will be required to provide a down payment of 10% to 20% of the loan amount in addition to pledging collateral to back the loan. Personal Guarantee The SBA requires that a personal guarantee be provided from all owners who own 20% or more of the company. This personal guarantee allows the lender and the SBA to hold you personally liable for the debt in the event the business fails. This means that in addition to the collateral used to secure the loan, the lender can also collect from your personal assets. Requirements for Use of Loan Proceeds SBA loan requirements specify how businesses can use loan proceeds, which vary by loan program. Businesses typically can only use SBA loan proceeds for legitimate and reasonable business purposes. Your loan documentation will explain those allowable uses in detail. Eligible Use of SBA Loan Proceeds Further detail on the use of SBA loan proceeds for some items footnoted in the table are: Land site improvements: Examples of site improvements include site preparation like grading, parking lots, and landscaping. Existing building purchase, renovation, or rehabilitation: The borrower’s business must permanently use and occupy at least 51% of the property’s square footage. New building construction: Your business must permanently use and occupy at least 60% of the space. Fixed asset purchase and installation: For SBA 504 loans, fixed assets must have a remaining useful life of at least 10 years and must be in a permanent location. On a case-by-case basis, the SBA will provide short-term 504 fixed asset financing for the purchase of furniture, fixtures, and equipment if it is an essential component of the overall project and small relative to the project size. Refinance existing debt: Loan proceeds cannot be used for refinancing of unsecured or undersecured loans, where the risk of loss is shifted to the SBA. Additionally, loan proceeds cannot be used to refinance debt that would have originally been ineligible for SBA financing. SBA Loan Types The SBA loan requirements on loan amount and repayment terms vary by loan type. However, the SBA 7(a) loan requirements provide the baseline for most SBA loan programs. In general, the maximum SBA loan amount cannot exceed $5 million in aggregate across all loans to a single borrower and its affiliates. SBA 504 loans are an exception, given the lender or Certified Development Company (CDC) partnership. The maximum repayment terms are based on collateral type. While the repayment terms vary by loan type, the maximum repayment terms generally are 10 years for working capital and 25 years for commercial real estate. Maximum SBA loan rates are set by the SBA. Interest rates with SBA 7(a) loans are tied to a set percentage over the prime rate, while the rates on the SBA 504 loan are partly tied to long-term bonds and partly tied to bank interest rates. SBA Loan Type Comparison Who SBA Loans Are Right For Whether your business needs working capital, real estate, or equipment, an SBA loan can provide the financing you need. One caveat to SBA loans is that you must not be able to obtain financing through other conventional lending sources. Businesses that may benefit from an SBA loan include: Businesses unable to obtain credit elsewhere: Your lender is required to certify to the SBA that you cannot get some or all of the funds you’ve requested from other nongovernment sources under reasonable terms without assistance from the SBA. Companies in need of working capital: SBA loans can be used to finance the working capital needs of small businesses. Businesses making a commercial real estate purchase: SBA 7(a) and SBA 504 loans can be used to finance owner-occupied commercial real estate. Small businesses needing equipment financing: For businesses in need of equipment, an SBA loan can be an affordable means of financing. Where to Find an SBA Loan Outside of disaster loans, which are issued by the SBA, SBA loans are issued by banks, credit unions, community development organizations, nonprofit institutions, and online lenders. The SBA provides a guarantee on the loan that protects the lender from loss in the event that you default on repayment. Some lenders make the process of applying for an SBA loan easier than others, such as online lenders who will help you get your paperwork in order. If you don’t know the SBA loan qualifications and necessary steps, qualifying for an SBA loan can be difficult. To make it easier, we’ve developed a comprehensive SBA loan document checklist to assist with the SBA application process. is an online lending platform that connects you to more than 70 lenders, offering SBA 7(a), 504, and SBA Express loans with an online application. It will help you source the best possible loan offers with its online portal. SBA Loan Alternatives If your business doesn’t meet the minimum SBA loan qualifications, then you may want to consider an alternative. The financing option that’s right for you will depend on your circumstances, how much financing you need, and how quickly you need to receive the funds. Potential alternative funding sources if you don’t meet the SBA loan requirements are: Business line of credit: A small business line of credit is a great alternative to an SBA loan if you require capital to prepare for unexpected expenses or want a line of credit to draw against to cover recurring working capital expenses. Traditional bank loans: If you have good credit and cash flow as well as plenty of collateral or liquidity, a traditional bank loan could be a viable alternative. Contact your local bank or credit union to begin the application process. Alternative business loans: If you need to receive funds quickly, you may be able to receive a quick decision from an alternative lender. These fast business loans often have more flexible credit terms, so you may be able to receive financing not otherwise available from either the SBA or a traditional bank. Bottom Line The SBA sets loan requirements around eligibility for SBA financing based on business size, credit, and ability to repay debt. While there are various types of loans offered, the SBA 7(a) loan requirements and those of the other SBA loan programs have similarities. Determining if you meet the SBA loan qualifications early in the process will save you time and eliminate potential frustration. If you are ready to apply for an SBA loan, we recommend checking out . SmartBiz streamlines both the application and lending process by partnering with top SBA lenders. The online prequalification process for loans up to $350,000 is quick and simple, taking only minutes to complete.

Purchase order (PO) financing is an advance from a creditor that pays your suppliers for goods that you’re reselling or distributing. PO financing is an effective way to fuel business growth without taking on bank debt or selling equity in your company. You can finance up to 100% of the written purchase order costs, with typical rates falling between 1.15% and 6% per month. If sales outpace incoming cash flow, then purchase order financing might be a good fit to fulfill a new customer order. To qualify for purchase order financing, a business must sell finished goods to business (B2B) or government (B2G) customers and have profit margins of at least 15%. Newer businesses can qualify for purchase order funding because approval is based primarily on the creditworthiness of, and your history with, your customers and suppliers. Your chances of being approved are higher if your customers and suppliers are well-established, reputable companies. Using purchase order financing allows you to finance payments to your suppliers for manufacturing and transportation before you receive payment from your customers. You can’t use the funds for anything other than the purchase of specific goods to fulfill your customer’s order, unlike other working capital loans. How Purchase Order Financing Works Purchase order financing involves a minimum of four parties at different points in the process: Borrower: This is the small business seeking financing. Purchase order financing company: This is the company providing financing. The PO financing company evaluates the purchase order and provides funding to the supplier. Supplier: The supplier is the company providing the goods that the borrower resells or distributes. The supplier receives payment for the goods directly from the purchase order financing company. Customer: This is the borrower’s customer and the ultimate recipient of the order. When purchase order financing is utilized, customers typically remit their payments directly to the purchase order financing company. Since so many parties are involved, it can be more difficult to complete the financing process and keep costs down. For example, if your suppliers are slow to manufacture goods, then your costs will go up. The longer it takes for the PO financing company to get paid, the more expensive the funding as rates are charged on a monthly or even daily basis. Plus, you’ll have additional costs associated with any terms you’ve offered your customers. Purchase Order Financing Process in 8 Steps Purchase order financing can be understood more easily if broken down step by step. The eight steps to a purchase order financing transaction are: You receive a purchase order: Your business receives a large purchase order from a customer. You receive a written cost proposal: The supplier submits a written proposal detailing what it would cost to purchase the goods necessary to fulfill the order. At this point, you can determine with certainty if financing is necessary. You apply and get approved for purchase order financing: Once you have determined that PO financing is necessary, you’ll need to find the right purchase order financing company, apply for the necessary funding, and be approved. To apply, you’ll need to provide both the customer’s purchase order and the supplier’s cost proposal. Purchase order financing company pays the supplier: Once your application is approved, the purchase order financing company pays the supplier to manufacture and deliver the goods to fulfill the purchase order. Payment is usually in the form of a letter of credit. Supplier delivers the goods to the customer: The supplier usually delivers the goods to the customer directly. However, you may instead choose to have the goods delivered to your business location. Once the customer receives the goods, the order is considered accepted. You extend terms to the customer: You invoice the customer for the goods and extend terms to your customer. The longer it takes to receive payment from the customer, the more expensive the purchase order financing becomes. Customer pays the purchase order financing company: The customer pays the PO financing company directly for the full price on the invoice. Purchase order financing company pays your business after deducting fees: The PO financing company deducts its fees from the funds and then pays the remaining balance to your business. Who Purchase Order Financing Is Right For Most businesses that rely on outside suppliers for the products that they resell can benefit from purchase order financing. This is because you’ll be able to grow the business and onboard new customers without tying up your cash in pending orders. Some examples include: Distributors: Distributors can reduce their upfront costs while meeting buyer demand for high-margin products, especially during peak seasons. PO financing helps distributors maintain more inventory and offload some of the transportation costs that often reduce working capital available for investment. Wholesalers: Wholesalers can take advantage of increasing customer demand without depleting their capital or having unsold inventory. By financing the purchase and delivery of those products when they already have a customer, wholesalers can reduce some of the risk associated with keeping products in stock. Resellers: Resellers can reduce the amount of inventory they carry, especially when they first open, to spend their working capital to cover business expenses like rent and payroll. Purchase order funding can free up additional cash flow and allow the reseller to take on more customers rather than investing funds in inventory. Importers or exporters of finished goods: Importers and exporters are faced with high transportation costs for their products. By financing a purchase order, they can avoid locking up their money while they wait for goods to arrive. Outsourced manufacturers: Outsourced manufacturers can use purchase order financing to continue to grow if they are short on capital but demand for their products is high. Rather than tying up funds in the manufacturing process, your business can reinvest in the company and finance the supply and delivery of goods. When Purchase Order Financing Is Right Purchase order financing is one of the best ways to finance growth for your business, especially in these types of situations: When your business has a spike in demand: If your business signed a new distributor and demand for your product spiked, purchase order financing makes a lot of sense. Consistently tight cash flow: Many small businesses have consistent cash flow problems at specific points of the month. Using purchase order financing can help smooth out the tight cash flow and provide business owners with the funds to invest in their business. Startups seeking to fuel growth: Taking advantage of purchase order financing can be a lower-cost way to fuel growth while meeting customer demand. Companies wanting to reduce capital in shipping: Businesses using overseas suppliers often pay for goods long before they can invoice a customer. By financing your purchase orders, you can use your capital to invest in other parts of your business instead of having it tied up in an order. If purchase order financing sounds like a viable option, is a purchase order financing company that works with small businesses, funding purchase orders as small as $25,000 to as large as $10 million. Approval and funding can happen in as soon as two weeks. Purchase Order Financing Rates, Terms & Qualifications PO financing funds up to 100% of the cost of goods sold, two weeks after you apply to fulfill a purchase order. Your B2B or B2G business needs to sell at least $15,000 worth of tangible goods with at least a 15% profit margin to qualify. The cost of this financing ranges from 1.15% to 6% per month with the financing company expecting repayment in 90 days or less. Terms, Costs, & Qualifications at a Glance The typical costs, terms, and qualification requirements you can expect from a purchase order financing company are: Purchase Order Financing Terms With purchase order financing, you can fund up to 100% of the total cost of goods needed to fulfill a written customer order. The PO financing company will typically issue payment to your suppliers in two to four weeks via a letter of credit, although payment may be issued in cash on a case-by-case basis. Most purchase order funding companies will want to be repaid within no more than 90 days. When you apply, you’ll need to provide the financing company with a copy of the purchase order submitted by your customer and documentation from your supplier of the cost to fulfill the order. It’s important to consider how much time it will take your supplier to manufacture or provide the goods after they’ve received payment as the longer it takes, the more expensive the funding costs. Purchase Order Financing Costs Purchase order financing fees vary based on the volume and risk of the transaction to the financing company. Most of the best purchase order financing companies charge a percentage of the financed amount for the first 30 days in repayment. The costs vary industry-wide from 1.25% to 6% per month. The costs after the first month are not made as clear by individual PO financing companies, but the industry average for these additional costs is about 1.00% per 10 days. The quicker your customer pays your invoice, the less expensive purchase order financing becomes. According to the purchase order financing company Commercial Capital, the following cost examples are common if you’re approved for a 3% financing rate: Model 1: 3% for the first 30 days; 1% per every 10 days thereafter Model 2: 3% for the first 30 days; 0.1% per day thereafter Model 3: 2% for the first 20 days; 1% for every 10 days thereafter The table below shows an example of what purchase order financing could cost you. We assume the loan in the table is paid by your customer in exactly 50 days and you qualify for a 3% interest rate using the first model. Purchase Order Financing Cost Example The loan term begins when your supplier is given the funds. If your supplier is slow to manufacture or deliver goods, or if you’ve promised your customer payment terms longer than 30 days, then PO financing can become rather expensive. Purchase Order Financing Qualifications Qualifying for purchase order financing is relatively easy, provided you deal with established and reputable customers and suppliers. Even newer businesses can qualify if their owners have verifiable industry experience. The typical qualification requirements when applying for purchase order financing are: Type of business: B2B or B2G Type of products: Tangible finished goods intended for direct resale Minimum order size: Varies by loan provider from $15,000 to $100,000 Minimum profit margin: Varies by loan provider from 15% to 30% Customer and supplier: Must be creditworthy, which typically means a good credit history as reported by Dun & Bradstreet (D&B) The exact meaning of “creditworthy” varies and depends on the loan provider you choose. Many loan providers will complete a commercial credit check of your customers through a company such as Dun & Bradstreet. At a minimum, your customers and suppliers should have a history of timely payments, no recent bankruptcies, and no history of serious litigation. Where to Get Purchase Order Financing There are generally two types of financing institutions that offer purchase order financing. Traditional lenders such as banks don’t commonly advertise purchase order financing but may offer it as an add-on for long-standing customers. If you have an existing banking relationship, check with your bank first, as it may offer better rates than other providers. Also, there are online financing institutions that focus on accounts receivable financing or other lending solutions that will offer PO financing. What to Look for in a Purchase Order Financing Company If you’re looking for the right PO financing partner, then you’re going to want to know some specific details about the lender’s history in PO financing and what its typical costs look like. Asking questions about a provider's experience and determining the extent of its communication with your customers can help you select a lender. Some of the questions you can ask potential purchase order funding providers are: How many transactions have they handled in your industry? How long have they been in business? What loan products do they offer? If PO financing is one of many products, do they have a team of specialists that exclusively work on purchase order lending? How do they pay suppliers and when? Is it through a letter of credit or cash? Do they pay upfront or after the customer pays? What are their typical costs, and what is the breakdown of those costs? What kind of background or credit check do they perform on your customers or suppliers? How do they receive payment from your customers? Do they communicate directly with your customers? The answers to these questions will give you a better idea of whether the product offered by any potential purchase order financing company will work with your business’s needs. Alternatives to Purchase Order Financing Purchase order financing is an expensive funding option for small businesses. There are many alternatives available that may be better suited to your situation. Some good alternatives to purchase order financing are short-term business loans, invoice factoring, and business credit cards. Short-term Business Loans Short-term business loans can be a great financing option for one-time expenditures like purchasing inventory or machinery. The best short-term loans have an online application and can get you funded for up to $500,000 in one business day. Invoice Factoring With outstanding B2B or B2G invoices, businesses can take advantage of invoice factoring. The best invoice factoring companies advance more than 90% and will sometimes collect invoices directly from your customers. Business Credit Cards Business credit cards are a great funding tool, regardless of your other financing options. The best business credit cards offer small businesses rewards, perks, and low introductory rates on purchases. Bottom Line Purchase order financing is a good choice if your sales growth is outpacing cash flow, but it can be expensive and may not be the best business financing option if you have good credit. For the best rates, we suggest you have profit margins above 20% with a long customer and supplier history. If you decide purchase order financing is necessary, consider as they can fund purchase orders ranging from $50,000 to $10 million with industry-competitive rates.

Revenue-based financing (RBF) is a type of small business loan offered by niche lenders in which your monthly payments increase or decrease based on your revenue. RBF works well for businesses that have stable revenue streams but don’t have the collateral needed for a traditional loan. Lenders charge a fixed amount, typically between 1.35x to 3x the amount borrowed. Typically, loan sizes range from $50,000 to $3 million. Your monthly payment fluctuates based on changes in revenue. The faster your revenue grows, the quicker you’ll repay the loan. Revenue-based Financing Overview Revenue-based financing is usually expected to be used to scale your business by expanding efforts, such as: Product development Sales and marketing initiatives Hiring additional employees Providers will expect you to have a documented plan to increase your existing business revenue. Because your loan is based on your current revenue stream, lenders will want to see the potential for the growth of your business, with the expectation that the loan will support that growth. Who Revenue-based Financing is Right For Revenue-based financing is used by businesses with high gross margins or subscription-based revenue models as growth capital to scale operations. One example of this would be software-as-a-service (SaaS) businesses, but businesses with steady monthly recurring revenue (MRR) can find revenue-based loans to be a good fit as well. Types of businesses that might be interested in revenue-based financing include businesses too small for venture capitalists (VCs), business owners wanting to retain control, and businesses unable to obtain other financing. 1. Businesses Too Small for VCs Many businesses are too small to attract VC investments but still have solid revenue streams that can grow and be sustainable for a long time. Revenue-based financing can be a good fit for these companies because revenue-based lenders make loans based on growth potential and aren’t looking for the level of returns that VCs demand. 2. Business Owners Wanting to Retain Control Some businesses will grow quickly enough to be courted by VCs but might not like the idea of diluting their equity or giving some degree of control to the VC. With revenue-based financing, you are receiving a loan to be repaid to the lender, which doesn’t require release of an equity stake in your business as is the case with funding from a VC. 3. Businesses Unable to Obtain Other Financing A revenue-based loan can also be a good option if you don’t qualify for more traditional working capital loans. Some businesses may find that while they have strong recurring revenues, their business is too new, or they lack the personal credit profile or assets to qualify for other small business startup loans. Revenue-based financing can help some startups with the growth capital they need to build their businesses more quickly. How to Get a Revenue-based Loan It can be difficult to find a lender that offers revenue-based financing rather than more common financing options. Revenue-based business loans are only offered by niche lenders who, in many cases, only offer this form of financing. Revenue Requirements The qualification process is built around what your business revenues currently are and how quickly they are likely to grow. You need to generate at least $15,000 to $30,000 of revenue per month. Your revenues need to be either subscription-based or monthly recurring revenues. Additionally, your gross profit margin needs to be at least 50%. Funding You can fund $50,000 to $3 million through a revenue-based loan. Generally, the total funding amount will be between 3x and 6x your monthly revenue. Revenue-based loan providers can lend more than the original loan amount at a later time if your business grows successfully, and you make payments on time. Some lenders, such as Lighter Capital, will fund up to a certain amount in each approved funding round, but they will never lend more than their lifetime maximum of $3 million per business. Each loan provider has different rules and maximum lifetime loan amounts, which may change based on your situation, so it is best to ask each provider directly what you may qualify for. Rates & Terms The total cost of capital for a revenue-based loan—referred to as the repayment cap—typically ranges from 1.35x to 3x the amount borrowed. Payments are calculated as a percentage of current monthly revenue—typically ranging from 3% to 8%—and are debited directly from your bank account on a monthly basis. Application Process Once you submit an application online that includes basic business and personal information, the lender verifies your monthly revenue through a review of up to one year of your bank statements. The application then goes to underwriting to determine the loan amount and payment terms. These specifics will be based on the information provided in your business plan or investor deck, with special attention paid to growth potential. Funding typically occurs within 30 days. If you need funding sooner, there are other fast business loans available. One revenue-based financing provider, , offers funding of up to $3 million, with repayment terms ranging from three to five years. Payments are based on a fixed percentage of your monthly income, ranging from 2% to 8%, with repayment caps of 1.35x to 2x. You can apply online and receive funding within as little as four weeks. Differences Between Revenue-based Financing, SBA Loans, and Venture Capital SBA loans and venture capital are two other types of funding that entrepreneurs can use for financing. There are differences between these funding options and revenue-based financing. Revenue-based Loans vs SBA Loans An SBA loan is a common financing solution for small businesses. Traditional banks and SBA lenders consider your revenue during the application process to determine the loan amount that you can borrow. SBA loans are repaid with fixed monthly payments amortized over the term of the loan. With revenue-based loans, your payment amount will vary from month to month based on your revenue. Revenue-based Financing vs Venture Capital VC firms invest in businesses that can scale, and VCs often want a 100x return on their initial investment. If you have a rapidly growing small business but think that 10x growth is more likely than 100x growth, then revenue-based financing is probably a better growth capital option. Revenue-based financing is also a good option for those businesses that are looking to preserve their equity. VCs provide you with growth capital in exchange for an equity stake in your business. In most cases, the VC firm will also insist on asserting some level of control over your business. Revenue-based financing doesn’t result in a dilution of your equity and doesn’t cede any control of your business to the RBF provider. With this in mind, some of the differences between revenue-based financing and venture capital are: Bottom Line Revenue-based financing can be an excellent fit if your business is a high-margin, high-growth tech company with stable monthly recurring revenue. Generally, businesses with at least $15,000 in monthly revenue looking for financing to scale their business—without diluting their equity—should consider a revenue-based loan.

Purchasing a new or used semi-truck for your business is one of the most significant financial decisions you will ever make. The process can be lengthy and complicated. This guide will help reduce the stress of figuring out how to get a loan for a semi-truck. Included are general guidelines on the qualifications needed for financing, suggestions for lenders that can finance your new truck, and red flags that lenders will look for in the process. This guide aims to show you how to finance your semi-truck as quickly and easily as possible. 1. Determine Eligibility Every lender will have slightly different requirements for borrowers on how to get semi-truck financing. Confirm the specific requirements with your chosen lender. Here are some general eligibility guidelines to keep in mind when beginning the truck financing process: Minimum credit score: 600 (credit scores below 600 will be considered, but likely at a higher interest rate and down payment) Down payment: Expect at least 5%, although some lenders offer zero-percent-down loans for well-qualified borrowers Time with commercial driver’s license (CDL): Varies, but an owner who does not have a CDL will be considered a high-risk borrower Age of truck: Less than 10 years Truck mileage: Fewer than 700,000 miles 2. Gather Documents The documents required by each lender will vary. However, having all of these documents ready to send to the lender will expedite the borrowing process: Documents showing your business is registered Current and past bank statements (up to 12 months) Business tax returns (up to three years) Current year profit and loss statement for your business Current business balance sheet Any business licenses or required certifications Your CDL, if you have one United States Department of Transportation (USDOT) number Motor carrier number 3. Find the Right Vehicle Finding the right vehicle is not only critical for your needs, but it is critical to the lender. Lenders are looking to mitigate the risk involved with the potential vehicle financing. The older the vehicle, or the more miles it has, the higher the risk. To limit those risks, try to keep your search to trucks that meet the following criteria: Fewer than 700,000 miles Less than 10 years old Sold by a dealer (ideally, but not required) In addition, the maximum a lender will lend is what the vehicle is worth―unless you are securing a business line of credit to purchase vehicles. Lenders usually won’t lend the full purchase price so that the borrower will need a down payment of at least 5%. When shopping for a truck—especially a used one—try to get an estimated value so you know you’re getting a price that the lender will finance. You will also need the following information to give to the lender once you find a vehicle: Make, model, and year Mileage Condition report Photos of the vehicle Serial number 4. Find the Right Insurance Regardless of what type of vehicle you are financing, insurance will be required. With a semi-truck, which can cost as much as $200,000 new, financing companies will want to see that you have proper and sufficient insurance coverage. Improper or insufficient insurance could derail your business in the event of an accident. Most lenders won’t fund the loan until receiving proof of your insurance. Consult your insurance professional about finding the right coverage for your business. In general, you will need some or all of the following: Primary liability coverage Physical damage coverage, including electronic and in-cab devices Bobtail coverage and/or nontrucking liability coverage Cargo coverage to cover what you are hauling The cost of your insurance will vary depending on your driving record and prior claims on your business. Insurance rates are also based on the value of the vehicle and the contents being hauled. 5. Choose the Right Lender While there are many online lending companies that can finance a semi-truck, we have selected the five best. Each has slightly different qualifications for lending, so be sure to compare them and choose the one that makes the most sense for your business. Smarter Finance USA: Best for New Owners is excellent for new owners, thanks to a lower minimum required credit score and its low down payment requirement. With a credit score of at least 600 and at least 5% down, owners can finance a new vehicle for up to $100,000. While Smarter Finance USA will work with new owners, it prefers owners with previous driving experience and a current CDL. Balboa Capital: Best for Quick Approval has an easy online application and promises quick approval decisions. It offers flexible term lengths with fixed monthly payments. However, Balboa requires borrowers to have been in business for at least one year and have at least $100,000 in annual revenue. It also requires a decent FICO score but doesn’t specify what that score is. Wells Fargo: Best for Flexible Terms offers financing and refinancing of new and used trucks, with loan terms of 12 to 84 months. One advantage Wells Fargo has is flexible loan terms, including either fixed or floating interest rates, seasonal payment structures, term loans, operating leases, and even equipment lines of credit. Commercial Fleet Financing: Best for Lending Options In most cases, borrowers can get approved by  by filling out a one-page application. Credit approval can come in as soon as two hours, with funding in as little as 24 hours. Commercial Fleet Financing offers zero-money-down loans with flexible terms and incentives. Loans can be a standard length of 36 to 60 months or extend to up to nine years (108 months). Borrowers with credit scores below 640 are referred to its Fresh Start equipment finance division for potential financing. Commercial Fleet Financing will also review the vehicle to ensure it has a clean title and is in good working order. Bluevine: Best for Additional Funding Needs can provide funding above and beyond simple vehicle financing. It offers lines of credit that can help finance your entire business. Bluevine’s lines of credit are open to business owners with credit scores as low as 625, which can help pay for maintenance on vehicles and keep business cash flow solid while financing a major purchase. Semi-truck Financing Challenges When beginning the process of financing a semi-truck, there are some factors that can cause problems for business owners. Any conditions that could increase the risk for the potential lender will likely result in a higher interest rate and a larger down payment. It could even result in a denial from the lender. Here is a list of potential challenges a borrower may face when financing a semi-truck: Being a new business: If you have only been in business for a short time, lenders will be less likely to finance a large investment like a truck loan. New business owners may want to consider leasing a lower-risk, lower-cost option to build their business credit. Poor credit: If you have poor credit, the lender will see you as a high-risk borrower. If you are approved for the loan, it will likely be at a higher interest rate and a higher down payment than a well-qualified borrower. Buying your truck from a private party: Because vehicles purchased from a dealer will go through at least a basic inspection process, lenders will view a truck purchased from a dealer as a lower risk than one purchased from a private party or an auction. It will be harder for the lender to confirm the vehicle’s condition in a private sale, increasing the risk. Low cash reserves: Low cash reserves mean less money to use for a down payment, increasing the risk for the lender. Solid cash reserves signal to the lender that it will receive its payments on time, even if you have a slow week or two. A borrower with limited reserves is at a higher risk for late payments or even loan default. Additionally, it is important to maintain a cash reserve for maintenance and repair of your truck. Buying an old truck: A lender needs to find a comparable value before it lends on a used truck. This is difficult for trucks that are more than 10 years old. If a lender does lend on an older vehicle, it will likely require a larger down payment to reduce the risk. The lender will likely charge a much higher interest rate, which could approach rates for unsecured loans. Not having a CDL: Lenders view non-CDL borrowers as high-risk borrowers. If you don’t have a CDL, who is driving your truck? Likely, it means that someone will be driving it that doesn’t have a vested interest in the security of the vehicle. Bottom Line Financing a new or used truck is a significant investment for your business. This guide should help you prepare for all the steps needed to secure semi-truck financing. It is essential to shop around—when looking for a vehicle, a lender, and an insurance provider. You are financing a piece of equipment that costs as much as a new home in less than 24 hours. Do your homework, and you’ll get the best deal for your business when financing your next truck.

The SBA 504 loan program from the Small Business Administration combines two loans—one from a lender and one from a community development corporation (CDC)—that can be used for commercial real estate and other fixed assets like equipment. The lender portion covers up to 50% of the loan, the CDC portion covers 40%, and the borrower is responsible for providing the remainder. What an SBA 504 Loan Is SBA 504 loans are commercial real estate loans that are a combination of two loans, one from a traditional bank and one from a nonprofit lender known as a CDC. Both the lender portion and CDC portion of the SBA 504 loan are closed at the same time. SBA 504 loans are available up to $14 million, with terms up to 25 years, and at interest rates that are lower than those offered by traditional banks. What SBA 504 Loans Can Be Used For An SBA 504 loan can be used to purchase land and existing buildings, to pay for property improvements and renovations, or to build a new facility. Additionally, SBA 504 loans can be used to finance other fixed assets, such as equipment and machinery, or to refinance debt that was used to acquire fixed assets. Under the SBA loan regulations, CDC/SBA 504 loans can be used for these specific purposes: Buying land and existing buildings on the land Paying for property improvements such as adding parking lots, connecting utilities, and landscaping Renovating or expanding an existing facility Building a new facility Buying other fixed assets like long-term equipment and machinery Refinancing debt: An SBA 504 refinance applies to debt that was incurred primarily to acquire 504-eligible fixed assets; the existing debt must be at least two years old and in good standing What SBA 504 Loans Cannot Be Used For SBA 504 loans are great for commercial real estate, but there are several uses of the loan funds that are prohibited. Some of the restricted uses for SBA 504 loans are: Working capital Materials, supplies, or inventory Advertising or marketing Normal operating expenses Speculative real estate investments Rental properties If you need an SBA loan for any of those purposes, read our article on SBA 7(a) loans. SBA 7(a) loans can also be used in conjunction with an SBA 504 loan. If an SBA 7(a) loan better matches your business needs, offers very fast approval and funding times for SBA 7(a) loans up to $350,000. Plus, it can prequalify you in minutes. SBA 504 Loan Qualifications Qualifying for an SBA 504 loan is very similar to qualifying for a traditional commercial real estate loan. You will need to be able to demonstrate repayment ability and have a clean financial history. Some of the basic qualifications include: Minimum credit score: 680 Debt service coverage ratio (DSCR): At least 1.25x; you can calculate your DSCR by dividing your annual net income by the sum of the annual principal and interest payments on your loans, which are the SBA 504 loan and any other existing debt obligations Down payment: 10% to 20% of the combined CDC/SBA loan amount Clean financial history: There should be no recent bankruptcies, foreclosures, tax liens, or delinquent government loans in your personal or business financial history In addition to the general SBA loan requirements, the SBA 504 loan program has four specific requirements: the property must be owner-occupied, jobs must be created or retained as a result of the loan, the business must have a net worth of less than $15 million, and any equipment purchased with the loan must have a service life expectancy of at least 10 years. 1. Property Must Be Owner-occupied For the property to meet the SBA 504 requirements, it must be at least 51% owner-occupied. You can rent out part of the building but must be using the majority of it for your business. If the loan is for new construction, the building must be at least 60% owner-occupied at initial occupancy, increasing gradually to 80% owner-occupancy within 10 years. 2. Jobs Must Be Created As part of the loan process, you will need to explain how your use of the loan proceeds will create or retain jobs that would otherwise be lost or how you’ll support public policy goals. Currently, the rule is that one job must be created or retained for every $65,000 of funding. This increases to one job per $100,000 borrowed for small manufacturers. You can also qualify for an SBA 504 loan by enhancing other public policy goals like energy conservation and supporting minority business development. 3. Net Worth of Less Than $15 Million Your business must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes for the last two years. 4. At Least 10-Year Equipment Life Any equipment purchased with the funds must have at least a 10-year economic life. Some acceptable items include machinery and larger manufacturing or commercial-use equipment. SBA 504 Maximum Loan Amount Current SBA rules set the maximum amount you can borrow with an SBA 504 loan at $14 million. However, due to restrictions on the use of proceeds and qualifying projects, the amount your project qualifies for might be lower. Most banks prefer to provide SBA 504 loans for projects of $500,000 or more, due primarily to the effort required to close a 504 loan. SBA 504 Loan Rates and Fees With an SBA 504 loan, you can expect to pay low interest rates and minimum fees. In general, the annual percentage rate (APR) on the bank portion of the loan will range from 4% to 10%. The rates for the CDC portion of the loan are fixed and currently range from 2.5% to 3% APR. Keep in mind there are two loans made as part of an SBA 504 loan. The first is a loan from a traditional lender, such as a bank, for up to 50% of the total loan package. The rates, terms, and fees for that portion of the deal have very few restrictions. As such, they can vary from borrower to borrower. Most people find the commercial real estate loan rates and terms for this portion of the deal to still be very favorable compared to other financing options. The second part of the loan is issued by the CDC, up to 40% of the package. The rates, terms, and fees for this portion of a 504 loan are regulated heavily. The CDC loan is a 10-, 20-, or 25-year, fully amortizing, fixed-rate loan. It works the same way as a traditional mortgage loan. The borrower pays equal monthly payments for the life of the loan, at which point the loan is completely paid off. SBA 504 Loan Interest Rates & Fees: CDC Portion of the Loan The interest rate on the CDC portion of the 504 loan consists partially of an interest rate that is set to Treasury bills that are sold at auction on a monthly basis in the case of the 20- and 25-year loans and on a bimonthly basis in the case of the 10-year loan. The remainder of the CDC loan interest rate is made up of three fees: SBA guarantee fee: This is an ongoing SBA monthly guarantee fee of .914% of the principal balance of the note, calculated at five-year intervals, beginning with the first payment. Servicing agent fee: The Central Servicing Agent (Wells Fargo) collects an additional 0.10% of the principal balance of the note, calculated at five-year intervals. CDC servicing fee: This varies between 0.625% and 2.00%, with a maximum of 1.50% in rural areas. The CDC will pay 0.125% to the SBA each month and keep the remainder. As of June 2021, the interest rates on the CDC portion of the 504 loan are: 10-year term: 2.612% 20-year term: 2.764% 25-year term: 2.883% CDC Portion of the SBA 504 Loan: One-time Fees When the SBA 504 loan is made, there are some initial one-time fees. These will be financed into and amortized over the life of the loan. Common one-time costs include: Underwriting fee: 0.375% to 0.4% Processing fee: Up to 1.5% Legal fee: $2,000 to $5,000 Funding fee: 0.25% Guarantee fee: 0.5% While all of these fees may seem overwhelming when you look at them individually, even with all of the fees included, they only amount to 2.5% to 3% of the value of your loan and will be amortized with the loan note. CDC Portion of the SBA 504 Loan: Prepayment Penalty Prepayment penalties are common with commercial real estate loans and are also a feature of an SBA 504 loan. The prepayment penalty is calculated on a sliding, decreasing scale. The penalty is figured on the debenture interest rate―at the time the loan was issued―not the effective interest rate of the loan, and only on the CDC portion of the loan. For a loan with a 20- or 25-year maturity, the penalty applies to the first 10 years of the loan and decreases by 10% each year. For a loan with a 10-year maturity, the penalty applies to the first five years of the loan and decreases by 20% each year. Example: Assume when a 20-year loan was issued, the effective interest rate for the month of July 2019 was 4.060%, and the debenture interest rate was 1.980%. The prepayment penalty declines by 10% of the debenture rate each year. It drops by a factor of .198% each year. For this example, the prepayment penalty percentages would look like this: SBA 504 Loan – CDC Prepayment Penalty SBA 504 Loan Interest Rates & Fees: Lender Portion of the Loan The interest rate offered on the lender portion of an SBA 504 loan is at the discretion of the bank or nonbank lender and typically ranges from 4% to 10%. Ultimately, you and your representatives must negotiate the best possible rates, fees, and terms for your deal. Summary of Lender SBA 504 Loan Interest Rates & Fees In most cases, the bank or nonbank lender loan will have a five- to 10-year term amortized over 20 to 25 years. In the case of loans with 10-year terms, the interest rates usually reset after five years. This means that after five years, your interest rate could go down, go up, or stay the same. It depends on what the market rates are at that time. While the long amortization will keep your monthly payment lower, it means you will have a balloon payment due in five to 10 years unless you choose to refinance the remaining balance. Refinancing a first mortgage when a balloon payment comes due can be problematic in some cases. If your business sees a downturn prior to refinancing or if your property has significantly depreciated, it may be difficult to find a lender willing to work with you. The bank portion of the loan may come with its own set of closing costs and third-party costs, such as appraisal fees, environmental fees, architectural fees, and legal fees. Fortunately, these can typically be included in the financing as well. Loan Options for Commercial Real Estate: SBA 504 vs SBA 7(a) vs Traditional Loan Top 4 Benefits of an SBA 504 Loan The SBA guaranteed over 17% more 504 loans in Federal FY 2020 than FY 2019, an increase that is consistent over the past several years. The SBA 504 program’s popularity among businesses is due to the great advantages it offers borrowers. The four primary benefits to getting an SBA 504 loan are low interest rates, a low down payment is needed, long repayment terms are available, and no additional collateral is necessary. 1. Low Interest Rates Interest rates for the CDC portion of the loan are limited by the SBA and currently range between 2.6% and 3%. That rate is fixed and will not increase for the life of the loan. The bank’s loan doesn’t have these limitations. The rates typically fall between 5% and 10% and can be either fixed or variable. 2. Low Down Payment While most traditional commercial loans require a 20% to 40% down payment, an SBA 504 loan requires a down payment as small as 10%. If your business is a startup or the property you want to buy is a single-use building, you will need a 15% down payment. The down payment requirements increase to 20% for startups purchasing single-use properties. Even if you’re operating a startup business and purchasing a single-use building, the 20% down payment requirement with the SBA 504 loan is advantageous. As a startup, many traditional lenders may be hesitant to offer financing and, if it were offered, it would likely involve a much larger down payment. 3. Long Repayment Terms While most traditional commercial mortgages are five- to 10-year loans, the CDC portion of an SBA 504 loan has a 10-year term for equipment and 10-, 20-, or 25-year terms for real estate. Typically, the bank portion of the loan has a seven-year term for equipment and a 10-year term for real estate. The longer repayment term offered on the CDC loan reduces the monthly payment, making the payments more affordable. 4. No Additional Collateral The real estate or other fixed assets being financed by the SBA 504 loan are generally sufficient as collateral. With no additional collateral required beyond the real estate or fixed assets you are financing, your remaining assets remain lien-free. How to Apply for an SBA 504 Loan The bank portion of an SBA 504 loan can be funded by any bank, credit union, or commercial lender that works with the SBA. Many financial institutions will partner with a CDC and be able to assist in finding a CDC partner. Conversely, a local CDC may partner with several banks in their area. There are 243 CDCs nationwide. To find one that will work with you, we suggest using the SBA’s CDC Finder tool. Additionally, rankings of the top 504 lenders in your area may be available through SBA district offices. When you apply, a business plan and financial projections will be required. Additionally, the past three tax returns for the business and any owners with 20% or greater ownership interest will need to be provided with the application. A good lending option for SBA 504 loans is . Lendio is an online broker that works with more than 70 financial institutions and will provide numerous potential matches for your application. It may save you time searching for a bank or CDC to work with. Bottom Line An SBA 504 loan is one of the first types of financing you should consider if you’re purchasing commercial real estate to operate your business out of or if you’re buying long-term equipment that holds its value. The low down payment will allow your small business to preserve more cash for working capital, and the low interest rates and long repayment terms will be easier on your cash flow.