SBA Express Loans have consistently been one of the best business financing options for small businesses in the United States. SBA stands for the Small Business Administration, and all SBA loans are backed by this federal agency. In fact, the term SBA Loans was actually SBA-backed Loans when they were introduced. These loans, therefore, come with certain benefits such as long repayment terms, lower down payments, and reasonable interest rates. This allows business owners to get additional funds for their business growth, without taking on potentially threatening debt with huge interest rates.
But before you choose an SBA loan for your business financing needs, you need to thoroughly understand the eligibility and documentation to determine whether it’s a good fit for your needs or not. To get you started, we’ve compiled a comprehensive guide on SBA Loans for small businesses.
What are SBA Loans?
SBA loans are partially guaranteed by the federal agency known as the Small Business Administration, and most of the participating lenders are banks. You can get a business loan of $30,000 to $5,000,000 as per your eligibility for a term of 3 to 25 years.
There are six types of SBA loan programs available for businesses to choose from, including:
- SBA 7(a): This is the most utilized SBA loan since 7(a) helps businesses establish working capital, purchase real estate, refinance debts, or contribute to business growth. Besides being the most commonly used type of SBA loan, SBA 7(a) loans are also widely known due to their extended repayment terms, low-interest rates, and up to $5 million loan ceiling.
- CDC/SBA 504 Loan: Small businesses planning to build or buy commercial real estate occupied by the owner should opt for a CDC/SBA 504 loan. Collaborating with the lender or bank, a Certified Development Company (CDC) contributes 40% of the loan, and the lender gives 50% of the share. The 10% left is considered as the borrower’s down payment.
- SBA CAPLine Program: Do you need seasonal or short term business capital? CAPLines offer five-year repayment schedules for fixed or revolving credit lines up to $5 million. In fact, the program offers five types of credit lines including: seasonal lines of credit, builders lines of credit, contract lines of credit, small asset-based lines of credit, and standard asset-based lines of credit.
- SBA Export Loan: As the name suggests, SBA Export Loans help domestic businesses expand their export activities in international markets. Owners are required to give a 20% guarantee for export loans, but you can leverage this funding option even if your business is only a year old.
- SBA Microloan: These loans are provided by nonprofit lenders who work as a bridge between a business with small capital needs and the SBA. Small businesses, as well as non-profit centers, can get up to $50,000 as microloans. However, the average microloan small businesses take is around just $14,000. They also have the highest interest rates among the SBA, starting from 8% and going all the way to 13%.
- SBA Disaster Loan: Any physical or economical disaster that can be covered with some additional capital is covered by the SBA Disaster Loan program.
Is Your Business Eligible for SBA Loans?
SBA Express loans are widely recognized for their flexibility, but partial federal government involvement eliminates startups or new businesses from eligibility. A business must fulfill the following requirements to be eligible for business loans.
- Your enterprise should be a for-profit business from an eligible industry based in the USA.
- Your business should have a minimum of $100,000 in annual revenue.
- For most SBA loans, your business must be established and making revenue for at least 3 years.
- Your business should maintain a 145+ Business Score
- Your personal credit score must be above 680.
- Your business should not have any recent outstanding liens, judgments, or bankruptcies.
These eligibility requirements do not guarantee your business will qualify for an SBA loan. However, if all of these boxes are ticked, the SBA option should certainly be something to consider.
Documentation Required for SBA Express Loans
Apart from the initial application, you’ll need to arrange detailed information about your enterprise if you are looking to leverage SBA Express Loans for your business. Here is the list of complete documents you must have to apply for an SBA Loan:
- Completed REIL Capital Application
- Business Bank Statements of last 3 Months
- Business Tax Returns of last 3 Years
- Personal Tax Returns of last 3 Years
- Business Profit & Loss Statements
- Business Balance Sheet
Additional documentation such as Business Accounts Receivable and Accounts Payable may also be asked for during the SBA Loan process, depending on the type of loan you’re applying for, and any risk factors SBA underwriters might find on the file.
Benefits of SBA Express Loans
As discussed earlier, SBA Express Loans are capable of helping small to midsize businesses get funding on flexible terms. If you’ve maintained a good credit score and need funding for business growth in a couple of months, we suggest you consider the SBA Express Loan program. It may not be as quick as other funding options, but SBA loans have several benefits that attract varying business types, such as:
- Longer payment terms: You can get as long as 25 years term on some SBA Loans.
- Affordable monthly payments: Since the loans are available on longer terms, monthly payments become quite affordable, leaving business operational costs unaffected.
- Lower interest rates: Partial involvement of the federal government makes the interest rates very low on most SBA Loans as compared to other business loans.
- Ideal for varying business types: With a wide window of $30,000 to $5,000,000 as funding options, different businesses can leverage SBA Express Loans.
Why Your Business May Need SBA Loans
You may wonder why someone would wait for weeks in order to get funds when there are several other options that give nearly instant approvals for small businesses. To determine why SBA Loans may be an ideal option to help your business grow, we need to understand their importance in front of other business lending products.
SBA loans offer the gold-standard business funding with government-backed, long-term, low-rate loans for the most prepared businesses. You can leverage it for equipment, inventory, real estate, or some more working capital, without the risk of affecting your monthly cash flow at all. SBA loans are highly competitive, and that’s why all these have a rigorous application process.
If you have been around in the market for a while, and possess all the required qualifications for SBA Express Loans, you should strongly consider the SBA Loan product to keep your monthly budget unaffected.