SBA Loan: Complete Guide On What You Need To Know
Imagine getting a business loan for your small business without having to repay the full amount in case of a default?
Small Business Administration (SBA) loans provide you with this privilege. At Fund.Do, we are associated with the SBA to provide efficient SBA financing to our clients. Such loans help small businesses thrive at their own terms and at their own pace.
However, it is important to understand what SBA is in detail before diving into our services as SBA loan providers.
What Is SBA Loan?
SBA Loan is essentially a small business loan provided by commercial banks or other financial lending organizations to businesses. Reading this definition might make you think it is not different from the traditional business loans. However, SBA loans fall into a different ballpark altogether.
The major difference between SBA loans and traditional business loans lies in their repayment in case of defaulted repayment. These loans are backed by the Small Business Administration (SBA).
Here, lending organizations provide loans to businesses and earn the interest. However, these loans are backed by SBA by 50%-90%. This implies that if the borrowing business is not able to repay the loan on time, SBA would pay 50%-90% of the loan back to the lender.
These SBA loan payments encourage lenders like to provide loans to small businesses. You can approach our lenders for availing an SBA loan just like any other business loan, provided you agree to the standardize interest rates and terms laid out by SBA.
SBA loans motivate several small businesses to leverage their scale and improve their functionality. You can approach our team of professionals for availing an SBA loan for:
- Funding your working capital,
- Making investments in land and property,
- Investing into machinery or
- Fulfilling other relevant financial needs of your business.
How Do SBA Loans Work?
The process of applying for an SBA loan is not simple, with the borrower having to follow strict terms and conditions. Not just you as the borrowers, but we as lenders are also required to follow strict guidelines.
The application process in getting an SBA loan is strict and longer as compared to many other loans. Our lenders will review your application carefully and approve you loan only when all the eligibility criteria are duly met.
Here are the criteria you need to follow in order to become eligible for the loan:
Similar to majority of other business loan, we will take into consideration your personal credit score while processing your application. Before availing our services, it is advisable to ensure that your creditworthiness is sufficient to seek an SBA loan.
Our team would check your personal credit score as well as your business FICO score. For being eligible to avail the loan, you are required to have a minimum personal credit score of 680 and a minimum business FICO score of 160.
Your credit history, history of loan repayments and business standing in the market will sufficiently affect your eligibility criteria. Please note that a recent bankruptcy would significantly reduce the likeliness of you getting an SBA loan.
Another important eligibility criterion we take seriously is your on-hand capital. Majority of the loans taken under SBA financing are high in value and taken for a longer period time.
This makes it important for lenders like us to ensure whether you will be eligible to make your regular down payments. For being eligible to obtain an SBA loan, it is important to have a significant amount of down payment for your business.
This down payment is nothing but the capital you are able to invest in your business. Although SBA backs a large percentage of your SBA loan payments in case you default them, the lender will not receive the full amount.
This makes it important for SBA loan providers like us to ensure that you have sufficient capital on-hand to be able to afford the repayments.
This is essentially an extension of the previous eligibility criterion. As SBA loan providers, we need to be certain of the fact that you generate sufficient revenue to settle your debt.
If you are borrowing a loan to start a new business, we may also look into the personal income of your family to ascertain your financial standing. Documents like tax returns, recent financials and other relevant financial statement would also be required to check your eligibility.
It is important to note that your personal property may be considered as collateral in case you default your SBA loan payments. Lenders might therefore ascertain the value of your personal assets while processing your loan as well.
However, if all the other eligibility criteria are duly met, you will not be refused from availing our SBA financing services and will still get the loan.
For processing loans such as these, it is important to ensure that the borrower holds a favorable reputation in the society. This applies to both your business and your personal reputation.
Our lenders might ask you questions about your personal history and important events that define the reputation you earned in the society and display your personal character.
We would also ensure that your business holds a respectable position in the market. This is essentially to rule out any possibility of foul play, preventing the money from going into the wrong hands.
Once all these eligibility criteria are met, you have chosen the type of SBA loan you want to avail, produced all necessary documents and agreed to all the terms and conditions, your application for the loan will be approved.
Factors That Disqualify You As A Borrower
We at Fund.Do welcome all kinds of small businesses and serve all their needs, but certain factors make it impossible for us to provide you with any financial aid.
You will be disqualified from availing our SBA financing services:
- If you are presently facing probation after being convicted for a crime,
- If you are not a US citizen or do not hold a Green Card,
- If you have had a criminal charge on you in the last six months, or
- If you are willing to open an illegal or unethical business through the loan.
SBA Loan: Terms and Terminology
As mentioned earlier, it is not so easy to get your application for an SBA loan approved. There are certain specific terms and conditions attached to the loan, as set by the SBA.
Though the loan amount and eligibility criteria differ from one business to another, SBA loan terms are uniform for every business across the board. It is advisable to go through all the terms carefully before making an application.
Talking about terms, it is also important for borrowers to be well-versed with the terminology associated with SBA loans. Here are the basic terms associated with SBA loans every borrower should be familiar with:
Down payment is essentially the amount you are contributing to the project for which you are availing the loan. It is also known as “equity injection.”
For instance, if you are willing to purchase a business worth $1 million and are investing a sum of $200,000 of your own, you are in a position to make 20% down payment.
It is mandatory for a borrower to spend a significant amount of money as down payment for obtaining an SBA loan. The criterion for down payment is set between 10%-30% of the principle amount borrowed as loan.
This is the most commonly used term in matters regarding loans. Just to refresh your memory, the final amount repaid by a borrower is more than the principle amount borrowed. The difference between these two amounts is called interest.
Interest is generally calculated as a percentage of the principle amount. The final amount repaid by the borrower depends mainly on the rate of interest and the time period for which the loan was sanctioned.
In the case of SBA loans, the rate of interest depends on:
- The bank or financial lender’s spread (markup rate), and
- The prime rate (daily) set by the Federal Reserve
Depending on the kind of loan and its tenure, the rate of interest can be fixed throughout the term or variable.
Repayment Schedule, also known as amortization schedule, is the schedule maintained by the borrowing for making SBA loan payments. You can save sufficient interest money if you can afford to repay the loan over a shorter period of time.
While applying for an SBA loan, considering your repayment schedule will prove to be of utmost importance. It is this schedule that will decide the time you will take to settle your debts.
One of the most important terms regarding SBA loans is the fact that the borrowers are required to sign a personal guarantee. This clause is signed before the application is processes, implying that the borrower assumes complete responsibility of the loan.
On signing the personal guarantee, you become directly liable for repaying the loan back to the lender.
If you are a business owner with more than 20% equity ownership, the personal guarantee you sign would also imply that you agree to your personal assets being used as collateral if you are not able to repay the loan.
Irrespective of the kind and scale of your business, the personal guarantee remains the same across the board.
What Is SBA Loan?
One of the biggest benefits of an SBA loan over other business loans is that they are sanctioned for a longer business loan term. This gives the borrowers sufficient time to recover their debts and utilize the loan amount in their best interest.
The term of your SBA loan essentially depends on the purpose for which it is sanctioned to you. Here are the loan terms for some of the common purposes:
- If you are availing a loan for funding your daily operations or working capital, your term would be seven years.
- If you are availing a loan for purchasing equipment for your business, your term would be ten years.
- If you are availing a loan for making real estate purchases, your term would be as long as twenty five years.
It is important to note that longer terms involve lower rates of interest and vice versa.
How To Get An SBA Loan?
In order to apply for an SBA loan, it is important to ensure you are eligible to do so before approaching us.
Although our lenders are more than happy to serve you, it will save you tremendous amount of time if you check all the prerequisites before approaching us.
It is advisable to visit the official SBA website and have a look at the checklist for obtaining a loan. Gather all the documents required for your application based on this checklist.
Approach the lenders only if you are certain that you are eligible for the loan.
Here are some of the documents you will be required to produce for getting your application processed:
- Financial statement (personal)
- Business tax returns of the last three years
- Statement of personal history
- Lease of your business
- Loan application history
- SBA borrower’s information form
- Certificate or license of your business
- Income tax returns of the last three years (personal)
Once you have all the required documents, you can approach us for filling and submitting your application. Our team would review all the documents, cross-check data and process your application.
Please note that an SBA loan might take a few weeks or even months to get processed. It is certainly not the borrowing method to go for if you are in need of instant money.
Types of SBA Loans
Depending on the kind of business you own, the market you belong to and the purpose for your borrowing, we provide seven types of SBA loans to our clients.
SBA 7(A) Loans
These are the most prominent and widely sanctioned SBA loans. Here, you get a loan amounting up to $5 million. These funds can be utilized for any of your business purposes, according to your convenience.
The interest rates associated with this loan are fairly low ranging in between 7% and 9.75%. Moreover, the repayment terms for the loan can be up to 25 years for commercial real estate investments and 10 years for other purposes.
The low interest rates and high repayment terms have made SBA 7(a) loans a favorite of small business owners. However, it is important to note that the interest rates tend to fluctuate with an increase in prime.
SBA 504 Loans
These are the loans born out of a partnership between SBA and certified development companies (CDC). CDC is essentially a non-profit organization certified exclusively by SBA for providing these loans to small businesses.
However, you cannot use these funds according to your convenience. You are required to use this money for funding your fixed assets. These assets include investments in purchasing new buildings or building new ones. Majority of these properties have a minimum of 51% occupation by the owner.
The loan repayment term of these SBA loans range between 10 and 20 years.
SBA Express Loans
As the name suggests, these SBA loans cater to the borrowers in need of instant money. If you are not willing to wait for months for you loan to be processes, you can opt for these loans.
Here, your loan is processes in a few days or weeks.
However, the eligibility criteria for these loans are strict, with higher interest rates as compared to other loans. The maximum amount sanctioned to you under an express loan is $350,000.
As opposed to other loans, SBA guarantees not more than 50% of the principle in case you fail to repay an express loan. Such loans are suited if you want to finance an already existing business.
SBA CAPLines Program
This financial program helps small businesses in availing funds for financing their short-term working capital. It is essentially a line of credit where a specific amount is at your disposal. You can make withdrawals out of the same according to your choice.
CAPLines comprises of four different credit programs in association with an SBA 7(a) or 504 loan. The interest rates for this program range from 5.75% to 8.25%, with a repayment term of not more than five years.
As the name suggests, SBA Microloans are designed to suit the requirements of business owners operating at a very small scale. If you require considerably low funds for financing your company or setting up a new one, Microloans will suit your needs.
These loans are often preferred for setting up home-based and freelancing businesses. As opposed to other SBA loans, Microloans are funded by the SBA. However, they originate and are finally approved by intermediary financial lenders (non-profit).
SBA Export Loan
These are the SBA loans that can be sanctioned for businesses that engage in international trade. You can only avail this loan if you have been in the export business for over a year.
The repayment terms and interest rates for SBA Export Loans fluctuate on a frequent basis.
SBA Disaster Loans
Staying true to the name, disaster loans are the SBA loans dedicated to cover the business losses incurred by an economic or natural disaster. Under this loan, you can get funds up to $2 million with interest rates as low as four percent.
However, for qualifying for disaster loans, you are required to produce a valid proof of the impact caused by the disaster.
Why Choose Our SBA Financing Services?
Fund.Do is one of the best SBA financing services providers for small and medium enterprises. Our lender provides SBA loans that cater to an array of financial needs a business may require.
Here are some of the key reasons why SBA loans procured from us are beneficial for your business:
All the SBA loans are provided at a lower rate of interest by our lenders as compared to commercial banks. Our primary motive behind providing SBA loans is to help smaller business grow and establish a favorable stand in the market.
We ensure that the loans provided to you increase your purchasing power as a business. You can avail SBA loans ranging from $75,000 to $5 million from us. This amount is certain to help you invest in productive areas, allowing you to reap handsome profits in future.
Higher purchasing power also provides you with sufficient flexibility in terms of taking bold measures for the sake of your business. With increased flexibility, you can let your desired come true by making your venture reach new heights!
Our lenders provide flexible financing options to the clients though our SBA financing services. As a smaller business, combining your SBA loan with ROBS (roll-over as business start-ups) or portfolio loans would work wonder for your business finances.
We make valuable suggests to our clients that help them increase their borrowing power beyond their cash reserves. On being asked, we help our clients out by helping them choose the most ideal financing options and the right SBA loan to go for.
On availing our services, you will be notified for every little detail regarding your SBA loan. For instance, you will be notified well in advance for the monthly installments you have to pay.
Such notifications and updates on a regular basis will help you in cost estimation. We understand how important it is for smaller businesses to monitor their costs on a daily basis.