SBA Loans
Small businesses based in the U.S. can utilize a variety of financing options backed by the SBA. Save money with low interest rates, and generous repayment terms.
Overview
The Small Business Administration exists to boost local economies by helping businesses that create jobs in the area. To secure financing from the SBA, there are a few qualifications that have to be met. Two common choices are the SBA 504 loan and the SBA 7(a) loan. Although similar, these two loans vary in a few important ways. To qualify for either loan, the business must have a net worth of under $15M and an annual net income of $5M or less. There are also restrictions on the types of businesses that qualify.
Common Terms and Conditions
Before seeking financing from the SBA, the business must exhaust other financial resources, including personal assets. It must be a for-profit business operating in the United States. During the application process, a criminal background check is typically required on anyone with a significant share in the business. The interest rates on both loans are capped by SBA guidelines, which are based on the U.S. Treasury bond rates. Businesses also have net worth limits of $15M and a maximum net revenue of $5M.
SBA Loans
An SBA 504 loan can cover the purchase of land, real estate or equipment. It can also be put toward renovations and land development. To apply for an SBA 504 loan, borrowers have to connect with their local Certified Development Company, or CDC. The CDC handles loan applications and connects borrowers with lenders. This way, the borrower can get financing for up to 90% of the cost of the project. That’s 40% from the SBA and 50% from a private lender. The remaining 10% is the borrower’s down payment responsibility.
SBA 7(a) loans cover real estate and equipment as well, but the 7(a) loan can be used for working capital too. As long as the expense is deemed appropriate for the business, this loan can cover it. Unlike the 504 loan, this SBA loan is serviced by a bank, credit union, or private lender. Interest rates are fixed or variable, depending on the lender, but have to be within the range set by the SBA.
- An SBA 504 loan can provide up to 90% of project costs.
- Minority-owned and women-owned businesses are encouraged.
- Interest rates are capped by the SBA.
- SBA 7(a) loans can be used for working capital like bills and new hires.
Loan Highlights
- To qualify, the business has to earn $5M or less per year in net income.
- SBA 504 loans are financed through a Certified Development Company.
- SBA 7(a) loans are financed through private lenders, credit unions, and banks.
- For-profit businesses in the U.S. that have under $15M in net worth can apply for SBA loans.
Benefits
- An SBA 504 loan can provide up to 90% of project costs.
- Minority-owned and women-owned businesses are encouraged.
- Interest rates are capped by the SBA.
- SBA 7(a) loans can be used for working capital like bills and new hires.
Challenges
- Certain types of business, like religious schools and casinos, do not qualify.
- SBA 504 funds must be used for a specific project.
- Applicants may have to go outside of their local area if no CDC is available.
- A founder or investor with a criminal record may disqualify a business from receiving SBA funds.