• SBA Loans as Business Loans

    In this article we will discuss the two most common SBA Loans. They are the SBA 7(a) and the CDC/SBA 504 loans. We will cover what an SBA loan is, how to qualify, uses of the loans, and some current interest rates.  See link at end of article for “How to apply”.

    What is an SBA loan?

    It is a term loan most often made by a bank or credit union.  Contrary to popular opinion, the SBA does not make loans themselves. The SBA offers a guarantee to the lending institution of up to 80% of the loan amount.  This guarantee gives banks the incentive to make loans to the small businessman.  The Federal Government designed the program to simulate business growth.

    What are SBA loans used for?

    Here are some of the typical uses for SBA loans:

    • Franchise Purchase
    • Equipment Purchase
    • Working Capital
    • Real Estate purchase
    • New Construction
    • Leasehold Improvements
    • Furniture and Fixtures
    • Business Acquisition
    • Debt Refinancing
    • Marketing / Advertising

    What can serve as collateral for an SBA loan?

    How do I qualify for an SBA loan?

    • You will need a 10% down payment
    • Sufficient collateral to satisfy the lender must be offered
    • Good credit ( preferably above 680)
    • No recent bankruptcies, foreclosures, or tax liens
    • Business must have fewer than 500 employees
    • Average annual revenue for the past three years must be less than $7.5 million
    • Borrower’s net income must be under $5 million
    • The SBA requires a personal guarantee from every owner with at least a 20% ownership stake
    • Borrower’s net worth must be less than $15 million
    • Not delinquent on any existing debt obligations to the U.S. government
    • Be a for-profit business in the U.S.

    What are the interest rates, terms, and limits on the SBA 7(a) program?

    The SBA limits what banks can charge for interest to 2.75% + prime rate.  Go here to get today’s prime rate: http://www.bankrate.com/rates/interest-rates/prime-rate.aspx   Banks can charge less than 2.75% + Prime rate but cannot charge more.  The maximum loan amount is $5,000,000.  The most common terms are for loans lasting 7-10 years.  Loans on real estate can be made for up to 25 years.

    Because the SBA approval process can take months the SBA offers the SBA Express program which guarantees the SBA approval will be given to the bank within 36 hours. (The bank lending approval can still take much longer).   The max rates are at 6.5% + Prime for loans under $50k and 4.5% + Prime for loans over $50k.  The SBA only guarantees 50% of the bank’s loan amount to the bank.

    What are the interest rates, terms, and limits on the CDC/SBA 504 program?

    The CDC/SBA 504 program is designed primarily to finance real estate and long-term equipment costs. The program actually combines two lenders to finance the project. A bank, non-bank lender, or credit union will make 50% of the loan.

    • The Community Development Corporation will make up to 40% of the loan amount.
    • The remaining 10% comes from the borrower.

    The CDC portion of the loan must have either a 10 year term or 20 year term.  Both must be fixed interest rates. The maximum interest rate for the 10 year note is 0.38% + 5 Year Treasury Note Rate.  The maximum interest rate on the 20 year note is 0.48% + the 10 Year Treasury Note Rate. You can find Treasury Note Rates here https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

    For the bank/non-bank portion of the loan the rate and term are negotiable and the SBA does not limit the interest rate.  Rates are typically from 4%-8%.  The loan will typically have a 5-10 year term and a 20-25 year amortization.

    In addition the 504 program requires that the borrower comply with certain public policy and community development rules that are found on the SBA website.

    How do I apply for an SBA loan?

    Just click here:      http://www.peachstatefinancial.com/contact-us-2/   for assistance in preparing your loan request package and presentation to multiple lenders. Our fee is paid by the lender.




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