September 26, 2020

SBA Loans: Business Loans for Small and Medium Businesses

SBA Loans: Business Loans for Small and Medium Businesses:

Small business Administration (SBA) offers a wide range of business loans to small businesses in the US. They offer conventional loans for startups, business expansion, and working capital management. Additionally, SBA offers loan relief and disaster aid programs to help small businesses during the economic crisis.

How SBA Loans Work:

SBA offers loans through banks and approved lenders to small businesses. Unlike direct bank financing, your business can get business loans without collateral. SBA works as a guarantor to the lenders against the default risk of the borrowers. SBA’s loan guarantee covers up to a maximum of 90% of the total loan amount. SBA loans come with flexible terms and lower interest rates than commercial loans. However, the lending criteria with SBA loans are higher than bank loans and private lenders.

Types of SBA Loans:

SBA offers different loan categories for small business owners.

Loan ProgramLoan LimitInterest Rate
SBA 7(a) Loan$ 5 million2.25% to 4.25% + premium for maturity of less than 7 years2.75% to 4.75% + premium for maturity of greater than 7 years
Cap Lines$ 5 millionSame as 7(a)
Express and VA loans$ 350,000$ 5 million under 7(a) program6.5% + prime < $50,000 and 4.5% + prime >$50,000
SBA International Trade$ 5 millionSame as 7(a)
Microloans$ 50,000Up to 8.75% + Prime
Current Prime rate: 3.25%

SBA also offers disaster relief programs and loan relief packages. Small businesses can receive different relief packages under PPP, EDIL, and physical damage loans. Some relief loans and one-time grants are issued for a limited period such as the recently disbursed corona relief aid program under EIDL and PPP loans.

SBA Loans Advantages:

Small and medium-sized businesses can apply for any type of business loan under the SBA umbrella. Startups, running businesses looking for business loan for working capital expenses, and businesses with international trade can equally benefit from these loans.

SBA loans provide some key benefits to small business owners:

  • Low-Interest rates as compared with private lenders. An SBA loan comes with an APR of 10% (average) and private lenders may charge an APR as high as 90%.
  • Flexible repayment terms up to 25 years for real estate. Up to 10 years of other business loans.
  • Down payment requirements are minimal as compared with bank loans
  • Borrowers may apply without collateral

SBA Loans Disadvantages:

Business loan terms flexibility and lower interest rates aside, SBA loans come with some limitations too.

  • Borrowers often have to pledge a personal guarantee
  • Loan approvals take longer time than private lenders and bank loans
  • SBA loan approval criteria are strict with higher credit score requirements
  • Some business loans such as microloans and working capital loans come with low maximum limits (often up to $50,000) only.
  • Need to provide proof of no alternative financing options for the same loan type

SBA Loans are the Best Match for you if:

  • You are small business owner with no collateral
  • You lack access to private and commercial loan facilities
  • Looking for low-interest rates over longer repayment terms
  • Looking for SBA relief or disaster aid programs

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