What is a 7 B loan?
SBA offers four kinds of disaster loans as authorized by Section 7(b) of the Small Business Act: Physical disaster home loans, physical disaster business loans, economic injury disaster business loans, and Military Reservist EIDL loans. SBA makes these loans directly or in participation with a financial institution.
What is a 7(a) loan? The 7(a) Loan Program, SBA's most common loan program, includes financial help for small businesses with special requirements. This is the best option when real estate is part of a business purchase, but it can also be used for: Short- and long-term working capital. Refinance current business debt.
How hard is it to get an SBA 7(a) loan? It can be difficult to get an SBA 7(a) loan if you don't have strong annual revenue, a good credit score (690+) and at least two years in business. SBA 7(a) loan requirements vary from lender to lender, but you'll generally need to meet these criteria to qualify.
Do SBA loans require a downpayment? Yes, the minimum SBA loan down payment requirement is 10% on 7(a) and 504 loans and is based on a business's cash flow and collateral. Weak cash flow or low-value collateral can increase the down payment requirement to up to 30% of the loan amount.
These loans are 100 percent forgivable if the employee retention criteria were met and the funds were used for eligible expenses. The Paycheck Protection Program ended on May 31, 2021. If you're an existing borrower, you may be eligible for loan forgiveness, which you can apply for until the loan's maturity date.
SBA 7(a) loan
This is by far the most popular SBA loan program. Repayment terms for this type of loan depend on how you use the funding. Generally, you're looking at the following maturity terms: 25 years for real estate, 10 years for machinery, and up to seven years for working capital.
Loan amounts
Most 7(a) loans have a maximum loan amount of $5 million. However, SBA Express loans have a maximum loan amount of $500,000. SBA Export Express loans have a maximum loan amount of $500,000. The SBA's maximum exposure is $3.75 million ($4.5 million under the International Trade loan).
Standard 7(a)
Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.
An SBA 7(a) loan can take time to move through approval -- typically, 60-90 days. In addition, if your lender is an SBA Preferred lender, they will have the authority to approve your loan much faster than a non-preferred lender.
SBA 7(a) and PPP loans are intended for different purposes. Businesses primarily use 7(a) loans for business expansion and working capital, while the government provides PPP loans to cover payroll expenses and rent.
What is the easiest SBA loan to get?
SBA Express
This term loan or line of credit offers fixed or variable SBA loan rates as well as the easiest SBA application process, quick approval times, flexible terms, and lower down payment requirements than conventional loans.
SBA loan: Lenders offering SBA loans require credit scores between 620 and 680.
| Loan type | Annual revenue required |
|---|---|
| Commercial real estate loan | At least $50,000 annually |
| SBA loan | Varies by lender and loan type but must demonstrate an ability to pay back the loan |
| Term loan | At least $100,000 |
| Line of credit | At least $36,000 |
If business assets do not fully secure the loan, the lender must take available personal assets of the owners as collateral. This more often than not includes your personal real estate, including your home.
What Happens if You Can't Pay Your SBA Loan Installments? If you can't make your SBA loan payments, you won't just be in trouble with your lender. The SBA will get involved and, when you still can't pay your debt, they'll transfer your account to the US Department of the Treasury.
If you obtained an SBA loan or signed as a personal guarantor on an SBA loan and the loan went into default, the SBA may report the default on your credit report. To that end, federal law authorizes the SBA to report such defaulted debt to credit reporting agencies.
The short answer – No, it is not hard to get an SBA loan! Most businesses are eligible and qualifying is easier than you might think! The SBA 504 loan is specifically designed to help small businesses expand by purchasing fixed assets such as real estate and equipment.
The SBA will pay the lender for the portion of the loan that they have guaranteed, and then contact you to create a plan for repaying your debt with the SBA directly.
You can only use SBA loans for "sound business expenses." That means you cannot use an SBA loan for personal expenses, such as personal credit card bills, your home mortgage, or student loans.
SBA 504 loans are typically larger loans in dollar amounts lent. Businesses can borrow from $125,000 up to $10 million, depending on the business's qualifications and needs. 7a loans, meanwhile, offer smaller dollar amounts, with the maximum loan topping off at $5 million dollars.
What do banks look at for SBA loans?
Lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose.
Most borrowers apply for SBA loans through their local bank, but you can also visit the Small Business Development Center in your area or use the Lender Match tool on the SBA's website to find a lender.
“SBA-guaranteed loan proceeds may not be used to pay a creditor in a position to sustain a loss (including the same institution's debt). This includes any refinancing that will shift all or part of a potential loss from the original Lender to the SBA.”
In the case of SBA 7(a) and Community Advantage loans, you won't get your loan disbursem*nt in one big check, but rather in “controlled disbursem*nts.” Lenders choose to disburse business loan funds in pieces because it keeps you accountable for how you use the funding.
SBA Loans. The Small Business Administration offers loan programs that you can invest in your sole proprietorship. The most popular government loan is the 7(a) loan. This program provides small business owners with low-interest rates.
SBA loans are granted to small businesses to expand their operations via long- or short-term capital, asset purchases, or startup expenses. Small businesses receive loans from SBA partner lenders and the borrower is obligated to pay this lender back.
Like other SBA loans, proceeds received from the CDC/504 program are not counted toward your taxable income. You may also be eligible to deduct up to 100% of interest payments made if you meet all IRS requirements.
Understand Your Business Credit Score
According to the NSBA Small Business Access to Capital Study, 20 percent of small business loans are denied due to weak or nonexistent business credit.
The average small business loan amount is $663,000. The average small business loan amount from large national banks is $593,000. The average small business loan amount from small national banks is $146,000. The average SBA loan is $107,000.
Yes, it is possible to get a small business loan even if you have bad credit. This is because your credit score doesn't matter as much as the overall financial health of your business. Many lenders require a minimum credit score of 500, at least six months in business, and more than $30,000 in annual revenue.
How long does SBA approval take?
Generally, receiving funds following an application takes 30 to 90 days. SBA loan approval time differs depending on the lender you use and the type of loan you apply for. These loans are administered by local lenders who participate in SBA loan programs. SBA loan types include 7(a) loans, 504 loans and microloans.
Sometimes referred to as “the startup loan,” an SBA microloan is a small, short-term, low-interest rate loan designed to assist self-employed individuals, small businesses (with few employees), and underrepresented communities — like women, veteran, or minority-owned or low-income for-profit businesses.
SBA 7(a) loans will be taxed like any other term loan the business has. The tax laws for reporting term loans are simpler than you might think. The IRS doesn't view loan proceeds as revenue. Because SBA 7(a) loans must be repaid within a certain term, the loan proceeds have no impact on the borrower's tax return.
Only direct obligors are reported by SBA since IRS regulations do not consider guarantors to be debtors for purposes of 1099-C reporting. The IRS and the debtor will determine what, if any, income tax obligation may exist with respect to the discharge of debt by SBA.
How much of a business loan you can get depends on your business's annual gross sales, creditworthiness, current debts, the type of financing, and the chosen lender. In general, lenders will only provide loans up to 10% to 30% of your annual revenue to ensure you have the means for repayment.
As an example, if you do ignore communication about your loan default, the SBA has the legal right to refer your loan to the Treasury and begin collecting on assets they know you have, like bank accounts and collateral.
Your Liability for an SBA Loan
If your business obtained an SBA loan, you more than likely signed a personal guarantee. This personal guarantee states that although the business was the borrower for the loan, you remain personally liable if the business defaults on the SBA loan.
In fact, SBA loans can only fund real estate that is owner-occupied, and will be used primarily by the business that is taking out the loan. However, in most cases, a business only needs to occupy 51% of the property it has purchased.
Business owners defaulting on their SBA loan can apply for loan forgiveness, but that does not guarantee the SBA will approve the request. It is more commonly referred to as an "offer in compromise". The SBA evaluates your case and discusses the matter with the lender.
- Credit Scores. Entrepreneurs with bad credit will find it difficult to get an SBA loan. ...
- Cash Flow. ...
- Collateral. ...
- Equity Injection. ...
- Credit Elsewhere. ...
- Criminal History. ...
- Prior Loss to Government.
What can I use my SBA loan on?
According to the SBA, you can use these loans for “most” business purposes, including start-up, expansion, equipment purchases, working capital, inventory or real-estate purchases. SBA loans are secured, meaning, SBA agencies guarantee a percentage of the loan amount to the lender, reducing their risk.
Not using your SBA funds for the program's intended purposes. Not keeping the appropriate records to be in compliance with your SBA loan requirements. Not being truthful about the number of employees you have. Not disclosing receipt of SBA loan funds in an application for additional loan funds.
However, the SBA's Office of Inspector General also has its own auditing division that has responsibility for auditing participants in SBA programs. During an audit, the SBA may review loan application information for accuracy with respect to loan eligibility and amount.
Bank Statements
Most lenders will ask to see a year's worth of personal and business bank account statements along with the rest of your SBA loan application. This SBA requirement will show how much of a cash cushion you can maintain and how you manage your business's daily finances.
SBA 504 loans are typically larger loans in dollar amounts lent. Businesses can borrow from $125,000 up to $10 million, depending on the business's qualifications and needs. 7a loans, meanwhile, offer smaller dollar amounts, with the maximum loan topping off at $5 million dollars.
SBA 7(a) loans can be used for various purposes, including purchasing real estate, equipment, working capital, refinancing debt, and, of course, buying a business.
| Maximum loan amount | $5 million |
|---|---|
| Revolving lines of credit | Up to 10 years (Permitted only under CAPLines submission. See below) |
| SBA turnaround time | 5-10 business days |
| Forms | SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required) |
So in conclusion, is it hard to get an SBA loan? No. Qualifying for a 504 Loan is simple and most for-profit businesses are eligible for SBA funding. Don't hesitate.
