An SBA loan offers fast, flexible funding to help you grow your small business. But, there is more than one type of SBA loan, and each has their own set of terms and regulations. If you’re considering applying for a SBA loan, it’s important to take the loan terms into account. Once you determine the terms, you’ll know what to expect from your regular payments.
What are loan terms?
The term, or maturity, of a loan usually refers to the span of time in which the loan is intended to be repaid, assuming that the minimum payments are regularly met. Generally speaking, the longer the term, the less you pay each month.
The Small Business Administration (SBA) provides several loan programs to help entrepreneurs like you grow their small businesses. Most often, they guarantee a percentage of the loan amount for which the lender is charged a guarantee fee, which can then be passed on to the borrower. The fee is typically added to the loan amount and repaid over the term of the loan, rather than paying it upfront in cash.
Of all the SBA loan products, 7(a) loans are the most common and flexible, useful for a variety of purposes like increasing working capital, making equipment purchases, consolidating debt, and investing in commercial real estate.
SBA 7(a) Loans
Based on the use of proceeds, SBA 7(a) loans typically have a repayment term of 10 years for the purposes of working capital and debt refinancing, and 25 years for purchases of commercial real estate or equipment with a useful life exceeding 10 years.
Most 7(a) term loans are repaid with monthly payments of principal and interest from the cash flow of the business. The interest rates associated with these loans are calculated using the Prime Rate, which is determined by the U.S. Federal Reserve, plus a lender spread, subject to a cap set by the SBA. These depend on the size and maturity of the loan.
For fixed-rate loans, payments stay the same because the interest rate is constant. For variable rate loans, the lender may require a different payment amount when the rate changes.
SBA CDC/504 Loans
The SBA 504 Loan Program provides long-term, fixed rate financing for major fixed assets that promote business growth or job creation. A 504 loan may be used for a range of assets along these lines, including the purchase or construction of existing buildings or land, new facilities or long-term machinery, and equipment purchases. The maximum loan amount for a 504 loan is $5.5 million.
504 loans are available exclusively through Certified Development Companies (CDCs). CDCs understand the unique loan program regulations and may help you navigate the lender channels efficiently. Loan repayment terms vary according to several factors. Repayment terms range from 10 to 25 years.
504 loans have a fixed interest rate, which totals approximately 3% of the debt. The interest rate may be financed with the loan.
SBA Express Loans
An SBA Express loan allows certain lenders to use their own processes and procedures in exchange for a lower SBA guarantee percentage. The maximum loan amount is $500,000 with 50% maximum SBA guaranteed. These loans usually have a 10-year repayment term. Lenders and borrowers may negotiate the interest rate, but it cannot exceed the SBA maximum rate.
The process for obtaining funds even with an SBA Express loan may be more lengthy, complicated, and costly than applying for an SBA 7(a) loan through SmartBiz. Our advanced software streamlines the SBA loan process so that small businesses can apply online and get funds at lower rates, and sooner, after completing the application and being approved.
The SBA Microloan program provides loans up to $50,000 to help small businesses and some not-for-profit childcare centers start up and expand. The average microloan is around $13,000. SBA provides funds to specially designated, community-based, nonprofit lenders with experience in lending and management. The maximum repayment term is six years, but is typically as short as possible.
Interest rates vary depending on the nonprofit intermediary lender. Generally the rates are between 8 and 13 percent. Because these loans are made by intermediaries who receive funding from the SBA, they are not guaranteed, so there is no associated guarantee fee.
Applying for an SBA Loan
At SmartBiz, our mission is to equip every entrepreneur with reliable access to the funding they need to grow. No matter which SBA loan is right for you, our streamlined application process, intuitive technology, and dedicated team are here to help you find the right financing, without wasting your valuable time. Apply today and see if you qualify in about five minutes.