If you’re considering an SBA loan as an affordable and flexible source of capital for your small business, 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. The longer the term, the less you pay each month.
The Small Business Administration provides several SBA loan programs to help entrepreneurs like you looking to grow their small businesses. Most often, they guarantee a percentage of the loan amount for which the lender is charged a guaranty fee, which can then be passed on to the borrower. Of all the SBA loan products, 7(a) loans are the most common and flexible, useful for a variety of purposes like equipment purchases, debt consolidation, and even 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 commercial real estate purchases. The interest rates associated with these loans are calculated using the Prime Rate, which is determined by the US Federal Reserve, plus a lender spread subject to a cap set by the SBA. These depend on the size and maturity of the loan.
At SmartBiz®, we match your SBA 7(a) loan application with the bank in our network that’s most likely to say “yes” to funding. Loans offered through our marketplace have a variable interest rate based on the Prime Rate plus 2.75% to 3.75%, depending on the size of the loan.
- Working Capital and Debt Refinance loans between $30,000 and $50,000 have a variable interest rate currently at 8.50% (Prime Rate + 3.75%)
- Working Capital and Debt Refinance loans between $50,000 and $350,000 have a variable interest rate currently at 7.50% (Prime Rate + 2.75%)
- Commercial Real Estate loans between $500,000 and $5,000,000 have a variable interest rate currently at 6.25% (Prime Rate + 1.50%)
Learn more about our terms, rates, and fees here.
SBA CDC/504 Loans
SBA 504 loans are mostly used for commercial real estate and equipment purchases, and can be taken out for amounts ranging from $125,000 to around $20,000,000. Because they are split into two loans, one from an SBA-licensed Certified Development Company (CDC) and one from a financial institution like a bank, the terms and maximums can vary. The CDC portion, which makes up 40% of the loan amount, can have either a 10-year or 20-year term, while the bank portion may be shorter. There is also an associated guaranty fee typically in the 1-2 percent range.
One of the main differences between 504 loans and 7(a) loans is that 504 loans have a fixed interest rate on the CDC segment, rather than a variable one. Currently, the maximum is at around 5%, depending on the specific loan amount. However, the 50% of the loan made out by the bank has interest rates that depend on the lender’s policies, and may even include a balloon payment.
An SBA Express loan is SBA-guaranteed for amounts up to $350,000. These loans usually have a 10-year repayment term, but because they’re intended to be quicker and easier, they have higher interest rates than standard 7(a) loans.
Usually, the process for obtaining funds even with an SBA Express loan can 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 small businesses can apply online and get funds at lower rates in as fast as 7 days after completing the application.
SBA microloans are made for amounts up to $50,000 through nonprofit organizations with preference given to women, low-income, veteran, and minority entrepreneurs. The maximum repayment term is 6 years, but is usually as short as possible.
In terms of the corresponding interest rates, intermediaries can charge a maximum of 7.75% over their cost of funds for microloans over $10,000, and a maximum of 8.5% over their cost for microloans of $10,000 or less.
Because these loans are made by intermediaries who receive funding from the SBA, they are not guaranteed, so there is no associated guaranty fee.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.