Frequently Asked Questions
| SBA Loan Overview | |
| What is an SBA loan? | SBA loans are programs offered by the U.S. Small Business Administration (SBA), a federal agency dedicated to helping small businesses across America. Their primary loan programs include the SBA 504 and SBA 7(a). More Info (SBA 504) | More Info (SBA 7(a)) |
| What is an SBA 504 loan? | The SBA 504 loan program offers up to $5.5M for long-term, fixed assets, such as real estate or equipment, at a fixed, below-market interest rate and lower down payment. Its goal is to promote economic development and create/retain quality jobs. More Info... |
| What is an SBA 7a loan? | The SBA 7(a) loan program provides a guarantee to the lender or bank, allowing them to finance riskier scenarios. With this program, businesses can receive up to $5M for various business needs. More Info... |
| What is an SBA 7b loan? | The SBA 7(a) loan program provides businesses with up to $5M for various business needs. A key benefit of the program is that it provides a guarantee to the lender or bank, allowing them to finance riskier scenarios. More Info... |
| What is an SBA backed loan? | SBA backed loans help lenders and financing institutions take on riskier loans because they offer a guarantee to help offset a portion of the losses in the event of a default. The SBA 7(a) loan program is a primary example. More Info.... |
| What is an SBA loan used for? | SBA loans are commonly used for business start-up, operating, and expansion costs. Types of eligible costs can include land, real estate, construction, leasehold improvements, equipment, inventory, and working capital. More Info (SBA 504) | More Info (SBA 7(a)) |
| SBA Loan Requirements and Process | |
| What credit score is needed for an SBA loan? | Credit score requirements may vary depending on specific loan programs. Generally speaking, any credit score below 650 will require additional discussion during the application process to ensure eligibility. More Info... |
| What information is needed for an SBA loan application? | While requirements may vary, standard preliminary documentation requirements include a basic project/cost overview, business tax returns, financial statements, and projections, debt schedule, personal tax returns and financial statements, and resumes of all owners. More Info... |
| What is the current interest rate on an SBA loan? | Interest rates on SBA loans vary depending on programs, lenders, and market conditions. The SBA 504 program, specifically, provides fixed, below-market interest rates. More Info... |
| What factors determine the interest rate on an SBA loan? | SBA loan interest rates are determined by a variety of factors. SBA 7(a) interest rates are based on the interest rate market, collateral, and risk, and SBA 504 interest rates are based on the treasury bond market and fees at the time. |
| What are the eligibility criteria for an SBA loan? | To qualify for an SBA loan, businesses must be a for-profit corporation, limited liability company, partnership, or proprietorship with a net worth of less than $15M and an average net income below $5M in the past 2 years. Additional eligibility criteria are dependent on the type of project and specific loan program. More Info... |
| What are the documents required for an SBA loan application? | The most requested preliminary documents for an SBA loan application include a basic project/cost overview, business tax returns, financial statements, and projections, debt schedule, personal tax returns and financial statements, and resumes of all owners. More Info... |
| How long does it take to get approved for an SBA loan? | Approval of an SBA loan is based on several variables and responsiveness of all parties including the business, its owners, the lender, and the SBA. More Info... |
| What is the process for obtaining an SBA loan? | The first step towards getting an SBA loan is to get in contact with your lender. They, along with any other financing parties such as a Certified Development Corporation (CDC), will work to guide you through the loan application, underwriting, approval, closing, and funding process. More Info... |
| Managing SBA Loans | |
| What is required after receiving an SBA loan? | Several components may need to be monitored after receiving an SBA loan, including updated contact information, annual income tax returns/financial statements, insurance compliance, property tax payments, and a two-year jobs creation/retention report. |
| How can I make SBA loan payments? | SBA loan payment methods vary depending on your lender, but typically are automatically withdrawn from your selected bank account each month via ACH. |
| Can I refinance an existing SBA loan? | Government guaranteed debt such as SBA 504 or SBA 7(a) are eligible through the SBA 504 Debt Refinance program, as well as other existing commercial real estate, equipment, or long-term fixed asset debt, professional fees, and cash out for business operating expenses. More Info... |
| What happens if I default on an SBA loan? | If you default on an SBA loan, any collateral for the loan is liquidated with proceeds applied toward the outstanding balance. Any remaining balance is recovered through personal guarantees of the owners and can include garnishments of future wages. |
| Are there any loan forgiveness options for SBA loans? | There are currently no loan forgiveness options for SBA loans. |
| Business Loan Options | |
| How to get a business loan from a traditional lender? | Before meeting with a lender about financing, you will need to prepare a package “Your Ask” - a package of information about your business, its financial situation, its future plans, the owners, their financial situations, and information about why the financing is needed. More Info... |
| How to get a small business loan from an alternative lender? | If conventional financing doesn’t fully fit your needs, you can research alternative financing options through resources such as the Vault. It is best to contact each resource directly and provide them with your specific project cost/needs and business information. More Info... |
| How to get a startup business loan? | The first step towards getting a startup business loan is to contact with your lender. It is important that you understand your financial statements and projections and share this information with your lenders so they can best understand your needs. More Info... |
| What are the differences between SBA loans and conventional bank loans? | SBA loans help to fill gaps where conventional financing doesn’t fully fit the need of the business. These programs are complementary to traditional bank loans and can offer better terms, interest rates, down payments, and collateral requirements than straight conventional. More Info... |
| Is a small business loan secured or unsecured? | Business loans are typically secured to protect the lender in the event of default. |
| Improving Loan Approval Chances | |
| How can I improve my chances of getting approved for an SBA loan? | The more information and transparency you provide your CDC and lender about your needs, the better they can help you create a strong and thorough loan application package to submit for approval. You can do this by preparing “Your Ask”. More Info... |
| How to strengthen my business's financial profile for loan approval? | Work with an accountant to ensure that your financials are accurate and that you understand what they contain. You can also work on making sure that expenses are in line, cash flow is sufficient, and that you have adequate cash available for your project. |
| What are the common reasons for SBA loan application denials? | Ineligible projects, insufficient collateral, insufficient cash flow to support additional debt, poor credit history of the owners, and lack of down payment are the most common reasons for an SBA loan application to be denied. |
| Loan Repayment and Terms | |
| What is the average length of an SBA loan? | SBA loans offer a variety of loan terms and can be as long as 25 years, depending on use of funds. Generally, real estate loans are in the 20–25-year range, equipment loans are in the 7–10-year range, and working capital loans are in the 3–5-year range. |
| Can I prepay or pay off an SBA loan early without penalties? | All SBA 504 loans and SBA 7(a) loans with a term of 15 years or more have prepayment penalties. SBA 7(a) loans with a term of less than 15 years can be paid early without penalty. |
| What are the typical terms and conditions of an SBA loan? | SBA loan terms and conditions vary depending on loan type, collateral, lender, use of funds, and project risk. It is best to talk with your lender about your specific needs. |