SBA (Small Business Administration) Loans And Financing: A Complete Guide In 2019


Small Business Administration or also shortly known as SBA loans was a method of loaning out money to help the Americans for stating, building and growing their businesses, which was started back in 1953. SBA partners, being an independent agency for the government of not only public but also of private organization, seek to deliver their services to the people in need in form of loans.

You need to understand first hand that SBA loan is actually not a form of direct loan from SBA but instead is a type of loan that has been issued from a commercial leading partner who have received the guarantee from SBA. In addition to guarantee, these commercial partners are also structured in accordance to the requirements set by SBA. This is done in order to minimize the risk involved for not only the partners but also for the borrowers. The loan is only given to those who do not have access to another form of reasonable funding.

Due to the guarantee requirements as well as the practices regarding the loans are directly dependent upon the situation of US government; the lending terms for these loans may also change in regard to the changing economic conditions as well as the government policies.

Only those who are a part of the following US territories are eligible to apply for this SBA loan.

  • United States
  • Guam
  • US Virgin Islands
  • Puerto Rico

Types of Loans offered under SBA Program:-

Under the SBA loan program, borrowers are offered a variety of different types of loans which are divided mainly into following 4 types.

  • General Small Business Loans
  • Microloans
  • Real Estate & Equipment Loans
  • Disaster Loans

It is not a brainier that each type of the above stated loans is applied through its very own terms as well as an individual application form. For those who do not go down the lane of “Debt Financing”, they can take up some of the following other SBA offers.

  • Surety Bonds Program
  • Venture Capital Program
  • Numerous Grants

Still, SBA does not offer grants to people to start their business but some of these government gnats are provided to the non-commercial organizations like the following.

  • Non Profit Organizations (NGOs)
  • Educational Institutes

Uses of an SBA Loan:-

If a person has decided that SBA loan is the best option to either start or grow their business then the next step in their course of action is to come with a plan to use the loan in right manner.

A person must need to know as to how much money they want for their business and how much will suffice to achieve the goals they intended for their business.

We have outlined few of the things a person can use the SBA loans for as follows.

  • For purchasing a  business or in order to expand your existing business
  • For purchase of a commercial real estate such as buildings and lands
  • For making new constructions or making improvements to the already existing buildings
  • For the purchase of either new or the used machinery, supplies, equipment etc
  • For development of a new business if a person has just started their business
  • In order to have capital of either long term basis or short term basis or for the debt consolidation

A note to pay heed to; each of these loan categories come with their own terms and requirements along with a down payment which is also varied. Lastly different policies are also related to the interest rates as a form of collateral.

For a person who is in need of a loan due to an unforeseen circumstance, let’s say some natural disaster, then the person in question can seek out a Disaster Loan for the following uses.

  • In order to either replace or repair their home and their personal property (mainly home owners along with tenants are eligible for this loan type)
  • For the replacement or repairing of the business property
  • In order to sustain an Economic Injury related to business
  • Military reservists with an economic injury

Type of SBA Loan Best suited for your needs:-

In our previous description, we have clearly outlined all the four main general types of SBA Loans. It is recommended for a person seeking out the SBA loan to familiarize himself with all the different options before even applying for a loan. Below we will present an in-depth review of all the available loan types under the program of SBA Loan.

General Small Business Loans 7(a):-

The General Small Business Loans or also more commonly known as the 7(a) loan, is the most common type of loans that the Americans opt for under SBA loan program. The reason is that it covers a wide range of business needs such as the followings.

  • Purchase of commercial property
  • Purchase of equipment
  • Refinancing debt
  • For he payment of numerous business operational expenses

In addition to the above stated uses for this loan type, there are also a number of other following uses especially for this type of loan.

  • Export and import needs for business
  • Needs of rural business
  • Needs for short term business capitals

For those who are already operating a  business they are only eligible to apply for this loan if their business is already for basis of profit and their net worth does not exceed a sum of 15 million dollars or their net income has not exceeded a sum of 2 million dollars for the last 2 years.

For those who have a rural business, they are best suited to take a look at these following loans.

  • CAPLines
  • SBA Export Loan Program
  • Advantage Loans
  • Rural Business Loans
  • Community Advantage Loans

Terms of repayments, total loan amount, fees as well as interest rates for the loans:

The terms of repayment for the General 7(a) loan include the following types.

  • Maturity terms
  • Amortization
  • Collateral

The maximum sum of money that can be taken as a loan under General 7(a) loan is about 5 million dollars. As for a minimum amount limit, there is none.

As for the fee, all of the SBA loans are to have a guarantee fee that is based on the following factors.

  • Maturity date of Loan
  • Dollar amount which has not been guaranteed

Lender has the option to either pay this guarantee fee in the start or later as well as pass it to borrower.

The interest rates related to the General 7(a) loan are set by both the SBA and the partner that lends the loan. These rates are divided into two following parts.

  • Base rate
  • Allowable spread

The base rate is further decided in following three ways.

  • A Prime rate that is already published in a Daily national Newspaper
  • London Interbank One Month Prime plus 3%
  • SBA Peg Rate

As for the allowable spread, it is added by lenders to the base rate which arrives after the final interest rate. As for the capping of these rates, they are made by SBA as follows.

  • Loans which have a maturity date of fewer than 7 years, they are allowed a maximum spread of nearly 2.25 percent
  • Loans with a maturity date of more than 7 years can have a maximum spread of nearly 2.75 percent
  • Loans which have been either processed through the express procedures or have a sum of fewer than 50000 dollars,, they can have a high rate

Microloans:-

Many small businesses often opt to this type of SBA loan program. This mainly includes Non Profit child care centers and the loan issued is no more than for a sum of 50000 dollars.

Microloans are often issued to help a person either start or to make expansion to their business.

Some uses of Microloans are as follows.

  • To purchase furniture, equipment, fixture and machinery
  • For purchase of supplies and inventory
  • A Working capital

Terms of repayments, total loan amount, fees as well as interest rates for the loans:

The thing to note here is that these microloans are not intended for the repayment of other debts neither are they are for the purchase of the real estate.

Although these Microloans are issued by the specific intermediary lenders, the funds of these loans are issued by SBA themselves.

As for the interest rates of the Microloans, they are also set by these intermediary lenders. The general interest rate lies somewhere in between 8 to 13 percent.

The terms of repayments for Microloans are dependent upon following factors.

  • A planned usage of the loan
  • The amount of loan
  • Requirements set by the lender
  • Need of the business owner

One other thing to remember regarding these Microloans is that every lender for these loans requires some credit as well as a type of collateral and a personal guarantee of the small business owner.

Real Estate & Equipment Loans: CDC/504:-

This loan type, as it sounds is intended for the person with following intentions to use it.

  • For the purchase of real estate or the purchase of the equipment
  • Making improvements on the real estate or the commercial property
  • Conversion or renovation of the already existent commercial property

CDC in this loan is meant for “Certified Development Company”.

For those who seek to apply for the CDC/504 loan, they need to have following.

  • Business plan
  • Management expertise
  • Good character

It is to be mentioned here that the CDC/504 loan cannot be applied for the following reasons.

  • For the purchase of an inventory
  • For working capital
  • For refinancing
  • For repayment of a debt
  • For renting  real estate

Terms of repayments, total loan amount, fees as well as interest rates for the loans:

The repayment terms of this loan can vary in between a period of 10 to 20 years.

As for the interest rates, they are fixed by the SBA on the basis of an increment of the current market for either 5 years of 10 years which the US Treasury issues.

The guarantee fee for this loan type is about 3 percent of the actual loan amount and is to be financed with the loan.

Disaster Loans:-

Disaster loans are the ones with lowest interest rates and can be applied by business of all sizes as well as types. Even homeowners and tenants can apply for these loans.

The primary target for these loans must be for repairing or replacing either the damaged or the destroyed items that occurred during a declared Natural disaster. Items that are eligible for replacement or repairing under the Disaster loans category are as follows.

  • Real Estate
  • Business Assets
  • Personal Property
  • Machinery
  • Inventory
  • Equipment

Types of Disaster loans:-

There are following four main types of disaster loans.

Home & Personal Property:

  • A person may apply for a maximum sum of 20000 dollars for repairing or replacing their residence. It is not be used for upgrading.
  • Homeowner or tenants can apply for a sum of maximum 40000 dollars for repairing or replacing the personal property which got damaged or destroyed during a disaster.

Business Physical Disaster:

A person can apply for a sum of 2 million dollar max for replacing or repairing the following items.

  • Property
  • Machinery
  • Equipment
  • Fixtures
  • Inventory

Economic Injury:

A person can apply for a sum of maximum 2 million dollars for keeping up with the operational expenses as well as the financial obligations

Military reservists Economic Injury:

  • A person can apply for a sum of maximum 2 million dollars in order for a small business to keep up with all types of operating expenses which could have occurred if the employee has not been called for an active military duty for being a military reservist.

Types of natural disasters:

Natural disasters are the following events which are applicable to applying for the Disaster loans.

  • Earthquakes
  • Severe Storms
  • Floods
  • Wildfires
  • Building Fires
  • Tornadoes
  • Civil unrest
  • Rockslides
  • Gas Explosions

The repayment terms are determined by the circumstances of each individual person under the above stated Disaster Loan categories.

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