SBA loans are the best and satisfactory way to finance your small business. These loans are guaranteed by the Small Business Administration (SBA), which enables lenders to provide low rates and flexible terms. Getting one can assist you to grow your small business without acquiring likely debilitating debt. The SBA has many small business funding programs. Picking the wrong program could mean missing out on imperative benefits.

There are almost 6 types of SBA loans:

  1. SBA 7(a) Loans

An SBA 7(a) loan doesn’t come directly from the Small Business Administration. Instead, a certified SBA lender will make the funding to your business and the SBA ensures a part of it, extenuating much of the risk for the lender. With the Small Business Administration guaranteeing a large part of the business loan, the lender can lower its lending requirements, allowing the small business owners with less established credit histories or less cash flow to qualify.

SBA 7(a) Loan Qualifications

Startups and previously established small businesses can use SBA 7(a) loans. To qualify for an SBA 7(a) loan, you may usually need to have:

  • Credit score above 680 is ideal
  • No recent bankruptcies, foreclosures, or tax liens
  • Collateral: While the SBA will not refuse to guarantee a loan because of insufficient collateral, a lender is less likely to authorize a loan that is not supported by satisfactory collateral. Loans under $25,000 don’t require collateral
  • 10% down payment if you are purchasing a business with the loan, business property, or equipment 

For a comprehensive list of eligibility requirements, visit the SBA’s website.

SBA 7(a) Loans
Use of SBA 7(a) Loan Equipment purchase, working capital, refinancing, commercial real estate, buy a business or franchise, leasehold improvements and so on.
Minimum Requirements Credit Score over 680

10% Down Payment

 

Collateral (but loan doesn’t have to be fully collateralized)

Interest Rates 5.75 – 8.25%

(8-10% for SBA Express loans)

Loan Amount Up to $5 million
Terms Up to 10 years for general purposeUp to 25 years for commercial real estate

 

  1. CDC/SBA 504 Loans

A CDC/SBA 504 loan is a government-backed loan for owner commercial real estate and different fixed assets. This loan is a combination of two different loans that are made all together. The primary loan is from a traditional or non-traditional lender and covers 50% of the acquisition cost and while the second loan is from a CDC and covers up to 40% of the purchasing value. You give the outstanding 10% in the form of a cash down payment.

CDC/SBA 504 Loan Qualifications

To be eligible for a CDC/SBA 504 loan, your business should have:

  • Credit score above 660
  • Down payment of 10% of the project fee
  • Meet the job creation or public policy goals
  • Have a noticeable net worth of less than $15 million and net income less than $5 million after taxes for the last two years
  • Not be engaged in hearsay or investment in rental property
  • Not have funding available from other sources
  • Have the ability to pay off the loan on time from the projected working cash flow of the business

For a comprehensive list of eligibility requirements, visit the SBA’s website.

CDC/SBA 504 Loans
Use of CDC/SBA 504 Loans Construction or renovation, commercial real estate; purchase of other fixed assets.
Minimum Requirements Credit score over 680

10% down payment

 

Meet public policy goals and job creation

 

Real estate should be no less than 51% owner occupied

Interest Rates 3.78 – 5.39%
Loan Amount Up to $14 million
Terms 10 or 20 years

 

 

  1. SBA CAPLines Lines of Credit

The SBA CAPLines are especially designed to help small businesses fulfill their short-time and recurring working capital requirements. By addressing the short-term working capital requirements of businesses, these CAPLines can help small businesses administer their cash flow cycle and maintain growth.

SBA CAPLines Qualifications

SBA CAPLines qualifications are similar to the SBA 7(a) program with some additions. You usually will need to have:

  • Credit score above 660
  • No latest bankruptcies, tax liens or foreclosures
  • Short-term collateral
  • 20% or more of personal guarantee from owners
  • Collateral (additional)

For a comprehensive list of eligibility requirements, visit the SBA’s website.

SBA CAPLines
Use of SBA CAPLines For seasonal and short-term working capital requirements to fulfill contracts and POs
Minimum Requirements Credit score above 660

Your business should pledge inventory, accounts receivable, purchase orders, or contracts as collateral for the funding.

 

For Seasonal LOC, the business should be at least 1 year old and show a seasonal pattern to revenue

Interest Rates 5.75 – 8.25%
Amount Up to $5 million

Small Asset-Based Lines have a limit of $200k

Terms Up to 5 Years

 

  1. SBA Export Loans

The SBA Export Loan program offers fixed asset financing and working capital for businesses with a view to start or expand exporting. Export transactions, export development costs, and translation of the product literature or manual are some of the items covered.

SBA Export Loan Qualifications

SBA Export loan qualifications are the same as SBA 7(a) loan, although with some differences based on which SBA Export Loans you apply for. Generally, you’ll need:

  • Credit score above 660
  • No tax liens, recent bankruptcies, or foreclosures.
  • 20% or more of personal guarantee from owners
  • Collateral (the more, the better)

For a comprehensive list of eligibility requirements, visit the SBA’s website.

SBA Export Loans
Use of SBA Export Loans Small business exporting for development or expansion
Minimum Requirements Credit score above 660

Business must export products or services to foreign countries

 

The business must be at least 1 year old for Express Export loan

Interest Rates SBA Export Working Capital Loan: no limit

SBA Export Express Loan: 8% – 10%

 

International Trade Loan: 5.75% – 8.25%

Amount Up to $5 million

Up to $500k for SBA Export Express

Terms 7 years for SBA Export Working Capital Loan

Up to 3 years for SBA Export Express Loan

 

Up to 25 years for International Trade Loan

 

  1. SBA Microloan Program

This SBA funding program provides short-term small loans to small businesses and some sort of not-for-profit child-care facilities. The SBA grant funding access to particularly selected intermediary lenders, which are the community-based organizations that are nonprofit with understanding and knowledge in lending as well as technical and management support. These intermediary lenders make funding to qualified borrowers. The average SBA microloan is about $13,000; however the maximum amount is $50,000.

SBA Microloan Qualifications

Qualifications for SBA Microloan will differ from lender to lender. Unlike most of the SBA loan programs, the SBA leaves the qualifications up to the lender, who will set all qualification requirements and make all credit based decisions.

Here are some basic requirements:

  • Credit score above 640
  • Collateral
  • Personal guarantee

For a comprehensive list of eligibility requirements, visit the SBA’s website.

SBA Microloan
Use of SBA Microloan Working capital, equipment, inventory, furniture or fixtures.

The loan can’t be used to refinance debt or buy real estate.

Minimum Requirements Credit score above 640

Require collateral

Interest Rates 8% – 13%
Amount Up to $50,000
Terms Up to 6 years

 

  1. SBA Disaster Loans

SBA disaster loans are the funds for disaster damage that is not fully covered by insurance or other compensation. These loans are the low interest loans for businesses of any size, non-profit businesses, renters and home owners. These loans are made to replace and repair the real estate, equipment, inventory and business assets.

SBA Disaster Loan Qualifications

The SBA Disaster Loan qualifications are somewhat different. One key difference shared by all of them is that you will be applying for a loan when you may not be in good shape.

  • Applicants need to show an ability to repay the loan
  • Collateral is required
  • Do not need to be a for-profit business
  • The qualification is primarily based on what injury your business has suffered 

For a comprehensive list of eligibility requirements, visit the SBA’s website.

SBA Disaster Loans
Use of SBA Disaster Loans Working capital, repair and replacement of damaged property.
Minimum Requirements Credit score above 660

Suffered physical or economic damage from a disaster

 

Must be located in an SBA declared disaster area

Interest Rates 4-8%
Amount Up to $2 million
Terms Up to 30 years
Summary
6 Major Types Of SBA Loans Explained
Article Name
6 Major Types Of SBA Loans Explained
Description
The SBA has many small business funding programs. Picking the wrong program could mean missing out on imperative benefits. There are almost 6 types of SBA loans.
Author
Merchant Advisors
Merchant Advisors