An SBA loan is a type of financing partially guaranteed by the Small Business Administration. SBA loans are offered through approved lenders like banks, credit unions and non-bank lenders. These loans typically provide longer repayment terms, smaller down payments, and are generally less restrictive than conventional business loans.

These versatile loans can be used for various business needs, including:

• Starting a Business
• Acquiring Another Business
• Expanding Operations
• Moving or Building a New Site or Facility
• Purchasing Equipment
• Buying Commercial Real Estate
• Refinancing Existing Debt

Requirements may vary for different reasons, but you will usually need the following:

• To Operate For Profit in the United States
• Have Reasonable Owner Equity to Invest
• Exhibit Good or Above Average Credit
• Craft a Sold Business Plan
• Show Sufficient Post Close Liquidity
• Exhaust Alternative Financial Resources (before applying for an SBA loan)

Copmmon SBA loans include:

• SBA 7(a) Loan (for general business purposes)
• SBA 504 Loan (for major fixed assets)
• SBA Express Loans and Lines of Credit (for smaller financing needs)

Interest rates on SBA loans are most often based on the Prime Rate plus a margin chosen by your bank or lender. This additional percentage can vary based on the loan type and amount. For example, express loans often have higher margins than 7(a) loans. The average margin on a 7(a) loan is between 1% - 2.75%.

The timeline can vary depending on the loan type and lender of choice. Some loans are approved and funded within a few weeks, while others might take months to approve. 

The length of the approval process depends on the complexity of the loan, the quality and speed of the loan documents provided by the borrower, and the efficiency of the bank or lender processing the request.

• Business Plan
• Business & Personal Tax Returns
• Business & Personal Bank Statements
• Prior Year’s Financials (P&L and Balance Sheet)
• YTD Financials statements (including cash flow projections)
• Driver’s License
• 24 Months Projections & Assumptions
• Resume
• Legal Entity Documents
• Business Debt Schedule
• Business Asset List
• Use of Funds Schedule
• YTD Accounts Receivable / Payable Report

SBA loans typically require a guarantee fee. Most banks and lenders also charge a loan packaging fee, which is typically around $2,000.

As of September 30, 2024, the SBA is waiving the guarantee fee on loans of $1 million or less.

The maximum amount varies by loan program. 7(a) loans cap out at $5 million, while SBA Express loans cannot exceed $350,000.

Lenders often combine SBA and conventional financing to provide loans in excess of the $5 million cap. This type of structure is called a Pari Passu.

If a borrower defaults on their SBA loan, the lender will first attempt to recover the funds through an alternative payment plan or asset liquidation. If a portion remains unpaid, the SBA covers a percentage, typically 75% of the shortfall, with the bank responsible for the remainder.