What is the SBA?
SBA stands for Small Business Administration. It was created in 1953 with the express purpose of helping, counselling, and protecting the interests of small businesses.
They understood that small businesses were important to the nation’s overall economy, so their ultimate goal was to maintain the strength of the economy by supporting small businesses and their growth.
What is an SBA Loan?
An SBA loan is a business loan that is partially guaranteed by the government, though the loan itself is provided by a financial institution such as a bank.
The SBA creates eligibility and credit guidelines that loans must meet, and then backs the approved loans up to 85%, depending on the loan type. This means that if a business defaults on the loan, the bank is repaid by the government up to 85% of the loss.
And that’s a good thing for small businesses.
Why?
Financial institutions, like any business, assess the risk of new deals they take on. If a small business fails and is unable to pay back a loan, the bank can take a big loss.
But with the backing of the government, there is less risk to financial institutions that make the loan. So, banks are able to make more loans to small businesses – loans that, without the SBA, might not otherwise have been approved because of the risk of loss to the bank.
SBA loans can be used for many purposes, including:
- Buying, constructing, or renovating a building
- Acquiring equipment
- Making leasehold improvements
- Buying an existing business
- Purchasing a portion of a business
- Starting a business
- Buying inventory
- Providing working capital
What are the Different Types of SBA Loans?
There are several different types of SBA loans, all with a slightly different purpose and loan size limits.
Two of the more common SBA loan types are 7(a) loans and 504 loans. There are also SBAExpress loans, which have a faster turnaround time; SBA Veterans Advantage loans geared toward veterans and active-duty military; microloans created for smaller loan amounts; and many others.
While each type of SBA loan has specific guidelines that may be different, here are a few things you may want to know about what’s available from an SBA loan:
- The maximum loan size of an SBA 7(a) loan is $5.0 million
- The maximum loan term for a real estate acquisition or refinance is 25 years
- The maximum loan term for a non-real estate loan is 10 years
- There are no balloon payments for SBA loans
- While interest rates will vary dependent on several factors, in general they tend to be between 1.50% and 2.75% over the Wall Street Journal’s Prime Rate
Again, there are several different types of SBA loan, and each has different rates, terms, maximums, and minimums. For information on all of the different types of SBA loans, including how each loan program can be used, maximum interest rates and loan amounts, who qualifies, and borrower benefits, contact one of our SBA lenders.
Is an SBA Loan Right for Your Business?
SBA loans can fit a number of needs. Whether your business can benefit from an SBA loan will come down to a lot of different factors – factors you may want to discuss with an expert. You can start by reading this blog about how SBA loans can help grow your business, heading to our SBA page to learn more about what we can offer, or contacting one of our dedicated SBA experts.