Although the SBA doesn’t issue loans, it provides a government guarantee on bank issued loans, which makes it easier for more businesses to qualify. Businesses still must have good to excellent credit, but, more importantly, they must have a solid plan for growth and a very positive cash flow outlook. To be considered for an SBA loan, a business must have less than 500 employees and less than $5 million in average net income for the prior three years. In qualifying for an SBA loan, businesses are viewed more favorably when they demonstrate a willingness to invest their own resources in their growth plans.
SBA 7(a) Loans
SBA 7(a) loans are considered to be the best for financing business growth. They are low cost and the SBA guarantees up to 85% of the loan amount. The minimum loan amount is $30,000 and the maximum is $3.75 million. Loan rates are capped by the SBA keeping them just above the prime rate. Loan terms vary, ranging from seven to 10 years and extending to 25 years for real estate purchases. Loan proceeds can be used for any sound business purpose, including working capital, debt refinancing and equipment or real estate purchases.
SBA 504 Loans
For larger financing needs, such as the acquisition of real estate, equipment or another business for expansion purposes, the SBA 504 loan offers better terms with financing up to $14 million. To be considered for an SBA 504 loan, businesses must plan on using the loan proceeds on projects that will expand jobs in the area, revitalize a business district or create economic value for the community. Loan amounts are based on the number of jobs the project is expected to create or maintain. With an SBA 504 loan, the SBA partners a Certified Development Company (CDC), a non-profit microlender, with a private lender to provide up to 90% of the financing. The CDC puts up 40%, which is fully backed by the SBA and the private lender puts up as much as 50%. The borrower is required to put up at least 10%.