28Jul

Small Business Buyers and Sellers Have access to Multiple Government Loan Programs

Access to capital is one of the greatest challenges to small businesses. We’ve broken down the six types of SBA loans, as well as other forms of business funding to help you determine the best SBA loan type for your specific needs.

SBA 7(a) Loan

The SBA 7(a) loan is the most common and multipurpose small business loan. SBA 7(a) loans can be used for a variety of reasons and therefore appeal to nearly all small business owners. These loans are also desirable for low interest rates, long terms, and the large amount that can be requested up to $5 million. The 7(a) loan cannot be used to pay off debt or bills. These loans are not available to nonprofits, or businesses that deal with lending, rentals, or investing.

Types of SBA 7(a) loans include:

  • SBA 7(a) Standard Loan: The basic 7(a) loan for any qualifying small business with 25-year terms and a $5 million limit. 
  • SBA 7(a) Express Loan: The Express Loan is a variation of the 7(a) loan which provides a response within two days, limits funding to a loan amount of $350,000, and has a higher interest rate. 
  • SBA 7(a) Community Advantage Loan: A variation of the 7(a) SBA loan which is designed for businesses in underprivileged areas that do not meet the regular qualifications for a 7(a) loan. There are relaxed requirements and a $250,000 lending cap. 
  • SBA 7(a) Veterans Advantage Loan: A loan for businesses owned by veterans, active duty, active reserve, or spouses/widows of such individuals. Limits are up to $5 million but may include a guarantee or down payment. 

Best for

Best for general purpose capital, equipment financing, purchasing businesses, debt refinancing, real estate, and expansion.

Requirements

Requirements for an SBA 7(a) loan are a credit score of at least 680, no recent bankruptcies or foreclosures, and the business must be at least two years old. If the funding is for the purchase of real estate, equipment, or another business then you must be able to provide the 10% down payment. Collateral is usually required in the form of business assets.

Rates & Terms

Traditional SBA 7(a) loans are up to $5 million, with Express loans capping at $350,000 and Advantage loans at $250,000. SBA 7(a) loans are generally 25-year terms, but smaller loans may be for 10-year terms.

CDC/SBA 504 Loan

For a CDC/SBA 504 Loan, the Small Business Administration teams up with a local community development corporation (CDC) to help fund real estate purchasing or building for small businesses. The CDC supplies 40% of the loan, the SBA lender 50%, and the business is responsible for the 10% down payment.

Best for

SBA 504 loans are best for small businesses looking to buy or build commercial real estate for expansion or a new location. Particularly useful for small businesses looking to establish strong ties with the local community.

Requirements

For the building to be financed, the small business needs to occupy at least 51% of the space. General SBA requirements must be met, such as the 680-credit score and company size, as well as any local requirements of the community development corporation which may include several jobs provided, public policy goals, and community outreach.

Rates & Terms

The lender side of the loan will be determined by the bank issuing the loan, but the CDC rates and terms are set by the SBA. A 10-year loan will have a 4.85% interest rate, while a 20-year loan will issue a 5.07% interest rate.

SBA CAPLine Program

The Small Business Administration offers five different lines of credit for small businesses who may need access to capital during cyclical seasons of need or for short term projects. The lines of credit may be revolving or fixed according to the type and need of the business. There are four main types of these credit lines:

  • Contract:  for covering the costs of contracts
  • Seasonal: for covering seasonal increases in costs such as labor or inventory
  • Builder: for covering construction and renovation costs
  • Asset-based: for working capital and converting assets to fluid cash

Best for

An SBA CAPLine best for businesses that may need flexible funding options, especially for short-term projects or unknown expenditures.

Requirements

Businesses must meet general SBA requirement criteria to qualify for a CAPLine, but they will also need $100,000 annual revenue. Depending on the type of CAPLine credit line you may need to meet additional specifications, such as demonstrating your ability to complete a contract or generate seasonal income.

Rates & Terms

Revolving or fixed credit lines up to $5 million. Builder lines are 5-year terms, with all other CAPLine lines of credit lasting 10 years. Interest may be fixed or variable, and can land anywhere between 5.25-8.75% APR.

SBA Export Loans

To support American businesses and build export commerce, the Small Business Administration created the SBA Export loan program. Small businesses that wish to expand into international markets or to support their export trade can apply for three types of export loans:

  • SBA International Trade: for exporting businesses or those negatively impacted by changes in international imports
  • SBA Export Working Capital: for obtaining working capital to cover expenses due to purchases from foreign customers
  • SBA Export Express: a smaller business loan (up to $500,000) with faster turnaround time

Best for

SBA Export loans are best for small businesses that operate internationally or want to expand into international markets.

Requirements

Small businesses looking for an export loan only need to be in operation for one year but will be required to front a 20% guarantee for the loan. Businesses will also be required to demonstrate their successful involvement in international markets.

Rates & Terms

Export loans are up to $5 million, except the express loans which are $500,000 total. The working capital loans are up to 3 years, 7 years for express loans, real estate up to 25, and all other export loans at 10-year terms. The interest rates vary greatly from 6.75-11% APR.

SBA Microloan Program

SBA Microloans are smaller loans specifically for small and starting businesses that are serviced through nonprofit lenders. These microloans cap out at $50,000 but most are under $15,000.

Best for

SBA Microloans are best for small businesses needing a small amount of cash for a specific, short-term need.

Requirements

General SBA requirements must be met, and any specification criteria for the intermediary lender to qualify for an SBA Microloan.

Rates & Terms

SBA Microloans are up to 6-year terms, with slightly higher interest rates from 8-13%.

SBA Disaster Loan

SBA Disaster loans are designed to support small businesses dealing with the fallout of any kind of disaster. Physical disasters, such as floods, tornadoes, earthquakes, and other acts of God that may cause damage or prevent normal business operations may require funding for small businesses to survive. Economic injury can also be covered, such as the recent complications due to COVID-19 quarantines.

Best for

An SBA Disaster Loan is best for small businesses dealing with financial difficulties due to a disaster or catastrophe such as physical disasters or economic injury such as a pandemic.

Requirements

Unlike other SBA loans, the SBA Disaster Loan program is provided directly by the SBA rather than an intermediary lender. One of the major requirements of a disaster loan is that you must be in operation in a current disaster zone and prove that you’ve been affected. Collateral will also be required for loans over $5,000.

Rates & Terms

If you have alternative credit available your maximum loan term for an SBA Disaster Loan will be 3 years, but otherwise the disaster loans can be up to 30 years. Interest rates are between 3-7% and borrowing loan amount caps at $1.5 million depending on needs.