What is an SBA Loan?

Are you ready to apply for an SBA loan?  If so, please click here to return to our home page and begin the SBA loan application process that allows you to submit your four-minute mini-app to over 100 different SBA lenders.

 

The Small Business Administration (SBA) is a branch of the Federal government.  The SBA does not actually make small business loans.  Instead, the SBA merely guarantees up to 90% of the principal of certain business loans made by banks and other specialized SBA lenders.  Two of the most popular SBA loan programs are the CDC/504 program and the SBA 7(a) program.

An SBA lender will make a commercial real estate loan that is fully-amortized over 20 or 25 years.  Right off the bat, this is a very attractive program because most commercial real estate loans have a loan term of only five to ten years. 

The SBA will then guarantee up to 90% of this small business loan for the bank.  Because of the guarantee, the bank will typically be able to sell the loan off in the secondary market at a handsome premium - often five to seven percent of the loan amount.  A loan or a bond sells for a premium when it fetches more than the face amount of the debt, usually because the interest rate is higher than the market rate.

In order to qualify for an SBA loan, the business owner must occupy, or intend to occupy, at least 51% of the commercial real estate being purchased.  The commercial real estate cannot have a residential component.  For example, if the target property consisted of an old home and a large warehouse, it probably could NOT be financed using SBA financing.

SBA  loans must be fully-collateralized.  In other words, the SBA lender is likely to blanket all of the borrower's inventory, receivables and equipment.  This makes it difficult for the business to obtain a business line of credit from a bank.  In addition, the SBA lender will usually blanket the personal residence of the borrower. 

Borrowers can also obtain SBA loans for working capital, to purchase equipment or to acquire businesses or franchises.  The required downpayments, however, are larger.  Start-up borrowers will usually be required to put at least 20% down.  More often they will be required to put 30% down.

 

Are you ready to apply for an SBA loan?  If so, please click here to return to our home page and begin the SBA loan application process that allows you to submit your four-minute mini-app to over 100 different SBA lenders.