America’s most wanted type of financing
By: Rachel Covington
“I want something more traditional, like an SBA loan”. I cannot tell you how many times a day we hear this rebuttal. Everyone wants an SBA loan but not all qualify or even understand this type of financing. First off, let’s confirm the definition of an SBA loan. An SBA loan is a partially, government-backed loan with long terms and low interest. The payment frequency is done monthly and is made available to businesses that have been established for at least 2 years. Although it isn’t always required, some collateral may be needed on a case by case scenario.
More about SBA loans
An SBA loan is issued by a lender or alternative financing company, like Accel, that is partially back by the U.S. Small Business Administration. There are many types of programs through the SBA including 7(a) loans, CDC 504 loans, microloans and disaster loans. Not all lenders participate in SBA programs, either. Accel offers the 7(a) option, the most common program, to business owners. Loan applications are specifically designed to determine eligibility to receive the SBA guarantee. If you are approved, it takes anywhere from 30- 60 business days for it to solidify and for you to receive the funds.
Where do I sign up?
Before you get too excited, we must verify SBA loan eligibility. To qualify your business, we take a look at the application, business financials, ownership and affiliations, business license, income tax return, business lease and an overview of the history and challenges of the business. Once we receive this information we can easily tell if you are qualified and get started on the SBA loan process. We take a look at financials to confirm your business cash flow can support the loan’s repayment. There can be no bankruptcies on the business in the past 3 years or defaults on previous government back loans.
Amounts, Fees and Rates
7(a) loans have a maximum amount of $5 million but average around $350,000. Loans guaranteed by the SBA are calculated a fee based on the loan amount and maturity. The average fee is usually around 3% of the dollar amount guaranteed. Rates are negotiated between the lender and applicant but go as low as 2.25%. Fees and rates truly depend on the amount and the lender.
You may be required to provide additional information as to why you need the funds. Each SBA loan is specifically tailored to your business. SBA loans are meant to be used for seasonal financing, real estate, equipment or long term capital.