SBA Loans Important and Surprising Facts About SBA Loans… including how to get up to 5 Million in Financing for Your Business

SBA loans are government-guaranteed financing programs with capped interest rates and fees. There are short-term working capital and long-term financing programs available to businesses who qualify.  SBA loans are issued exclusively to small business owners by SBA-approved lenders.

There are a number of SBA loan programs with differing requirements and terms

These loans lower the risks lenders face when extending credit to small business owners. If a borrower defaults on their loan, the Small Business Administration reimburses the lender up to 85% of the loan amount.

As a result, participating creditors consider a larger pool of applicants and offer competitive terms. This translates into greater access to long-term financing, lower interest rates, longer repayment periods and affordable SBA loan payments.

This is the SBA’s most common loan program. It includes financial help for small businesses with special requirements. This is the best option when real estate is part of a business purchase, but it can also be used for: 

• Short and long-term working capital 

• Refinance current business debt 

• Purchase furniture, fixtures, and supplies 

The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. Your lender will help you figure out which type of loan is best suited for your needs.

As a part of a 7(a) loan package, you’ll need to gather the appropriate documents before the lender will submit it to SBA. These documents include:

• SBA Form 1919 (the Borrower information form)

• SBA Forms 413 and 912 (Background and financial statements).These help SBA and other stakeholders assess eligibility.

• Business financial statements: Submit the following to help show your ability to repay a loan:

• Profit and loss statement – Current within 180 days of application. Also include supplementary schedules from the last three fiscal years.

• Projected financial statements – Include a detailed, one-year projection of income and finances and explain how you expect to achieve this projection.

• Ownership and affiliations: Provide a list of names and addresses of any subsidiaries and affiliates, including concerns, in which you hold a controlling interest or that are otherwise connected to you.

• Business license or certificate

• Loan application history (records of any loans you may have applied for in the past)

• Signed personal and business federal income tax returns of your business’ principals for the previous three years

• Include personal resumes for each principal

• Business overview and history with its challenges. Include an explanation of why you need the SBA loan and how it will help your business.

• Business lease, or a note from your landlord, with the terms of the proposed lease.

The CDC/504 Loan Program provides long-term, fixed rate financing of up to $5 million for major fixed assets promoting business growth and job creation.

504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by SBA.

A 504 loan can be used for a range of assets that promote business growth and job creation. These include the purchase or construction of: 

• Existing buildings or land 

• New facilities 

• Long-term machinery and equipment

Or the improvement or modernization of: 

• Land, streets, utilities, parking lots and landscaping 

• Existing facilities 

However, a 504 loan  cannot  be used for: 

• Working capital or inventory 

• Consolidating, repaying or refinancing debt 

• Speculation or investment in rental real estate

If you have suffered substantial economic injury and are one of the following types of businesses located in a declared disaster area, you may be eligible for an SBA EIDL:

• Small business

• Small agricultural cooperative

• Most private nonprofit organizations

Substantial economic injury means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses. The EIDL provides the necessary working capital to help small businesses impacted by a disaster survive until normal operations resume.  However, EIDL assistance is available only to small businesses when SBA determines they are unable to obtain credit elsewhere.

SBA can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. The interest rate will not exceed 4% for these loans. These loans have a maturity date of up to 30 years, with repayment terms to be determined by ability to repay the loan. There are no prepayment penalties or fees

The SBA provides loans to help eligible small businesses with operating expenses when a member of the armed forces reserves is deployed to active duty.

• The maximum Military Reservist Economic Injury Disaster Loan (MREIDL) amount is $2 million.

• If your business is a major source of employment, SBA has authority to waive the $2 million statutory limit.

• Businesses with the financial capacity to fund their own recovery are not eligible for MREIDL assistance. Federal law requires SBA to first determine whether the credit necessary to accomplish full recovery is available from non-government sources without creating an undue financial hardship. 

The interest rate will not exceed 4% for these loans. These loans have a maturity date of up to 30 years, with repayment terms to be determined by ability to repay the loan. There are no prepayment penalties or fees.

Lender Match is a program helping entrepreneurs to get matched to potential lenders offering SBA-backed funding.

When working with Lender Match, the SBA advises business owners to prepare a business plan, determine the amount of funds necessary and their usage, and prepare financial projects. While it is not necessary to prove industry experience, it is helpful.