FAQs Answered: SBA Loans

Q: What are SBA loans?

A: SBA loans are small-business loans that are backed by the U.S. Small Business Administration. The agency partners with local banks and credit unions to provide affordable loans for a range of purposes. The SBA also makes direct loans to business owners recovering from a federally declared disaster.

Q: What can an SBA 7(a) loan be used for?

A: An SBA 7(a) loan is a flexible financing solution designed to help small businesses start, grow, or expand. Proceeds can be used for a wide range of business purposes, including working capital, purchasing equipment or inventory, acquiring or refinancing owner-occupied commercial real estate, buying an existing business, funding partner buyouts, or consolidating higher-cost debt. SBA 7(a) loans are especially valuable because they offer longer repayment terms and lower down payment requirements than many conventional loans, making them an effective tool for preserving cash flow while supporting business growth.

Q: What can an SBA 7Express loan be used for?

A: An SBA Express loan is a streamlined version of the SBA 7(a) program designed to provide faster access to capital for small businesses. Proceeds can be used for many of the same purposes as a standard 7(a) loan, including working capital, purchasing inventory or equipment, refinancing business debt, or supporting day-to-day operational needs. With a simplified approval process and quicker turnaround times, SBA Express loans are particularly well suited for businesses that need timely funding, though they typically have lower maximum loan amounts and a reduced SBA guaranty compared to standard 7(a) loans.

Q: What can an SBA 504 loan be used for?

A: An SBA 504 loan is designed specifically to help small businesses finance long-term, fixed assets that support growth and job creation. Proceeds are typically used to purchase, construct, or renovate owner-occupied commercial real estate, or to acquire large equipment with a useful life of 10 years or more. The structure combines a bank loan with a CDC (Certified Development Company) loan, allowing for lower down payments and long-term, fixed interest rates on a significant portion of the financing. SBA 504 loans are ideal for businesses looking to invest in their facilities or major equipment while preserving working capital and maintaining predictable occupancy costs.

Q: What types of SBA loans are available?

A: There are several different SBA loan programs. 7(a) Loans are the most common and the most versatile. 504 loans are a popular choice for fixed assets. Low-interest disaster assistance loans help businesses and homeowners recover from declared disasters.

Q: What are the main benefits of SBA loans?

A: SBA loans offer small businesses key advantages, including competitive rates, lower fees, longer terms, more flexibility, and continued support in the form of free and low-cost business training and counseling provided by the SBA and its local partners.

Q: Am I qualified for an SBA loan?

A: Different SBA loan programs and lenders have different requirements. Generally, your business must meet SBA size standards, operate in an eligible industry, and be registered and physically located in the U.S. You’ll also need to demonstrate owner equity, a sound business plan, and the ability to repay funds.

Q: What can SBA loans be used for?

A: Each type of SBA loan has its own scope. SBA 7(a) loans can be used for a range of purposes, including real estate, equipment, working capital, and refinancing existing debt. SBA 504 loans are only for long-term fixed assets.

Q: What is the maximum amount I can borrow with an SBA loan?

A: For SBA 7(a) and 504 loans, the typical combined maximum loan amount is $5 million. Express loans top out at $500,000 and microloans top out at $50,000.

Q: What are the interest rates and fees for SBA loans?

A: Rates vary by lender and program, but they’re capped by the SBA, keeping them affordable. The SBA also limits the types of fees that lenders can charge. However, you may need to pay an upfront guaranty fee.

Q: What kind of equity or collateral is needed for an SBA loan?

A: Most SBA loans require an owner equity contribution of at least 10%, outside collateral including equity in personal real estate, and/or a personal guarantee.

Q: What are the repayment terms for SBA loans?

A: Compared to conventional loans, SBA loans usually come with longer terms, with maximum maturities ranging from 10 years (for working capital, inventory, and equipment) to 25 years (for real estate).

Q: What’s an SBA Preferred Lender?

A: SBA Preferred Lenders are local financial institutions that are authorized to process, close, and service SBA loan applications. To receive this designation, lenders have to meet strict standards set by the SBA and demonstrate a track record of successfully processing and servicing small-business loans.

Q: How many SBA loans can I have at once?

A: The SBA doesn’t limit the number of SBA loans a borrower can have at one time, as long as each loan is in good standing and the aggregate balance doesn’t exceed the maximum amount for that loan type (e.g., $5 million for SBA 7(a) and 504 loans). However, partnering lenders may have stricter requirements. 

Q: Can SBA loans be combined with other types of loans?

A: Yes, SBA loans can often be combined with conventional loans or other forms of non-SBA financing. This can be beneficial if you need additional capital beyond what an SBA loan can provide.

Q: How long does it take to get an SBA loan?

A: It depends on collateral – with real estate it can be 90-120 days. No real estate is in the 60-90 days

Q: What kind of documentation do I need to provide to get an SBA loan?

A: Your lender will give you a complete checklist of required documents. Commonly requested items include profit and loss statements, projected financial statements, business licenses or certificates, income tax returns, leases, and complete business plans.

Q: How do I apply for an SBA loan?

A: If you’ve determined that your business meets basic eligibility requirements, you’ll be able to work directly with your chosen lending partner to learn more and get things started.

If you have any questions or would like additional information, please contact our SBA department:

Philip Smith

SVP/SBA Lending Manager

609-528-7445

philip.smith@myfirstbank.com