Types of SBA 7(a) Loans
You have several loan options under the umbrella of the SBA’s 7(a) loan program. In all but one loan program, the Export Working Capital loan, you’ll negotiate your interest rate with the lender, but this rate is subject to a cap. For certain loan options, lenders in the Preferred Lenders Program (PLP) may have more authority to process and service SBA loans (which typically means a faster loan processing time).
Standard 7(a) Loan
With the standard 7(a) loan, you can borrow up to a maximum of $5 million. While the SBA determines eligibility and makes credit decisions, it can also grant PLP lenders the authority to make these decisions, too.
7(a) Small Loan
The maximum 7(a) small loan amount is $350,000. Like the standard 7(a) loan, PLP lenders may have the authority to determine your eligibility and make credit decisions.
SBA Express
The Express loan program offers a speedier process, with a 36-hour turnaround time. You can obtain funds of up to $500,000, but eligibility and credit decisions are up to the lender.
Export Express
For export businesses, response time for the Export Express program is 24 hours and you can apply for a maximum loan amount of $500,000. Like the SBA Express program, the lender makes all eligibility and credit decisions.
Export Working Capital
The Export Working Capital loan program offers a maximum loan amount of $5 million for export businesses. While the SBA may authorize PLP lenders to make eligibility decisions, the agency retains decision-making power over credit decisions. Unlike the other 7(a) loans, there is no cap on the interest rate you negotiate with the lender.
International Trade Loan
You can obtain a maximum loan amount of $5 million under the International Trade loan program. The SBA determines eligibility and makes credit decisions. You can use loan proceeds to purchase fixed assets and help meet working capital requirements for export transactions.
CAPLines Program
The CAPLines program offers four different working capital lines of credit:
- Seasonal CAPline, for financing seasonal accounts receivable, inventory, or in some cases, labor cost increases.
- Contract CAPLine, for financing the direct labor and material costs of assignable contracts.
- Builders CAPLine, for financing construction or renovation direct labor and material costs of small general contractors or builders.
- Working CAPLine, for financing cyclical growth and recurring or short-term needs.
About SBA 504/CDC Loans
504 Loan Structure, Size and Prepayment Tradeoffs
A 504 financing package is typically structured as roughly 40% SBA/CDC funding, 50% bank financing and 10% borrower equity. Because the SBA/CDC portion is capped at $5 million (or $5.5 million for certain projects), total 504 packages can exceed $10 million when paired with a conventional lender on larger projects.
Compared to 7(a), 504 loans often carry more restrictive prepayment penalties, which can matter if a borrower expects to refinance or sell within a few years.
The SBA 504/CDC loan may be a good option if you need long-term financing at a fixed rate to purchase fixed assets. You can obtain these loans through non-profit
Certified Development Companies (CDCs).
Funding for your fixed-asset purchase comes from three sources: the CDC, a third-party lender and your down payment. The maximum loan amount for the SBA/CDC portion is $5 million (and up to $16.5 million for certain types of energy projects).
Rules for Using SBA 504/CDC Loans
There are more restrictions on your use of your 504/CDC loan proceeds, since the purpose of these loans is to fund the purchase, construction or improvement of major fixed assets. For example, you can use a 504/CDC loan to renovate existing property for the purpose of expanding your business. You can’t, however, use loan proceeds for working capital or inventory needs, debt repayment or refinancing, or investments in rental real estate.
Key Details About SBA 504/CDC Loans
Eligibility Requirements
In addition to meeting the general SBA eligibility requirements, 504/CDC eligibility includes factors such as your business’s net worth and your repayment ability. Your business also must be within the
SBA size guidelines. Additionally, certain businesses, such as non-profit businesses and those that engage in passive or speculative activities, are ineligible.
Repayment Terms
Repayment terms vary depending on a number of factors, but 10- and 20-year loan maturity terms are available.
Interest Rates
504/CDC loans offer a fixed rate of interest that’s pegged to current market rates for U.S. Treasury issues.
The SBA offers its microloan program through SBA-approved nonprofit community-based organizations. These intermediary lenders make the credit decisions and set the terms for each microloan.
The maximum microloan amount is $50,000 and the
average loan is $13,000. In 2021, the microloan program
provided funding to close to 4,400 businesses, with 41% of loans going to communities traditionally underserved by the banking industry.
Rules for Using SBA Microloans
You can use a microloan for several different business purposes, such as inventory costs, equipment upgrades and working capital. For example, you can use your microloan proceeds to fund the purchase of products for resale. You can’t, however, use microloan proceeds to buy real estate or pay off your business debts.
Key Details About SBA Microloans
Eligibility Requirements
While every microloan intermediary lender has its own eligibility criteria, many will require collateral as well as your personal guarantee.
Repayment Terms
Repayment terms will factor in your intended use of the funds, the lender’s requirements and your business needs. The maximum term can’t exceed six years.
Interest Rates
The interest rate for your microloan will vary depending on the intermediary lender, but
according to the SBA, the rate will usually be between 8% and 13%.
Add a Lender-Fit Step Before Applying
Before submitting applications, it can help to shortlist lenders that regularly fund the specific SBA loan type and use of proceeds being requested (for example, owner-occupied commercial real estate, acquisition or working capital). Lender fit can influence speed, documentation requirements and overall clarity throughout the process.
Steps To Apply
Interested in applying for an SBA loan? Here is how you should proceed:
- Decide what type of SBA loan you want to apply for.
- Find lenders that offer the SBA loan you want through the SBA’s Lender Match tool.
- Compare the terms and eligibility requirements offered by local lenders.
- Apply directly through your selected lender.
If your small business is in need of funds, it makes sense to explore the loan options offered by the SBA. With the variety of loan programs available and competitive interest rates, an SBA loan could help you get out of a cash crunch and reach your business goals.
About our contributor: Kiril Dimov is a Vice President of SBA at Lendio, bringing nearly a decade of SBA lending to his role. His career spans small business loan underwriting, credit management, sales, business development, and senior leadership overseeing full SBA pipelines at a large national lender. With a comprehensive understanding of SBA loan products from SBA 7(a) to SBA 504 loans, Kiril helps small business owners navigate the lending landscape to find the financing solution that best fits their needs.
