You’ve probably heard that there are several types of SBA loans available when seeking funding for your small business. While it may take time to find the right loan for your business, in reality, it’s easy to find the right SBA loan. A helpful guide is below.
SBA loans are small business loans backed by the U.S. Small Business Administration (SBA). Though banks typically issue these loans, the SBA guarantees the majority of the money involved in the issuance of SBA loans. This way, if you can’t pay your loan, the SBA steps in to ensure the bank can recoup any unpaid funds. The result is a lower-risk lending process that incentivizes banks to provide these loans to high-qualified borrowers.
The six most prevalent SBA loan programs are detailed below.
SBA 7(a) loans are often regarded as the most borrower-friendly business loan. In fact, SBA 7(a) loans aren’t just better than any other SBA loan – they’re better than non-SBA loans too.
Overview:
Small business owners often choose SBA 7(a) loans to cover working capital, debt refinancing, or commercial real estate purchases. A standard 7(a) loan has low interest rates and long repayment terms, with the ability to choose between fixed and variable interest rates. The latter will keep your costs lower in the long term since SBA 7(a) loans are fully amortizing. That means you only pay interest on your remaining principal, not the total loan amount.
Key rates and figures:
Who it’s best for:
SBA 7(a) loans are the best choice for any business that qualifies based on the above criteria.
How to apply:
The SBA 7(a) loan application process is known to be lengthy, and it requires lots of paperwork. To apply, you need to first gather your accounting and tax paperwork. Some of the paperwork you might need includes personal and business tax returns, personal financial statements, a balance sheet, a profit and loss statement, and collateral documents.
You should also prepare to answer questions about how the COVID-19 pandemic has affected your business. You should discuss the changes you’ve made to accommodate any disruptions and how the pandemic has affected your industry at large. After that, you’re ready to connect with an SBA loan lender like SmartBiz® – one of the few that won’t make you provide a business plan.
The SBA 504 program minimizes your financial burden thanks to the involvement of community development corporations (CDCs). It’s a great choice for buying commercial real estate if your business objectives would clearly benefit your community.
Overview:
If you need funding for a commercial real estate purchase, equipment purchase, or facility modernization, SBA 504 loans can be a great fit. The issuing bank will cover 50% of your loan’s total, and your local CDC will cover 40%. That means you’re left with just a 10% down payment in the short term. Your loan comprises the remaining 90%, which you’ll repay over the long term.
Key rates and figures:
Who it’s best for:
SBA 504 loans are best for qualifying businesses whose commercial real estate or equipment purchase or modernization plans match their local CDC’s public policy goals.
How to apply:
The process of applying for an SBA 504 loan mostly resembles that of SBA 7(a) loans. However, you’ll need additional paperwork pertaining to your real estate or equipment.
The SBA offers loans specific to short-term and cyclical working capital needs. These CAPLines loans pertain to four classes of borrowers. Some of them are inherently business lines of credit, whereas others can be revolving or installment loans.
Overview:
The SBA CAPlines program comprises the below four types of loans.
Key rates and figures:
Who it’s best for:
SBA CAPLines loans are best for contractors, subcontractors, seasonal businesses, construction contractors, or homebuilders. They’re also ideal for businesses that keep inventory or generate accounts receivable. Among these businesses, those that need short-term, cyclical capital are the best prospective borrowers.
How to apply:
The application process is approximately the same as with an SBA 7(a) loan. In fact, SBA CAPLines loans often come attached to SBA 7(a) or 504 loans. However, businesses in exceptionally good standing may qualify for standalone SBA CAPLines.
According to the SBA, 70 percent of U.S. exporting companies comprise teams of under 20 people. SBA’s three export loans can help these small businesses – and slightly larger small exporters – expand or develop their operations. They can also help you start a new export business of your own.
Overview:
The SBA Export Loans program comprises the below three loans.
Key rates and figures:
Who it’s best for:
SBA Export Loans are best for any small business that currently exports goods or plans to do so soon. They’re also great for entrepreneurs who plan to launch, or have just launched, a business that involves exporting goods.
How to apply:
The SBA recommends applying through banks that participate in the Export Loans program.
Sometimes, your very small business doesn’t need millions of dollars to get everything in order. And if you only need around $10,000, taking out a huge loan can seem risky. SBA microloans are the solution – in fact, they’re so small the SBA doesn’t guarantee them.
Overview:
Think of SBA microloans as a tiny version of SBA 7(a) loans. They come with most of the same advantages – reasonable interest rates and repayment terms, many allowable uses – but on a smaller scale. You can use their proceeds toward working capital, fixtures or furniture, inventory or supplies, and equipment or machinery.
Key rates and figures:
Who it’s best for:
The SBA microloan program is best for very small businesses that need tiny amounts of cash for working capital, inventory, equipment, supplies, or furniture.
How to apply:
You can apply for SBA microloans through an SBA-approved intermediary. Although SmartBiz does not offer microloans, SBA 7(a) loans that start at $30,000 are available.
No small business owner can plan for everything – for example, you can’t predict that a tornado will head your way next week. However, such disasters can leave your business reeling. Recovery can be easier if you obtain SBA disaster loans, which the SBA issues directly rather than through banks.
Overview:
You can use SBA disaster loans to cover property damage and asset repair or replacement after a disaster. They can also cover operating expenses you could’ve afforded without a disaster. However, your proceeds must go to costs not covered under your insurance plan or via the Federal Emergency Management Agency (FEMA). A special class of disaster loans, the military reservist loan, can cover operating expenses lost to employees who are on active military leave.
Notably, SBA disaster loans can also cover economic disasters. The COVID-19 pandemic is a great example. In fact, it resulted in a popular but temporary (and now-ended) new class of loans known as the Paycheck Protection Program (PPP). Some PPP loans are forgivable, and some business owners are still repaying them. The pandemic also resulted in a COVID EIDL program that closed on January 1, 2022.
Key rates and figures:
Who it’s best for:
SBA disaster loans are designed for small business owners whose property and assets are damaged or destroyed after a physical or economic disaster. They’re also designed for employers who temporarily or permanently lose an essential employee to active military duty.
How to apply:
Check to see whether the SBA has declared your location a disaster site. Then, apply for a disaster loan and regularly log into your account for updates.
Among the six above types of SBA loans, SBA 7(a) loans are the most versatile. Anyone in any industry can apply for them and use them for many purposes, though the process is easier with a dedicated partner. SmartBiz can be that partner – you’ll have an actual person to contact along the way whenever questions arise. Check whether you pre-qualify*, then take your final steps toward the funding you need and deserve.