|1. “What is an SBA Loan?” The
Small Business Administration (SBA) makes loans available through
participating lenders to eligible small businesses on Competitive and
favorable terms. The SBA offers these loans because it recognizes the
importance of our nation’s small businesses in society.
“Why use an SBA loan?” SBA loans offer competitive rates
and longer terms, no points, no balloon payments, and no pre-payment
penalties. Many business owners find cash flow to be a major concern.
For them an SBA guaranteed loan may be the answer and possibly the best
way of obtaining long term financing, and is the most popular, common
loan program for start-up franchises. SBA guaranteed loan terms
typically range from 7 to 25 years, fully amortized, depending on the
purpose of the loan.
“What can I use an SBA loan for?”
Here are some of the most common uses of SBA loans:
• Purchasing or expanding real estate
• Buying a business or franchise
• Purchasing machinery and equipment
• Leasehold improvements
• Refinancing certain existing business debt
• Working capital in conjunction with the above
“Who is Eligible?” Most for-profit small businesses are
eligible for an SBA loan. These include manufacturing, wholesale,
retail and service businesses, as well as independent or franchise
“How much can I borrow?” SBA 7(a) loans are generally
limited to $1 million per person, and have more than one loan at a time.
“What are the interest rates and fees?” Your actual rate
will be determined by a number of factors including the project size,
loan term and the borrower’s credit history, but the rate will never
exceed The Wall Street Journal prime rate plus 2.75%, as specified by
the SBA. There are no points on an SBA 7(a) loan, although there is a
low packaging fee. There is also an SBA guarantee fee that can be as
low as 1.00% of the amount borrowed and it varies depending on the size
of the loan. This guarantee fee can be financed as part of the loan and
is paid upon loan closing.
“Who can qualify for an SBA Loan?” A business must be
independently owned and operated for profit. It must not be dominant in
its field, and must meet certain criteria in terms of size, number of
employees, and annual sales. Loans cannot be made to “speculative”
businesses, media businesses, or businesses engaged in gambling
“What is considered a small business?” More than 90% of
the nation’s companies are classified as “small” by the SBA size
standards, with limitations on dollar volume and number of employees
set according to industry. Virtually every type of business qualifies
for an SBA Guaranteed Loan.
“Do not have to be a minority to get an SBA Loan?” The U.
S. Government does not discriminate against anybody. This myth dates
back to the days when the SBA used to make “direct loans” to minorities
in order to help the nation’s minority business communities. This
program has long been abandoned and replaced with the current
“Guaranteed Loan Program” which has been very successful in helping all
small business owners, without regard to color and race. Under the
Guaranteed Loan Program, if a bank approves a loan and the applicant
qualifies under the SBA Guidelines, the SBA will guarantee the loan to
the bank. Note that the SBA does not fund these loans, but guarantees
between 75-80% of the full loan amount to the bank, while it is the
bank that actually lends the money.