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SBA loans are business loans guaranteed by the Small Business Administration. With their multiple SBA funding programs, this government agency provides SBA loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender—typically banks. The three main SBA loan programs let you borrow money for nearly any business purpose—including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate—through SBA-guaranteed loans.
There are many different types of SBA loans programs out there, with two programs being the most popular:
The SBA loan program you’ll want to apply for depends on the size, age, and goals of your business.
Here’s the breakdown:
Loan amount Repayment term Interest rate Fees Best for 7(a) Program Up to $5 million 10 – 25 years Prime rate + 2.25% – 4.75% (depending on the loan amount and repayment terms)
A guarantee fee of 1.7% for loans up to $150,000, and 2.25% for any SBA 7(a) loan greater than $150,000 for general business financing needs.
CDC/504 Program Up to $5 million 10 – 25 years 5% – 6% 3% of loan amount Purchase of major fixed assets.
If you’re unsure about which SBA loan program makes sense for your needs, keep reading for a more in-depth breakdown of each loan program.
Most businesses, including new ones, can qualify for an SBA loan, but you need to have a good credit score—at least 680 or higher. SBA lenders will often, but not always, look for high annual revenue, and at least two years of business history on the books. Many businesses—including small or newer ones—can qualify for an SBA loan. The most important factor will be your business and personal credit score. Be prepared: SBA loans usually require a lot of time, energy, attention, and documentation. It’s definitely not a loan that you’ll apply to and receive the funding for even within a few days. That said, SBA loans are certainly fit for growing your business and refinancing your other debt at the lowest available rates.
SBA loans are more difficult to qualify for than loans from alternative lenders. The SBA lender will look for businesses with strong credit scores or a proven track record of business success. Having said that, the SBA can be more amenable to lending to new businesses than a typical bank would be. Note that the application process can also take a considerable amount of time. We also have other funding options such as a merchant cash advance, and many others, that can still get you the money your business needs and be easier to qualify for.
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