A Small Business Administration (SBA) loan is supported by the U.S. Small Business Administration, which allows financial institutions to provide business loans with more favorable terms or more flexible underwriting criteria than conventional loans. Because they are backed by the government, SBA loans encourage banks to lend to companies they might not be able to work with otherwise. For small company owners who can’t qualify for a traditional business loan, these infusions of capital may be the ideal option.
 
How is an SBA loan different from a traditional business loan?

With the government backing SBA loans, lenders can provide business loans with less stringent credit standards and lower down payments than conventional loans. Repayment terms on SBA loans are longer than traditional loans, extended to up to 10 and even 25 years in some cases. Plus, on loan terms of less than 15 years, there is no prepayment penalty. This allows companies to preserve their cash for growth or other needs.

What types of SBA loans are available?
•SBA 7(a) loans
•SBA 7(a) loans can be used for a variety of approved purposes including the purchase or refinance of commercial real estate, new construction, expansion or renovation, working capital, and business acquisitions or partner buyouts.
 
Ideal for: 
•Working capital, improvements or refinancing
•Equipment, including machinery and vehicles
•Furniture and other office essentials such as printers, fixtures and more
•Purchasing, refinancing, building or renovating commercial property
•Business acquisition and partner buyouts
 
Loan maturity:
•Up to seven years for working capital
•Up to 10 years for business acquisition, partner buyouts and equipment
•Up to 25 years for owner-occupied real estate purchase, refinance and construction
 
Maximum loan amount:
•$5 million
 
SBA Express loan
This type of 7(a) loan is generally used for equipment and working capital.
 
Ideal for:
•Working capital, improvements or refinancing
•Equipment, including machinery and vehicles
•Furniture and other office essentials such as printers, fixtures and more
•Purchase or refinance of owner-occupied commercial real estate
 
Advantages:
•Longer loan terms
•Lower down payments
•Easier to qualify
 
Loan maturity:
•Up to seven years for working capital
•Up to 10 years for equipment
•Up to 25 years for owner-occupied real estate purchase or refinance
 
Maximum loan amount:
The maximum size is $500,000, so the process of qualifying for one is more streamlined and accelerated than other 7(a) loans.
 
SBA 504 loans
These loans are typically used for financing commercial real estate, including the purchase or refinance of existing buildings or land and new construction. They can also be used for equipment purchases. SBA 504 loans actually involve two loans — one from a private lender, which provides up to 50% of funding in first trust deed position, and the other from a Certified Development Company (CDC), a community-based partner that provides up to 40% in second trust deed position. The applicant typically only needs to provide 10% of the total project costs as a down payment. The CDC portion is guaranteed by the SBA. The bank’s SBA specialist and the CDC work together with the goal of making it seamless for the applicant.
 
Qualifying criteria:
•Your business must have a tangible net worth of less than $15 million.
•Your business must have an average net income of less than $5 million after federal taxes for the last two years.
 
Ideal for:
•Buying land
•Financing long-term machinery
•Purchasing existing buildings
•Ground-up construction or renovation of an existing building
•Refinancing existing commercial real estate debt
 
Cannot be used for:
•Working capital
•Inventory
 
Advantages:
•Longer loan terms
•Lower down payments
•Easier to qualify
 
Loan maturity:
•Up to 10 years for equipment
•Up to 25 years for owner-occupied real estate purchase, refinance and construction

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