There are several types of Small Business Administration (SBA) loans. First Federal primarily uses the 504 and 7(a) programs. The SBA 7(a) loan is the most common loan type guaranteed by the Small Business Administration. The Motley Fool outlines some details about this type of loan:
Qualification requirements for an SBA 7(a) loan
There are several key requirements to be eligible for an SBA 7(a) loan. The business must be currently operating, it must be a for-profit company, and it must be located in the U.S. The business must have good credit, but also must be unable to obtain a loan on "reasonable terms" from other sources.
The business also must meet SBA size requirements -- after all, these are small business loans. And there are certain industries that don't qualify for SBA financing, including lending businesses, life insurance, gambling establishments, private clubs, and adult entertainment businesses, just to name a few.
SBA 7(a) loans don't have a specific down payment requirement for most purposes and can provide as much as 100% financing in many cases. The exceptions are loans for startup businesses and business acquisitions, which require a 10% down payment. However, depending on the circumstances of your loan, the lender might require you to have some skin in the game beyond the SBA's minimum requirements.
Plus, SBA 7(a) loan funds must be used for a qualifying purpose, which can be:
- Acquiring real estate or improving real estate the business already owns. (Note: This doesn't mean investment properties -- SBA loans can generally only be used for real estate the business will operate in on a continuous basis.)
- Purchasing machinery, equipment, furniture, fixtures, or supplies.
- Acquiring an existing business in its entirety.
- Working capital (short or long-term).
- Refinancing existing business debt.
How much can you borrow with an SBA 7(a) loan?
The short answer is that SBA 7(a) loans can have a maximum loan amount of $5 million. However, the amount your business can qualify for depends on a few factors. These include (but are not limited to) your personal and business credit history, the industry and geographical location of your business, how much revenue and profit your business generates, and more.
Types of SBA 7(a) loans
There are several subtypes of loans that are part of the SBA 7(a) program. Here's a quick rundown of the three main varieties:
Standard 7(a): Standard SBA 7(a) loans are made in amounts from $500,000 to $5 million. The SBA guarantees at least 75% of the loan amount, and these loans can be processed in five to 10 days.
7(a) Small: A SBA 7(a) Small loan is a term loan that is made for $500,000 or less. These have looser collateral requirements than Standard 7(a) loans, and can often be processed faster, with a turnaround time of as little as two days.
SBA Express: SBA Express loans are streamlined loans designed to provide faster funding than the other types of 7(a) loans. SBA Express Loans can be made in amounts up to $500,000 and can also be originated as lines of credit in addition to traditional term loans. However, if you need a rather small amount of money and can pay it back fairly quickly, a business credit card could be worth a closer look.
You can read the full article here.
First Federal Bank has a dedicated team to walk you through the SBA loan application process. We can help you determine the best loan type and amount for your business, and help you every step of the way. Contact us today!