ESU-global is able to help our clients navigate the complex process of qualifying for a variety of SBA Loan products. When considering an SBA Loan option it is important to understand that funding through an SBA program can take up to three months to close. The maximum loan amount for SBA backed loans is $5,500,000.00 and requires a strong credit score by all owners of the business. Please take a moment to review the Investopedia article below to help familiarize yourself with the SBA Guidelines.

“SBA loans have government backing that makes them lower risk for lenders

An SBA loan is a business loan that is guaranteed by the U.S. Small Business Administration (SBA). These loans can be used by businesses to cover startup costs, expansions, real estate purchases, or a wide range of other business expenses.

Because SBA loans are guaranteed by a federal agency (the SBA), they are lower risk for lenders. However, when you take out an SBA loan, you will be borrowing from a lender, which is a bank or another financial institution.

SBA loans require an unconditional personal guarantee from everyone with at least 20% ownership in a company. This means that these people are personally responsible for repaying the SBA if the business can’t make the payments

The requirements for getting an SBA loan are relatively strict. Among other requirements, you must prove that your business is a small business as defined by the SBA and that you have sought other forms of financing before applying for an SBA loan.

You must be able to provide collateral for loans larger than $25,000. You’ll also need a personal credit score that meets the lender’s criteria, such as 685 or above, and solid annual revenue from your business.

SBA Pros and Cons

Pros Explained 

• Competitive rates: SBA loan interest rates are calculated using the prime rate, to which is added an extra percentage that is known as the spread. The SBA imposes a maximum limit on what lenders can charge for SBA loans, depending on the type and size of the loan.
• Low fees: SBA loans for less than $500,000 have no fees at all. Loans for more than that charge an upfront guarantee fee. The fees are a percentage of the guaranteed portion (the portion of the loan amount that the SBA is guaranteeing) of the total or outstanding loan amount.
• Long terms: If you use your SBA loan for working capital, inventory, or equipment, you’ll have 10 years to pay it back. Use it for real estate, and you’ll have 25 years.
• Large loan amounts: Commercial lenders normally cap their maximum loan amounts at $500,000 or $1 million. SBA loans can be much larger—up to $5 million for a 7(a) loan.

Cons Explained 

• Hard to qualify: To be eligible, your business needs to meet fairly strict requirements.
• Slow to fund: The SBA loan application process requires quite a lot of documentation, and even after you apply, you’ll have to wait one to three months for the funds to be released.
• Personal guarantee required: The personal guarantee means that if your business can’t make repayments, you’ll be personally liable to repay the SBA.”

By 

MATT RYAN WEBBER

Published July 18, 2023