Small Business Administration (SBA) Loan

These loans are offered by many banks and are guaranteed by the Small Business Administration to give funds to small business owners who might not otherwise be able to a bank business loan. The definition of “small business” varies based on business type, employee base and income.  For example, a manufacturing business is limited to 500 employees, a whole sale business is limited to 100 employees, a retail business is limited to $6.0 million annual gross income, and a dry cleaning business is limited to $4.0 million annual gross income.

SBA Loans can be used to fund business expansion, acquire equipment, startup a business, as operating capital, and for the acquisition of commercial real estate. It is important to note that in order to qualify for an SBA Loan to purchase real estate, the borrower must occupy 51% of the property. Some basic requirements to qualify for a SBA Loan includes, satisfactory work experience, strong management, adequate capital, and the ability to make loan payments.

Loan term varies based on uses of loan proceeds ranging from 5 to 10 years. However, in the case of equipment acquisition, the loan term can be as high as 25 years. The interest rate is based on the Prime Rate with a margin of up to 2.75% above Prime. Although there is a Guaranty Fee paid to the bank at the time of closing, as well as other significant closing costs, SBA gives needed capital to borrowers who want to purchase an existing business or to start a new business. SBA building loans can be up to 90% of the value of the property.

Businesses that have been operating for more than three years can qualify for bank business loans to acquire equipment, expand business, build working capital, and refinance existing loans. Up to $100,000 can be taken based purely on credit score on a business with no other debts. Greater amounts require further documentation including business tax returns that show enough income to support loan payments. Rates are generally Prime based and adjustable with margins based on credit quality of borrower and/or business.