What is the minimum loan amount for SBA? What credit score do you need for an SBA loan?
Small Business Administration (SBA) Loan is a benefit given by the federal government of the US. Before we deal with Small Business Administration Loan, let us broadly define what exactly is Small Business.
Small businesses are corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation.
Businesses are defined as “small” in terms of being able to apply for government support and qualification for preferential tax policy varies depending on the country and industry.
As per the Australian Fair Work Act 2009, Small businesses range from fifteen employees; fifty employees according to the definition used by the European Union; and fewer than five hundred employees to qualify for many U.S. Small Business Administration programs.
What is SBA loans
Many small businesses are sole proprietor operations consisting only of the owner, but many also have additional employees. Some small businesses that offer a product, process or service, do not have growth as their primary objective.
In contrast, a business that is created to become a big firm is known as a startup. Startups aim for growth and often offer an innovative product, process, or service.
The entrepreneurs of startups typically aim to scale up the company by adding employees, seeking international sales, and so on, a process which is often but not always financed by venture capital and angel investments.
Successful entrepreneurs have the ability to lead a business in a positive direction by proper planning, adapting to changing environments, and understand their own strengths and weakness. Spectacular success stories stem from startups that expanded in growth.
How SBA Loans Can Help Your Small Business
The U.S. Small Business Administration (SBA) is an independent agency of the United States government that provides support to entrepreneurs and small businesses.
The mission of the Small Business Administration is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses. and by assisting in the economic recovery of communities after disasters”.
The agency’s activities have been summarized as the “3 Cs” of capital, contracts and counseling. As a borrower. you’re not borrowing from the SBA, you’re borrowing from a financial institution like Bank of America that works with the SBA to provide loans to small business customers.
SBA loans are made through banks, credit unions and other lenders who partner with the SBA. The SBA provides a government-backed guarantee on part of the loan.
Under the Recovery Act and the Small Business Jobs Act, SBA loans were enhanced to provide up to a 90 percent guarantee in order to strengthen access to capital for small businesses after credit froze in 2008. The agency had record lending volumes in late 2010.
Eligibility for SBA loans
While the vast majority of businesses are eligible for financial assistance from the SBA, some are not. Eligible businesses must:
- Operate for profit
- Be engaged in, or propose to do business in, the U.S. or its territories
- Have reasonable owner equity to invest
- Use alternative financial resources, including personal assets, before seeking financial assistance
Maturity Terms for SBA
The policies of SBA loans are meant to incentivise a customer for a longer-term small business financing. Loan maturities are gauged by the parameters such as your trustworthy in repayment, the intended purpose of the loan proceeds, and the useful life of the assets financed thus financed.
Each item has its maturity period. The maturity of SBA loans for real estate is 25 years, 10 years each for both equipment and working capital or inventory loan.
Fixed assets have a different way of imposing the maturity period. These assets other than the real estate will be limited to the economic life of that particular asset, and in no way can it exceed 25 years.
In other words, the maximum maturity of those fixed assets has to be 25 years or less than 25 years. The 25-year maximum will generally apply to the acquisition and/or improvements of land and buildings or the refinancing of debt incurred in their acquisition.
Where business premises are to be constructed or significantly renovated, the 25-year maximum would be in addition to the time needed to complete construction. Significant renovation means construction of at least one-third of the current value of the property.
What is the Minimum and Maximum loan amount for SBA?
The specific terms of SBA loans are negotiated between the borrower and the participating lender, subject to the requirements of the SBA. In general, the following provisions apply to all SBA 7(a) loans.
Most 7(a) loans have a maximum loan amount of $5 million. However, SBA Express loans have a maximum loan amount of $350,000. SBA Export Express loans have a maximum loan amount of $500,000.
The SBA’s maximum exposure is $3.75 million ($4.5 million under the million, the maximum guaranty to the lender will be $3.75 million, or 75 percent. The guaranty percentage varies depending on the loan amount and program type.
How is SBA interest calculated
Interest rates are negotiated between the borrower and the lender, but are subject to SBA maximums, which are pegged to the prime rate, the LIBOR rate, or an optional peg rate. Interest rates may be fixed or variable. There are two types of interest rates.
(1). The interest rates for variable rate loans are as follows:
For loan amount of $25,000 or less, base rate plus 4.25% (Max rate if maturity is less than 7 years), and base rate plus 4.75% (Max rate if maturity is more than 7 years);
for loan amount of $25,000 to $50,000, Base rate plus 3.25% (Max rate if maturity is less than 7 years), and Base rate plus 3.75%; and
for loan amount of $50,000 or more, Base rate plus 2.25% (Max rate if maturity is less than 7 years), and Base rate plus 2.75% (Max rate if maturity is less than 7 years).
The lender and the borrower negotiate the amount of the spread, which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change.
It must not be more often than monthly and it must be consistent (e.g., monthly, quarterly, semiannually, annually, or any other defined period). The maximum rate for SBA Express and Export Express loans is Prime + 6.5 for loans of $50,000 or less. For loans of over $50,000, it is Prime + 4.5.
(2) The interest rates for fixed rate loans are as follows:
For loan amount of $25,000 or less, Prime rate in effect on the first business day of the month is 6.0% (600 basis points) plus the 2.0% (200 basis points) permitted by 13 CFR 120.215;
for loan amount of $25,000 to $50,000, Prime rate in effect on the first business day of the month is 6.0% (600 basis points) plus the 1.0% (100 basis points) permitted by 13 CFR 120.215;
for loan amount of $50,000 to $250,000, Prime rate in effect on the first business day of the month is 6.0% (600 basis points); and for loan amount of $250,000 or more, Prime rate in effect on the first business day of the month is 5.0% (500 basis points)
Is there a prepayment penalty on SBA loan?
For loans with a maturity of 15 years or longer, prepayment penalties apply when:
- The borrower voluntarily prepays 25 percent or more of the outstanding balance of the loan.
- The prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.
The SBA loan prepayment fee is as follows
- During the first year after disbursement, 5 percent of the amount of the prepayment.
- During the second year after disbursement, 3 percent of the amount of the prepayment.
- During the third year after disbursement, 1 percent of the amount of the prepayment.
Last Important word about SBA loan
Medical facilities such as hospitals, clinics, emergency outpatient facilities, and medical and dental laboratories are eligible for this loan. Convalescent and nursing homes are eligible, provided they are licensed by the appropriate government agency and services rendered go beyond those of room and board.
And, ineligible businesses include those engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole. check eligibility here
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