Comparing the Different Types of SBA 7(a) Loans
It’s tricky to navigate the wide world of SBA loans. Here, we examine several types of SBA loans available to business owners. The standard SBA 7(a) loan is the most common, but it’s important to discuss with your lender which loan is best suited for your needs.
SBA 7(a) Standard Loan
If you’re considering a 7(a) standard loan, the turnaround time can be as short as five to 10 days. Some SBA-qualified lenders can also be granted authority to approve your loan without the SBA’s review, making the process faster.
The maximum loan amount for a standard 7(a) loan is $5 million. The SBA will guarantee this type of loan for up to 85% for loans smaller than $150,000 and 75% for loans greater than $150,000. Interest rates are negotiated between the lenders and borrowers, but that percentage may not exceed the SBA maximum rate.
Qualified lenders can fill you in on requirements for collateral, which is based on the amount you’re requesting. For loans of less than $25,000, qualified lenders aren’t required to request collateral, and for loans in excess of $350,000, the SBA requires that the qualified lender collateralize the loan to the maximum extent possible (up to the loan amount).
If your business’s fixed assets don’t fully secure the loan amount, the lender may include trading assets (using 10% of the current book value for the calculation). They must also take available equity in the personal real estate (residential and investment) of the principals as collateral.
SBA 7(a) Small Loan
The SBA 7(a) small loan option can be used for smaller loans of up to $350,000. As with the standard loan, the SBA will guarantee this type of loan for up to 85% for loans smaller than $150,000 and 75% for loans greater than $150,000. Interest rates are negotiated between the lenders and borrowers, but that percentage may not exceed the SBA maximum rate.
Collateral works the same way with the 7(a) small loan as it does with the standard 7(a):
For loans of less than $25,000, qualified lenders aren’t required to request collateral.
For loans in excess of $350,000, the SBA requires that the qualified lender collateralize the loan to the maximum extent possible (up to the loan amount).
The SBA 7(a) Express loan is also used for loans of under $350,000, but the turnaround time is within 36 hours. This quick turnaround changes the percentage that the SBA will guarantee to only 50%. This revolving line of credit can be up to seven years with a maturity extension allowed at the time of application.
SBA 504 Loan
The SBA 504 loan is used for economic development and can’t be used for working capital or inventory. This loan often offers a lower down payment, lower interest rates, and lower fees, depending on the economic development project size.
SBA CAPLines Loan
SBA CAPLines loans are lines of credit for businesses’ cyclical or short-term needs. They feature four specific lines:
Seasonal CAPLine: Borrowers can only use the loan proceeds for seasonal increases of accounts receivable and inventory.
Contract CAPLine: This is for the direct labor and material costs of fulfilling assignable contracts (revolving or non-revolving).
Builder’s CAPLine: This is for the direct labor and material costs of an individual general contractor or builder that constructs/renovates commercial or residential buildings. The building project will be the collateral.
Working Capital CAPLine: This is an asset-based revolving line of credit for businesses that can’t meet the credit standards of long-term credit. Repayment is made by converting short-term assets into cash, which is given to the lender.
SBA Export Working Capital and Export Express Loans
Export Working Capital loans are for businesses that can generate export sales and that require additional working capital for these sales. Lenders review and approve applications, and submit the request to the U.S. Export Assistance Center location servicing the exporter's region.
The Export Express program gives exporters and lenders a more efficient way to get financing backed by the SBA for loans and lines of credit of up to $500,000. Each lender has an individual credit decision process and loan documentation. The SBA will respond to your application within 24 hours.
SBA Veterans Advantage
If you’re a veteran and small business owner, we thank you for your service, and hope you take a look at the SBA Veterans Advantage loan, which comes with reduced fees.
Eligibility requirements state that the business must be 51% owned by honorably discharged veterans, Active Duty Military service members, Active Reservists, and/or National Guard members; or a current spouse of any of the previously mentioned groups. This loan can also be extended to the widowed spouse of a service member who died while in service.
Below is a quick-reference table summarizing the types of loans available.
SBA 7(a) Loan Comparison
|SBA 7(a) Standard Loan||In 5 to 10 days, you can get a loan of up to $5 million. SBA guarantees 75% to 85% of this loan.|
|SBA 7(a) Small Loan||For loans of up to $350,000.|
|SBA 7(a) Express Loan||For loans under $350,000. Turnaround time within 36 hours. The SBA will only guarantee 50% of this loan.|
|SBA 7(a) 504 Loan||This loan is used for economic development and can’t be used for working capital or inventory. It often has a lower down payment and lower fees.|
|SBA 7(a) CAPLines Loan||This is a line of credit for businesses’ cyclical or short-term needs.|
|SBA Export Working Capital Program Loan||For businesses that can generate export sales and that need additional working capital to support these sales.|
|SBA Export Express Loan||This loan gives exporters and lenders a more efficient way to get financing backed by the SBA for loans and lines of credit of up to $500,000.|
|SBA Veterans Advantage Loan||For veteran small business owners (the veteran must own 51% of the business).|