SBA business loans

The U.S. Small Business Administration (SBA) guarantees part of each 7(a) loan. That guarantee lets lenders offer longer terms and lower pricing than a conventional business loan. Published rates typically start at Prime + 2%.

We place SBA business loans with SBA-preferred lending partners across three sizing tiers. That way a $75,000 working capital request isn’t processed like a $4 million acquisition.

A good fit if you have:

• An operating business with at least two years of history
• Consistent revenue, from $125,000 a year on the smallest tier
• A credit score of 640 or higher
• A use like working capital, equipment, inventory, debt refinance, acquisition or expansion

Probably not the right fit if:

• You’ve been in business under two years
• You need money in under two weeks. See business term loans.
• You’re buying a building to run your business from. See SBA 7(a) loans for commercial real estate.
• You’re buying investment property. See DSCR loans.

Rates are variable and tied to the Wall Street Journal Prime Rate. The spread over Prime depends on loan size, term and credit profile. Because the rate floats, your payment can change over the life of the loan. All figures are subject to credit approval and can change without notice.

The same core file works for every tier:

• Two years of business tax returns
• Two years of personal tax returns
• Year-to-date profit and loss statement
• Business debt schedule
• Driver’s license, front and back

Larger requests may need more financial detail during underwriting. Your loan expert will tell you exactly what’s needed before you gather anything.

Your debt service coverage ratio (DSCR) asks one question: does the business generate enough cash to cover its loan payments?

At the $50,000 to $350,000 sizes, lending partners need 1.15x. That means the business produces 15% more cash than its yearly debt payments. Above $350,000, the bar rises to 1.25x for the business and 1.10x globally. “Global” adds the owner’s personal obligations to the business’s.

Two details work in your favor and are often missed:

• Depreciation, interest and amortization can be added back. Net income on your tax return understates the cash your business produces. SBA underwriting corrects for that.
• On the smallest tier, existing debt counts only for the year it was originated. Older debt doesn’t drag down the ratio.

If your DSCR falls short, the fix is usually a longer term or a smaller request, not a different lender.

Beyond the tier thresholds, every SBA borrower must clear the program’s own tests. Your business must:

• Operate for profit
• Meet SBA small business size standards
• Do business in the United States
• Have reasonable owner equity invested
• Have no bankruptcy in the last two to three years, depending on loan size

Back taxes don’t automatically disqualify you. On the $50,000 to $150,000 tier, taxes owed are acceptable with an active IRS payment plan. Many owners assume they can’t qualify for this reason, and they’re usually wrong.

Collateral may be required depending on loan size. The SBA doesn’t deny a loan solely because collateral is short.

Repayment terms depend on how the money is used:

• Working capital: up to 7 years
• Equipment: up to 10 years
• Real estate: up to 25 years

A longer term lowers the monthly payment, which improves your coverage ratio. A request that doesn’t qualify at five years may qualify at seven.

What we charge: a $1,500 refundable underwriting fee upfront, plus about 1 point (1% of the loan amount) at closing. The underwriting fee becomes non-refundable if you accept an offer and then don’t close.

What the SBA and lender charge: an SBA guarantee fee that varies by loan amount and term, a packaging fee, ongoing servicing fees and standard closing costs.

Compared with a business term loan and its 5% origination fee, SBA costs are meaningfully lower. The trade is a longer timeline.