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SBA Loans

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SBA (real estate)

  • Amount

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Loan Amounts

$100,000 – $5,000,000

Terms

10 – 25 years

Rates

5.25% – 7.75%

Speed

as little as 30 days

Benefits of working with SMB Compass

  • Successful track record of supporting small businesses

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  • Over $160 million delivered to 1,100+ small businesses

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  • Flexible and low cost options available

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What is the Small Business Administration?

The Small Business Administration (SBA) is a federal government agency that was formed in July of 1953 to provide education and guidance to small business owners. In 1954 the SBA started originating small business loans in addition to providing a government guarantee to banks to facilitate small business loan originations. The SBA created a variety of SBA loan programs to entice banks and private lenders to provide small business loans to U.S. based companies. The most popular SBA programs are SBA 7(a) Loan, SBA 504 Loan, SBA Disaster Loan, SBA Express Loan, SBA Microloan Program.

What is an SBA Loan?

An SBA Loan is a loan that’s originated by private lenders and banks but guaranteed by the Small Business Administration. Bank and non-bank lenders offset their exposure or credit risk by utilizing and SBA loan program with a government guarantee. It’s often misunderstood that the SBA lends directly to small business, when they are just providing a guarantee, or insurance on the loan.

SBA Loan programs offer attractive rates and terms but are notorious for having a long and document intensive process. Making sure that you work with the right lender or loan broker is essential to having a smooth and efficient application and closing process.

What are the different types of SBA Loans?

SBA 7(a) Loan

The SBA 7(a) Loan program is the most commonly used SBA loan program by small businesses. This is the case because the SBA 7(a) Loan program can be used for a variety of different reasons and has less restrictions and more flexibility than other SBA Programs. You can utilize the SBA 7(a) program to purchase or acquire a business, purchase or refinance equipment, partner buyouts, leasehold improved, refinancing commercial property, and for general working capital. SBA7(a) Loans range from $100,000 to $5,000,000 with interest rates from Prime + 1% to 2.75%.

SBA 504 Loan

The SBA 504 Loan program is a real estate focused program that provides small businesses with low interest rates and long repayment terms. This program is utilized by company’s looking to expand their current office, purchase a new building, acquire land for development, and for ground up construction projects. SBA 504 Loans typical range from $500,000 to $20,000,000 with rates between 4.92% to 5.22%.

SBA Disaster Loan 

SBA Disaster Loans are part of SBA Disaster Relief programs that are designed to help small businesses that have experienced damage or hardship due to a natural disaster. SBA Disaster Loans can be used for leasehold improvements, to repair damage to real estate, and to replace machinery and equipment. In order to qualify for an SBA Disaster Loan you have to experience damage during the natural disaster and you must be located in a declared disaster area.

SBA Express Loan

SBA Express Loans are small business loans originated by SBA approved lenders for up to $350,000. SBA Express Loans have an expedited process due to the size of the loan and the guarantee offered by the SBA. A major benefit of SBA Express loans is that collateral is not a requirement and you can use the money for virtually any business purpose. Although this is the case, personal credit and cashflow must be strong in order to get approved. Unlike the SBA 7(a) Loan Program, SBA Express Loans can be closed and funded with just 14 days. SBA Express Loans have rates between Prime + 4.5% to 6.5% and you can borrow up to $350,000.

SBA Microloan Program

The SBA Microloan Program offers SBA loans to small businesses that are seeking less than $50,000. SBA Microloans can be used for machinery and equipment, furniture or fixtures, working capital, and inventory or supplies. Through the SBA Microloan program you can borrow from $500 to $50,000 with rates ranging from 8% to 13%.

SBA 7(a) Loan AmountsSBA 7(a) Loan TermsSBA 7(a) Loan Rates
$100,000 to $5,000,0007 to 25 yearsPrime + 1% to 2.75%
SBA 504 Loan AmountsSBA 504 Loan TermsSBA 504 Loan Rates
$500,000 to $20,000,00010 to 30 years4.92% to 5.22%
SBA Disaster Loan AmountsSBA Disaster Loan TermsSBA Disaster Loan Rates
Up to $2,000,000Up to 30 years4% to 8%
SBA Express Loan AmountsSBA Express Loan TermsSBA Express Loan Rates
Up to $350,0007 to 35 yearsPrime + 4.5% to 6.5%
SBA Microloan AmountsSBA Microloan TermsSBA Microloan Rates
$500 to $50,000Up to 6 years8% to 13%

What can an SBA Loan be used for?

SBA Acquisition Financing 

SBA Loans are frequently used for business acquisition financing. Through SBA Loan programs you can purchase a new company or a competitor. For acquisition financing the SBA requires that there is a minimum of 10% equity being used for the acquisition. Although this is the case most SBA lenders will require closer to 15-20% of equity to be used for the business acquisition financing. 

SBA Debt Consolidation Loan

SBA Loans for debt consolidation is one of the most common reasons why small businesses utilize SBA loan programs. Small businesses that have short term debts, such as equipment loans or leases, lines of credit, truck loans, merchant cash advances, etc.… can refinance and stretch their debt payments over 10 years. By using an SBA Loan program for debt consolidation, you will be able to dramatically reduce your monthly debt payments. This results in significantly more cashflow for day to day operations.

SBA Equipment Refinance Loan 

SBA Loans to refinance equipment enables small business owners to extend existing debt, reduce monthly payments, and improve cash flow. The cashflow impact is tremendous when you refinance equipment loan payments and stretch them over a 10-year period. 

SBA Working Capital Loan

SBA Loans for working capital are frequently used by small business owners that are looking for a permanent injection of cash into their business. Traditional bank programs will require that term loans are used for specific purchases or to refinance existing debt. SBA Loan programs will allow you to inject the full loan amount into your bank account for future operations. 

SBA Business Expansion Loan

SBA Loans for business expansion can help a small business accelerate growth plans without having to worry about having the cashflow to do so. By using an SBA loan to expand you can; 1. Acquire a business 2. Purchase equipment 3. Hire employees 4. Open a new location 5. Purchase commercial real estate.

SBA Partner Buyout Loan

SBA Loans to buyout an existing partner is a great way to use long term financing to own a larger percentage of your company. Similar to other reasons why small businesses would use an SBA Loan, having a 10 year term enables you to buyout a partner and be able to sustain the payments with the existing cashflow of your business.

What type of collateral is used for SBA Loans?

A wide range of collateral can be used for an SBA Loan. While different asset classes are considered, some will hold more value than others.

Machinery and Equipment

Considered a hard asset, machinery and equipment are favorable assets for SBA lenders. By taking the make, model, year, and the condition of the equipment an SBA lender will have the ability to assign a value to the equipment.  The typical advance rates or loan to value (LTV) assigned to equipment and machinery is 60% of the forced liquidation value (FLV). This means that an SBA lender will provide availability based on what they would be able to sell the equipment for in the event of a default.

Accounts Receivable (A/R)

A/R or accounts receivable is money that is owed to a company after a sales has been made or services have been rendered.  For most SBA lenders the A/R of a company is less favorable than hard assets. The typical loan to value (LTV) for A/R is 20% of the outstanding accounts receivable. This can vary based on the credit quality of your clients, the payment terms that are offered, and the diversification of your client base. SBA lenders are often willing to carve out or release their security interest in accounts receivable. SBA Lenders will do this to enable a factoring company or an invoice financing lender to provide a revolving line of credit in addition to an SBA Loan.

Inventory

Although a tangible asset that might hold value to an operating business, inventory is not always as valuable to an SBA Lender. The type of inventory, the ease of liquidation, and the location of the inventory play a major role in determining the advance rate or LTV that an SBA Lender will provide. For example, a company that manufactures its own jewelry might receive a 30% LTV from a lender while a steel manufacturer that holds raw steel as inventory might receive a 65% LTV. From a lenders perspective the faster and easier they can sell the inventory, the higher the value they will assign.

Commercial Real Estate

Commercial real estate or CRE is a hard asset and a great form of collateral for an SBA Loan.  It’s not as liquid as equipment, A/R, or inventory, but it will provide a stable asset for an SBA lender to lend against. Unlike asset-based lending, SBA loans that have commercial real estate attached to it have a higher likelihood of being approved. Traditional commercial real estate lenders and banks will normally only provide the first mortgage on commercial real estate, however, this is not the case with SBA lenders. SBA Loans can be secured by a second lien on commercial real estate. For example, if your property’s appraised value is $1,000,000 and you have a bank real estate loan for $500,000, an SBA lender can still use the real estate as collateral. An SBA lender will use the remaining $500,000 of equity as collateral for your SBA Loan.

Residential Real Estate

Many commercial lenders will only allow commercial assets to be used as collateral for a commercial loan. With SBA lenders, residential real estate can be used for collateral to secure the SBA loan. In fact, under SBA guidelines SBA lenders are required to take any available collateral to secure an SBA loan. The ability for the SBA to use personal residences as collateral helps make an SBA Loan more obtainable for small business owners. Most home owners have a bank mortgage in place, but similar to the commercial real estate example above, if there is available equity then the residential real estate can be used as collateral.

Investment Properties

Business owners that invest in various types of investment properties have the ability to pledge those properties as collateral for an SBA Loan. Whether the investment property is a shopping center, office building, apartment building, or single family home, it is eligible to be used as collateral.

Marketable Securities

Marketable securities are liquid assets that can quickly be turned to cash. A few examples of marketable securities are publicly traded stocks, private or public bonds, and certificates of deposits (CD’s).  Like commercial real estate, marketable securities are typically used as ‘boot’ or extra collateral to help a borrower gain additional liquidity. Advance rates for securities tend to range from 50% to 95%, which is dependent on the type of security.

What documents are needed to get approved for an SBA Loan?

*The below forms are necessary to process an SBA Loan Application, but additional documentation will be required.

Downloadable SBA Forms

SBA Form 1919 – SBA Borrow Information Form

SBA Form 413 – SBA Personal Financial Statement

SBA Form 912 – SBA Statement of Personal History

SBA Form 1920 – SBA Loan Application

SBA 7(a) Loan Application Documents – SBA 504 Loan Application Documents – SBA Disaster Loan Application Documents – SBA Express Loan Application Documents – SBA Microloan Loan Application Documents

N

SBA Form 1919

N

SBA Form 1920

N

Profit and Loss Statements (prior 3 years)

N

Current Balance Sheet

N

Current A/R Aging Report

N

Current A/P Aging Report

N

Business Debt Schedule

N

Environmental Questionnaire

N

Complete Business Plan

N

2 Years of Business Projections

Prequalify

Speak with a SMB Lending Expert to determine what product is the best fit for you. SMB Compass’s simple and secure online application can be completed in a matter of minutes, with no obligations and no impact on your personal credit!

Approved

Once your application is complete we will review the rates, terms, and any questions you have about your loan approval. We will only move forward when all of your questions are answered!

Closed

Once you accept your approval and provide closing documents we will review your terms again to make sure that all your questions are answered. Your loan will then be closed and funded within 24 hours!

How long does the SBA Loan application take?

The application process for an SBA Loan is going to vary based on the SBA program being used and how organized your financial information is. SBA Loans can take anywhere from 14 days to as long as 6 months, but the delay normally comes from information that is not readily available by the business owner. If you are organized and have your financials, insurance documentation, tax returns, and other relevant business information on hand, the process can be much faster.

FAQ About SBA Loans

What is an SBA Loan?

An SBA Loan is a loan that is originated through private lenders and banks that is guaranteed by the Small Business Administration. SBA Loans have terms of 10 and 25 years and are used for an array of different reasons.

How long does the application process take for an SBA Loan?

The application process for an SBA Loan varying depending on both the type of SBA loan you are applying for an how organized a businesses financial are. Working directly with a Lender that specializes in SBA Loans will help expedite a long and document intensive process.

How would you use an SBA Loan?

SBA Loans are used for a wide range of different ways by businesses in a plethora of industries. Businesses use SBA Loans for Expansion, Debt Consolidation, Working Capital, Acquisitions, and Equipment Refinancing

How long does it take to get an SBA loan?

Obtaining an SBA loan requires an intensive document process and can take anywhere for 30 to 120 days depending on if you are working with a bank or direct lender. Banks typically move slower, while private lenders that specialize in SBA loans can expedite the process to close in about 30 days. Each situation is different and is dependent on the dollar amount of the loan, the use of funds, and the term.

Is collateral required for an SBA Loan?

There is a wide range of collateral that can be used to secure an SBA Loan. Some of the more common collateral used for SBA Loans include Equipment, Commercial Real Estate, Residential Real Estate, and Inventory.

What are the different SBA Loan options?

Although the SBA 7(a) loan and the SBA 504 Loan are the most common SBA Loans, there are 3 other SBA Loans. The SBA Disaster Loan, SBA Express Loan, and SBA Microloan Program all have different uses that businesses utilize.

How do you apply for a business loan?

Securing a business loan through a traditional bank typically requires a lot of documentation and takes significantly longer and is more document intensive then going through a private lender. The first step is to contact a lender to discuss your businesses objectives and receive a document request of what you will need to provide based on the loan you are looking to secure. For a short-term loan, private lenders typical only request bank statements and an application. For a longer-term loan, private lenders may request business tax returns, personal tax returns, and year to date financials, exc.

How long does it take to get a business loan?

The time it takes to get a business loan depends on the size of the loan and who is providing the loan. Obtaining a loan through a bank requires significant documentation and will take much longer then securing financing with a direct lender. A private lender can provide your business with a loan in as quickly as 24-48 hours.

How do you qualify for a business loan?

The main criterion that is considered when determining if a business qualifies for a loan typical involves a business owner’s personal credit, the cash flow in the business, and the amount of time the business has been operating.

How do you qualify for a business line of credit?

Depending on the size of the line of credit, a private lender may only need 6 months of banks statements and an application to approve a business for a line of credit.

How do you get a business loan for medical practices and doctor offices?

Business loans help medical practices and doctor’s office deal with the costly operating expenses and long payment terms that are notorious in the industry. A medical practice can secure a loan in as little as 24 hours with limited documentation.

How do you qualify for a restaurant loan?

Restaurant loans are typically used for expansion or to help businesses during the slower seasons. Restaurants typically have busier and slower times of the year so lenders consider the cash flow in the business and the business owner’s personal credit to determine if a restaurant will qualify for financing.

How long does it take to get a transportation loan?

A transportation loan can be secured in as quickly as 24 hours depending on the size and use of the loan. A loan to repair a truck or trailer requires limited documentation and can be closed and funded within 24 hours. A loan to purchase a truck is not overly time intensive but may take longer because there is more documentation needed for a loan of that size.

How do you qualify for a hotel loan?

A hotel loan is typically used for expansion, renovations, or operating cash flow. A hotel loan with a traditional bank requires significant documentation and can be a very long process. Private lenders are able to move faster and aren’t as document intensive, allowing hotels to operate efficiently and take advantage of different business opportunities.

How do you qualify for a loan for a landscaping business?

A landscaping business loan is commonly used to take advantage of new opportunities or manage cash flow during slower seasons of the year. Seasonality has a big impact on the revenue generated in the landscaping industry. Some traditional banks view the industry as risk because of the seasonality that some businesses face. Private lenders look at the trends of the business to determine how much a business qualifies for and the term of the loan.

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FAQ About SBA Loans

What is an SBA Loan?

An SBA Loan is a loan that is originated through private lenders and banks that is guaranteed by the Small Business Administration. SBA Loans have terms of 10 and 25 years and are used for an array of different reasons.

How long does the application process take for an SBA Loan?

The application process for an SBA Loan varying depending on both the type of SBA loan you are applying for an how organized a businesses financial are. Working directly with a Lender that specializes in SBA Loans will help expedite a long and document intensive process.

How would you use an SBA Loan?

SBA Loans are used for a wide range of different ways by businesses in a plethora of industries. Businesses use SBA Loans for Expansion, Debt Consolidation, Working Capital, Acquisitions, and Equipment Refinancing

How long does it take to get an SBA loan?

Obtaining an SBA loan requires an intensive document process and can take anywhere for 30 to 120 days depending on if you are working with a bank or direct lender. Banks typically move slower, while private lenders that specialize in SBA loans can expedite the process to close in about 30 days. Each situation is different and is dependent on the dollar amount of the loan, the use of funds, and the term.

Is collateral required for an SBA Loan?

There is a wide range of collateral that can be used to secure an SBA Loan. Some of the more common collateral used for SBA Loans include Equipment, Commercial Real Estate, Residential Real Estate, and Inventory.

What are the different SBA Loan options?

Although the SBA 7(a) loan and the SBA 504 Loan are the most common SBA Loans, there are 3 other SBA Loans. The SBA Disaster Loan, SBA Express Loan, and SBA Microloan Program all have different uses that businesses utilize.