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In our next article we wanted to talk about how to get an SBA loan. Many of our clients purchase ready-made business plans for the SBA and are not 100% sure how the process works. Let us however help shed some light on what they are, how they work and the steps to avail a loan.
What is an SBA loan?
SBA loans are loans from a bank or commercial lending institution for up to 10 years, with the Small Business Administration (SBA) guaranteeing 80 percent of the loan principal.
Who are SBA loans for?
SBA loans are for established small businesses that are able to repay the loan with cash flow, but whose principal is looking for a longer term to reduce payments or may have insufficient corporate or personal assets to collateralize the loan.
How many loans are available?
huge. The Small Business Administration guarantees approximately $12 billion in loans per year.
Best use of loan:
Buying equipment, financing the purchase of the business, and in some cases working capital. Small Business Administration guarantees can help borrowers overcome weak loan application problems associated with insufficient collateral or limited operating history.
What are the fees or costs?
Comparatively cheaper when looking at other loan sources. The maximum allowed interest rates range from prime plus 6.5 percentage points to prime plus 2.75 percentage points, though lenders can and often do charge less. These rates may be higher or lower than the rates for unsecured loans. What’s more, banks that make SBA loans can’t charge a “commitment fee” or prepayment fee on loans less than 15 years (prepayment penalties apply for longer loans) for agreeing to make the loan, which Meaning that the effective rates for these loans can be, in some instances, better than conventional loans.
Ease of Acquisition:
challenging. Although the Small Business Administration has streamlined approaches to loan applications, traditional SBA guarantee processes and protocols present a significant documentation and administrative challenge for most borrowers.
The range of funds usually available:
The Small Business Administration guarantees loan principal of up to $1 million.
Steps to Getting an SBA Loan
While most banks, as well as select commercial finance companies, offer SBA loans, there are two special categories that need to be known about. These are certified lenders and preferred lenders, both of which have entered into contractual relationships with the SBA and officially participate in the Certified Lender/Preferred Lender Programs (CLP/PLP).
These lender programs were designed to provide better feedback to borrowers; They accomplish this goal by placing additional responsibility on lenders for analyzing, structuring, approving, servicing and liquidating loans within Small Business Administration guidelines. About 850 lenders qualify for the SBA’s certified lender program by meeting certain criteria, the most important of which, from a borrower’s perspective, is extensive experience in SBA loan-guaranteed processing. Certified lenders account for about 4 percent of all SBA business-loan guarantees. Since the certified bank does most of the work for the SBA, the agency provides a turnaround time of three business days to process the application.
Approximately 450 lenders meet the preferred lender standards. This group processes about 21 percent of loans. Preferred lenders have full loan disbursement authority and as a result may offer same-day turnaround on full loan applications.
If you’re seeking a loan, your best bet is to work with a certified or preferred lender. The SBA-guarantee process is tricky at best, and you want a lender who’s gone through it more than once.
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