The Basics of SBA Loans
Aug. 22, 2018
By: Kevin Riffey, SVP, Small Business Administration Director
Over my 21 years of experience, first-time small business owners often ask me similar questions about the Small Business Administration (SBA) lending process. So, I’ve tried to connect some of the dots around the basics, in hopes of answering some of these questions for those out there that might be considering an SBA loan, but aren’t sure where to start.
What is the Small Business Administration?
If you’re unable to receive conventional financing, the SBA is absolutely where you go to find the best and most affordable business financing out there. However, I’d like to debunk a common misconception about the SBA. The SBA itself, doesn’t lend out any money to small business owners. So you might ask, what does the SBA do? The long answer is pretty complicated, but for the purposes of this blog, this federal agency actually teams up with lenders across the United States to get small business owners funding. The government guarantees a portion of those loans, so that even if you can’t repay your loan, the lender only loses a small amount. In short, the program incentivizes lenders to offer the small business owner large, affordable loans at a lower risk. The SBA partially guarantees bank loans to solve a credit availability problem.
What the SBA is doing is really a great thing, both for small business owners and for the U.S. economy. The SBA estimates that small businesses make up more than half of all jobs in the U.S. However, without the SBA, it would be difficult for many small businesses to get funding the traditional way. The SBA guarantees approximately $29 billion annually, fostering small business growth and economic growth across the U.S.
So what kind of SBA loan programs are out there?
The Bank of Tampa offers two different types of SBA loan programs. SBA 7(a) loans ranging from $150,000 to $5 million. SBA 7(a) loans are the most common and flexible of the SBA loan programs, while the SBA 504 program is used for capital purchases, including owner-occupied commercial real estate and large equipment.
7(a) Loan Program
Funds resulting from the 7(a) Loan program can be used for just about any business related purpose, including seasonal financing, operational expenses, inventory and equipment purchases, real estate deals, debt refinancing, business acquisition, partner buyout, etc. Through this program, a small business owner can secure a loan for up to $5 million. Loans through this program can last anywhere from seven to 25 years, depending on, for example, the purpose of the loan proceeds, with monthly repayment options and a market rate interest rate.
504 Loan Program
While limited because it’s only for large fixed assets like equipment and commercial real estate (and certain eligibility requirements apply), the 504 loan program has its perks:
- 90% financing
- Longer terms—up to 25 years
- Fixed interest rates
If you’re interested in learning more about SBA lending can do for you, or if you please feel free to reach out to me directly at KRiffey@bankoftampa.com.
We are committed to working with small businesses in Tampa Bay. Partially guaranteed by the Small Business Administration, SBA loans provide an alternative when conventional financing does not fit the needs of a small business. Our SBA specialists help you select, apply for, and quickly process the right loan to fit your needs. We offer extended terms and lower equity requirements to improve cash flow and business efficiency.