SBA loans are the gold standard of business loans. They come with high loan amounts, low interest rates, and long repayment terms. Due to the way each government loan program operates, the best SBA lenders will largely be unique to the specific program.
What are SBA loans?
SBA loans are long-term small business loans partially guaranteed by the government. The U.S. Small Business Administration is a federal agency committed to furthering the growth and development of small businesses and partners with lenders nationwide in their loan programs.
How SBA loans work
Unlike conventional term loans, an SBA Loan offers business owners the opportunity to take advantage of favorable terms as part of the SBA program, while removing some of the barriers to traditional financing options.
As a Preferred SBA Lender, the program offers a faster loan process with reduced paperwork for businesses that have been in operation for less than two years. They customize SBA loans based on the unique needs of the business owner. The funds may be used for vehicle purchases and refinances, equipment purchases, working capital, inventory and other general business needs.
Overview
The SBA 504 Loan Program is a lending partnership featuring a third-party lender (usually a bank) providing a fixed or floating rate loan and The St. Louis Local Development Company (“LDC”), a Certified Development Company for the SBA, providing a fixed rate SBA 504 loan.
SBA 504 loans are geared toward healthy, expanding for-profit businesses seeking long-term, low down-payment financing for major fixed assets. These loans can be used for the purchase and renovation of real estate and for the purchase of long-term equipment. They may also be used to refinance existing debt under certain circumstances. These loans cannot be used for working capital or the purchase of inventory.
Eligibility
- The borrower must be a small business with a tangible net worth of $15 million or less and an average net income of $5 million or less after taxes during the preceding two years.
- Loans are generally capped at $5 million.
- The business must create or retain jobs or meet certain public policy objectives.
- The business must occupy at least 51% of the building purchased.
- Non-profit organizations and businesses engaged in speculative real estate investment are not eligible.
Benefits
- Below-market interest rate fixed for the life of the loan.
- Loan terms of 10, 20, and 25 years.
- Low down payment (typically 10% of the project cost) conserving working capital.
Typical Financing Structure
The typical financing structure for a 504 loan consists of a loan from a third-party lender for 50% of the project cost; a loan from the LDC/SBA for up to 40% of the project costs; and a contribution from the small business owner of 10% of the total project cost.
Loans to start-up businesses and loans for special-use properties will require a borrower contribution of up to 20% of the project cost.
How to choose SBA Approved Lender & Best offers
The SBA and the LDC charge the following fees in connection with SBA 504 loans:
- Participation Fee: A one-time, up-front fee paid to the SBA by either the participating bank or the borrower. The fee is equal to ½ percent of the senior mortgage associated with the 504 project and is due at loan closing.
- Processing Fee: A one-time processing fee of approximately 1.75% of the 504 loan amount, which can be added to the amount borrowed and amortized over the life of the loan.
- Servicing Fee: An annual fee of approximately 1.6% of the outstanding loan balance added to the borrower’s monthly payment and paid over the life of the loan.
- Legal Fee and Closing Costs: The borrower is responsible for all legal fees and costs associated with closing the 504 loan. The LDC charges a fee of $2,000 in connection with the loan closing. A deposit of $750 is required upon loan approval for costs associated with closing the loan.
You can take a consultation in the Bank of Missouri, which is a nationally-recognized, award-winning SBA Preferred Lender. That means, even though these are government-backed loans, they make decisions locally. It also means you work with experienced lenders who can make the process faster and easier to help you drive toward your goals.
SBA 7(a) business loan*
Government-backed term loan for the acquisition or expansion of a small business.
Key benefits:
- Loan amounts up to $5 million
- Terms up to 10 years for business, acquisition, equipment or tenant improvement
- Terms up to 7 years for working capital and inventory
- Flexible collateral options
Best for:
- Business acquisition
- Equipment
- Debt refinance, working capital and inventory
- Tenant improvement, partner buyout
- For-profit businesses
SBA 7(a) Real Estate loans*
Government-backed term loans for the purchase, refinance or construction of commercial real estate.
Key benefits:
- Loan amounts up to $5 million
- Additional $2 million direct funding by U.S. Bank (SBA 7 (a) Pari Passu loan)
- Terms up to 25 years
- Fully amortized, no balloon payments
Best for:
- Owner-user commercial real estate purchase
- Expansion
- Refinance or construction
For-profit businesses
SBA 504 real estate loan*
Government-backed term loan for the purchase, refinance or construction of commercial real estate.
Key benefits:
- Loan amounts up to $12.375 million
- U.S. Bank loan terms 25 years
- CDC loan terms 25 years
- Equipment loan terms 10 years
Best for:
- Owner-user commercial real estate purchase
- Refinance
- Construction