When beginning your search for business lending, it’s easy to get overwhelmed with financial terminology and jargon.
As a current, or soon-to-be, business owner, you’ve probably heard of an SBA loan at some point – but what are they, really? No matter where you are in your entrepreneurial journey, ”SBA loan” is one industry acronym every small business owner should be aware of. In this article, we explore SBA 7a loans - what they are, why they can be an excellent lending option, and how you can obtain one for your small business.
What are SBA loans?
An SBA loan is a small business loan issued by a private lender, such as SouthState Bank, and backed by the federal government (the Small Business Administration). Since these loans are guaranteed by the government, the risk for the lender significantly decreases, and the financing terms are more favorable for borrowers. The SBA does not do the lending, instead they partner with lending institutions (most of the time these are banks and credit unions) to make loans more accessible to small businesses. At SouthState, we offer two types of SBA 7(a) loans:
Standard SBA 7(a) loan
The standard loan is for businesses needing between $500,000 – $5 million to purchase commercial real estate, acquire an existing business, finance a partner buyout, or invest in your business startup. Our dedicated small business lenders will work with you to package your loan documentation and secure financing as quickly as possible. Standard SBA loans can be a lengthy process, but choosing a reputable SBA lender can make the process a streamlined experience.
Small SBA 7(a) loan
The small loan is recommended for businesses seeking a loan up to $500,000 for working capital, equipment financing, purchasing inventory, and more. At SouthState, the small loan process is a digital experience from start to finish The application is an online process, the loan documents are prepared in-house, and the closing is completely virtual. You can apply and be prequalified within minutes, and close in as little as two weeks.
Do you have to pay back an SBA loan?
Borrowers are obligated to pay back SBA loan funds. If you default on your SBA loan, the government will pay the lender their guaranteed portion of the loan- which can cover up to 85 percent. Per SBA guidelines, the lender is required to take an unconditional personal guarantee from everyone with at least 20% ownership in the company.
What are the benefits of an SBA loan as opposed to a regular small business loan?
By nature, SBA loans are loans that cannot be made conventionally. They offer competitive rates, low fees, and longer terms than what a small business owner would otherwise receive. SBA lenders most commonly base their interest rates on the prime rate, and fees typically consist of an upfront guaranteed fee. Additionally, the loan term depends on how you plan to use the money.
What terms does an SBA loan offer?
With an SBA 7a loan, the repayment term is typically longer than a traditional bank loan, and the term is dependent on how you plan to use the money. If needed, it can be stretched out to a maximum of 25 years for real estate or 10 years for goodwill , equipment or working capital. By stretching out the repayment term, businesses are able to conserve cash for their operating needs with lower monthly payments.
