If you’re looking for a loan to help jump start your small business, an SBA loan may just fit the bill. While loans from the Small Business Administration are actually offered through banks and other lenders, they are backed by the federal government. With this guarantee, private financial institutions are able to structure SBA loan terms very favorably—with attractive interest rates and flexible terms.

Types of SBA Loans

SBA loans come in a variety of flavors. The most popular is the 7(a), however, Avid Commercial only specializes in 504 SBA loans . The SBA permits up to $5 million to be borrowed under the 7(a) terms. Funds can be used to purchase equipment, underwrite startup costs, repair existing capital, expand an existing business, purchase land, fund construction costs, refinance existing debt, and more. If your enterprise needs any of these services and you don’t require more than $5 million, a small business loan with the assistance of the U.S. government would be perfect for you.

If you’re interested in how to get a loan for a new business, the SBA also operates the microloan program. These are smaller loans capped at $50,000, and loan applications are handled by nonprofit organizations.

Under SBA loan requirements, a microloan must be paid back within six years; and funds cannot be used to purchase real estate or pay existing debts. A microloan can be used to cover the costs of equipment, supplies, inventory, furniture, or working capital. Either the 7(a) or the microloan could help you get your dream career off the ground.

If your business is already established but has been set back by a natural disaster, the SBA’s disaster loan program may be a better option for you. Up to $2 million can be borrowed to cover damage to personal property, machinery, real estate, and other business assets. This one is processed directly through the SBA.

The fourth major loan program the SBA operates is the 504 loan, which is the product that Avid Commercial offers. A maximum of $5 million can be borrowed to pay for land, new facilities and equipment, and make improvements to existing facilities.

Because the 504 loan is designed for small businesses, the federal government restricts these loans to enterprises with less than $15 million in tangible net worth. Your business must also have generated less than $5 million in average net income during the preceding 2 years. The government also prohibits 504 funds from being used for investments in real estate, or the purchase of inventory or working capital.

Wherever your small business is at, Avid Commercial can help you navigate through all the SBA paperwork and obtain a 504 loan that will provide the funding you need at the terms you require.

SBA Loan Requirements

Before you decide to apply for one of these lucrative bank products, you should be aware of SBA loan requirements. These cover a wide swath of areas, so be sure to familiarize yourself with these.

Each SBA loan type has its own specific application process. Nevertheless, there are broad SBA policies that will apply to any program you choose. If you want to know how to get an SBA loan, Avid Commercial can help guide you through the process.

The SBA wants to see a credit score of 680 or higher. A loan intended to purchase a business or commercial property will require a 10% down payment. Collateral is not required for SBA loans, but having some helps to get you approved.

There is no minimum business history you are required to have to qualify for a 7(a) loan; but the 504 program that Avid Commercial specializes in requires at least 2 years.

Here are some documents that you’ll need to include in your application:

  • A business plan. Any SBA application will request a business plan. This is your opportunity to demonstrate that you know what you’re doing and have what it takes to succeed in your field.
  • A resume. Write a professional resume to include with your application. In this document, you can note any previous work experience you had before you started your small business. Remember to put down any experience in your industry outside of your enterprise and your complete business background.
  • Legal documents. Some of the important records you may need to include with your SBA loan application include articles of incorporation, business licenses, franchise agreements, and leases for business equipment.
  • Financial statements. You’ll want to update your company’s balance sheet, income statement, cash flow statement, and debt schedule. 
  • Personal credit score and tax return. The SBA will want to know what you as an individual are like when handling finances. Yes, the loan is for your business. But you’re part of that operation, and your money management skills could impact the business’s failure or success.
  • Business credit report and tax return. If you’ve been in operation long enough to generate business credit reports and tax returns, you’ll want to include them with your SBA application as well as 2 years of business history.

While this may seem like a lot of red tape, Avid commercial loans are designed to make the process as simple as possible.

SBA Loan Rates

When looking at new business loans, you’ll of course want to research current interest rates. The SBA has some of the lowest rates on the market for small businesses, so these should be your first course of action.

Different types of SBA loans have different fees and APR’s. A 504 loan through Avid Commercial can be taken out with either a 10-year or 20-year term. The SBA provides up to 40% of the loan amount, the borrower is responsible for 10%, while Avid Commercial covers the last 50%. Thus, 504 rates from the SBA are only for the 40% portion. Currently, this rate is roughly 4.50% for the 10-year product, while twenty years will cost a steeper 6.0%. In either case, the 504 loan is obviously cheaper than the 7(a).

Currently, a 7(a) loan varies from 7% to 9.5%, depending on the amount borrowed and the period of repayment. Borrowing more than $50,000 and paying it back in less than 7 years will garner the lowest rate (7%); while borrowing less than $25,000 with a payment schedule greater than 7 years will cost the most (9.5%).

There may be a guarantee fee for 7(a) loans above $150,000. The fee is typically 0.25% if the payment schedule is under twelve months. The fee increases with higher loan amounts and longer maturities. The fee is 3.75% if the loan amount is over $1 million.

How to Get a Business Loan

If SBA loans don’t match your financial needs, there are other loan options for small businesses. At Avid Commercial, we offer bridge loans for short-term financing needs. If you have a FICO score above 675 and need between $500,000 and $10 million, a fixed-rate bridge loan from Avid would be perfect for you.

We also provide loans for apartments and other multi-family dwellings. Fixed-rate terms are available from 3 years up to 10 years. We also provide a 30-year amortized option. You must have a FICO score of at least 700 and a minimum debt-service coverage ratio of 1.40.

If you’re considering investing in real estate, we have a great loan program that provides funding for entrepreneurial activities. Investment loans require a credit score above 675 and have a maximum loan-to-value ratio of 65%. Up to $5 million can be borrowed.   

To learn more about how to apply for a business loan, give Avid Commercial a call at (801) 365-1740 or send us an e-mail.