Where To Find The Best SBA Loans In 2019

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SBA Loans are among the most coveted types of small business loans on the market. Much like a traditional bank loan, the borrowing limits are high, the terms are convenient, and the interest rates are on the lower side. But only certain businesses can qualify and some widespread notions about SBA Loans may actually be complete myths. Several obstacles preventing SBA Loan approval remain unknown throughout the small business world. Before starting the notoriously taxing journey of obtaining an SBA Loan, it’s best to know what you’re up against.

In this guide, we’ll explain where to find the most advantageous SBA Loans available today, what the terms and interest rates look like, and which factors play the biggest role in your approval.

What Is An SBA Loan?

SBA stands for “Small Business Administration.” The Small Business Administration is a government agency, not a business lender. Applications for SBA Loans are not sent directly to the SBA. Instead, you must apply through one of three types of financial institutions: commercial banks, credit unions, or alternative business financing companies like United Capital Source.

What makes an SBA Loan different than all other business loans is that the SBA guarantees up to 85% of loans up to $150,000 and up to 75% of loans over that amount and up to $500,000. This means that even if the borrower was to default on the loan, the financial institution would still make back 85% or 75% of the borrowed funds.

The SBA, however, does not approve or reject applications. That’s all up to the financial institution, each of which has its own criteria for approval. Once the institution approves an application, it submits its own application requesting the SBA’s guarantee.

What Are The Different Types Of SBA Loans?

All SBA Loans have the same repayment structure as term loans. You make fixed or variable payments every month over a set period of time.

  1. The 7(a) Loan: This is the most popular type of SBA Loan. It can be used for almost any purpose: hiring more people, purchasing new equipment, paying off existing debts, ordering bulk inventory, etc. You can access up to $5M, with repayment terms of up to 25 years, depending on the type of investment. Interest rates range from 5% – 10%. There is a 1.7% fee for loans up to $150K, and a 2.25% fee for loans greater than that amount. This fee might be presented as part of the total cost of the loan. There may also be an origination fee or loan packaging fee.
  2. The CDC/504 Loan: This program can only be used to purchase major assets, like heavy duty machinery and commercial real estate. You can access up to $5.5M, with repayment terms of up to 20 years. Interest rates range from 5% – 6%. Total fees usually add up to 3% of the loan amount, and you’ll have to make a down payment of approximately 10%.
  3. The SBA Microloan: This is only called a “micro” because of the average size of an SBA Loan. It is designed for smaller or younger businesses. You can access up to $50K, with repayment terms of up to 6 years. Interest rates range from 8% – 13%. There are reportedly no fees associated with the SBA Microloan program.
  4. United Capital Source’s SBA Marketplace Loan: This is only available at United Capital Source and can be used for any large-scale investment, much like the 7(a) Loan. You can access up to $10, with repayment terms of up to 25 years, depending on the type of investment. Interest rates start at 5%. For information about fees, email us at [email protected] or call 1(855-933-8638).

How Do You Qualify For An SBA Loan?

The number one requirement for SBA Loans from banks and credit unions is patience. There is significant paperwork involved, and it could be at least three months before you learn whether or not you’ve been approved. Applicants often have to meet with numerous banks before being approved, and may be told to come back in a year when their finances have improved. The point is, SBA Loans usually aren’t as simple as filing one application to one institution and then getting your money a few days later.

The other general requirements for SBA Loans from banks and credit unions are fairly similar to those for a traditional business term loan. Credit score must be above 700, and your business must be at least two years old. Annual business revenue must be at least $100,000. Collateral is usually required, especially for the Microloan program. Perhaps the most difficult requirement to fulfill for banks is capitalization. Banks favor applicants who have enough money to finance their desired investment on their own, a.k.a. applicants who don’t really “need” a loan. And since SBA Loans involve monthly payments, businesses with tumultuous revenue (even due to uncontrollable circumstances like seasonality) will likely have a harder time being approved.

If you’re applying through a credit union, you must live, work, worship, or attend school in a specified area, or be a member of a group such as a school, labor union, or homeowners’ association. Numerous credit unions, however, can be joined by anyone, usually via a donation to a certain charity or by joining an organization that is affiliated with the credit union. Applicants for small to mid-sized loans may also be able to fall slightly short on some requirements, mainly because credit unions are non-profit.

As for documents, here’s what you’ll need in order to apply through a bank or credit union:

  • Driver’s License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Business Tax Returns
  • Personal Tax Returns
  • Business Plan
  • Business Debt Schedule

Which Banks and Credit Unions Offer SBA Loans?

Here’s a list of three banks and some credit unions that offer SBA Loans:

  • Wells Fargo
  • JPMorgan Chase
  • TD Bank
  • America First Credit Union
  • Randolph-Brooks Federal Credit Union
  • Stamford Federal Credit Union

What About The SBA Marketplace Loan?

United Capital Source has partnerships with selected SBA lenders. This allows us to approve sba loans in as little as 3 weeks and work with borrowers with credit scores as low as 650. You must be in business for at least two years with annual gross sales of at least $1.2 million.

Documents you’ll need:

  • Personal Tax Returns – 2 Years
  • Business Tax Returns – 2 Years
  • Personal Financial Statement
  • List of Real Estate Owned

Other Factors To Consider Before Applying:

  1. A Partial Guarantee Is Not A Full Guarantee

Applicants for SBA Loans tend to assume that because the SBA is guaranteeing a large percentage of the loan, SBA Loans are significantly easier to access than traditional bank loans. From a rational standpoint, this should be true. But 85% is not 100%. The bank still stands to lose some money in the event of a default and is therefore only slightly more generous with SBA Loan applications. If you don’t think you’ll be approved for a traditional bank loan, your chances of being approved for an SBA Loan are slim.

  1. Banks Want Accurate Financial Projections

As you can see, one of the mandatory requirements for an SBA Loan from a bank is a business plan. This is a 12 to 15-page document that features long-term financial projections. Certain types of businesses cannot accurately predict revenue due to external factors like seasonality or frequent changes in demand. Banks may be dissuaded by this lack of certainty because SBA Loans require you to make payments every month, regardless of the shape your industry is in.

  1. Industry May Be A Deal-Breaker

Banks are biased towards industries that are poised for growth or widely known as “recession-proof.” Businesses that do not fit into either category must therefore fulfill all requirements with flying colors. Even if you can accomplish this, the bank’s opinion of your industry may be a deal-breaker. The idea is to supply as much evidence as possible that your financial projections will materialize into proven growth. Many businesses can do this by simply pointing to the state of their industries.

You won’t find this form of discrimination at United Capital Source. An applicant’s industry is nowhere near as integral to approval as cash flow, sales consistency, and overall financial responsibility. We regularly approve business loans for industries prone to extreme seasonality or random dips in revenue. So, if you get rejected for an SBA Loan from a bank, you may very well have better luck with another alternative business financing company like UCS. As long as you fulfill our general requirements and can prove that your business is alive and well, getting approved for the amount and terms you need should not be an issue.

The post Where To Find The Best SBA Loans In 2019 appeared first on United Capital Source.

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