SBA Loans

There are many different factors that go into SBA loan eligibility. In order to be eligible, you must:

Be considered a small business by the SBA. You can check your own business’ eligibility using this tool.

• Operate for profit
• Use the funds for an eligible use
• Do business in the United States or its territories
• Prove alternative financial resources are not available before pursuing an SBA loan

Basic uses for SBA 7(a) loans include the following:

• Working capital
• The purchase of equipment, machinery furniture, fixtures, supplies or materials
• The purchase of real estate, which includes both land and buildings
• The construction of a new building or renovation of an existing building
• Establishing a new business
• The purchasing of a business
• Refinancing existing business debt (under certain conditions)

If you are associated with multiple businesses, the SBA requires that your lender review pertinent information related to all businesses you are associated with.

A down payment for an SBA 7(a) loan is typically 10%. The exact amount of the down payment that will be required is dependent on a variety of factors, including which lender you will be receiving the loan from. 

A credit memo is the document the lender puts together that provides details on the borrower’s business and why they need an SBA loan. This document will ultimately be used to determine whether or not the borrower will be approved for the loan.

During the closing process the lender will typically use 3rd party reports to verify information such as, title searches, appraisals and business valuations. The lender will then submit the entire loan application to the SBA. Once the loan is ready to be finalized, you will be receiving various closing documents from your lender for you to review and sign. 

Payments will be pulled via ACH from the business operating account. This process is setup with the Bank’s third-party servicing partner once your loan is funded and you must begin making payments.

Interest is accrued on your loan once the funds have been disbursed. The amount of interest is based on the interest rate that is agreed upon with you and your lender. If your loan funds are disbursed over a period of time, interest will only accrue on the portion of the loan that has been disbursed to your business.

Lenders may not charge pre-payment penalties on SBA loans, but the SBA does have a pre-payment penalty on all loans that have a maturity of 15 years or more. Per the SBA’s guidelines, if a borrower pre-pays more than 25% of their outstanding loan balance within the first 3 years, pre-payment penalties are incurred as follows:

• 1st year: 5% of the pre-payment amount
• 2nd year: 3% of the pre-payment amount
• 3rd year: 1% of the pre-payment amount