If it were 1975 and you wanted to start or expand your business with a business loan, your only feasible options would’ve been a bank. Why wouldn’t you want to go to a bank? They’re established, they’re trusted, and frankly, that’s what everyone did. Banks are the most traditional loan provider, and in some senses, they’re the gatekeepers. But the world is changing, and convenience is key. If you know what you need and need it quickly, a traditional bank loan isn’t going to be the best option.

If you don’t know where to go, getting the right funding can be a very, very long process. The internet changed everything, and in recent years it’s gotten much easier to get a business loan without going to a bank. This disruption of the industry is good for you, as a business, because now getting funded is a much easier process than in the past.

Not Your Grandfather’s Loans

For banks, time is not of the essence. They have long application processes that aren’t streamlined, and you often have to schedule meetings with a local branch to discuss your application and qualifications. Fundamentally, they’re slow. Getting a business loan with a bank takes anywhere from 14 to 21 days, so if you need to buy products as soon as possible, bank loans won’t cut it.

If you’re not really sure what’s best for your company, the process of getting a business loan will be even longer. If you’re purchasing equipment or goods that you need quickly – finding what you need to buy, figuring out how much it’s going to cost, and then getting the loan you need for it – this entire process could take days, even weeks. It’s our mission at FaaSfunds to figure out the type of funding you need, so you don’t need to wait around for your money.

Logged On

If you don’t know about online lenders, you need to.  They’re not just for mortgage loans or refinancing, they can also help you get a business loan. Online lenders take the place of a bank by way of giving you the money you need, but they specialize only on loans. Banks offer several different services, so they’re not as worried about securing your loan.

Online lenders like Clicklease or BlueVine have streamlined applications that you can connect straight to your business bank account and submit documents online. You often hear back on the same day you submit an application and can receive funds in about two to three days if you’re approved.

Whether you need to buy industrial equipment or you just need cash for general operation, there are certain types of loans from online lenders that will work better for specific needs. FaaSfunds will help you figure that out. If you need cash fast, however, you can get a working capital loan or take out a line of credit.

Working Capital Loans

Working capital loans do exactly what they say – they give you working capital. These “quick cash” loans often don’t require credit checks or waiting time. If you need cash quickly, this option will get you what you need usually within 24 hours. Working capital loans are good if you really, really need them – such as if you have an event approaching and you found out you’re short on funds to host it. If you know the event will bring in a large crowd and you can pay the quick-cash loan off with the funds earned from it, it can be a good idea.

Working capital loans are designed specifically for short term uses. If you have seasonal revenue or other such needs, they can be very useful. If you need a more long-term solution and won’t have the money needed to pay it back quickly, it’s not usually the best option. Working capital loans will loan you the money even if you don’t have good finances, but they usually require daily payments and have high interest rates. So, it’s best to use them as a last resort after you’ve really thought through your options. They do come in handy, they’re just not advised for many situations.

Lines of Credit

A more advisable option, although it requires a little bit of planning ahead, is a line of credit. You can get a line of credit at a traditional bank or at an online lender, but as we’ve talked about, online lenders will give you the quickest turnaround. Getting one is a little quicker than a traditional loan, and once you have it, you can save the funds to access at any time. Lines of credit, as their name implies, are credit lines with a set maximum very similar to a credit card. Your business will get a maximum, say around $30,000, and you draw from those funds for business expenses. They’re ideal because you only need to pay interest on the funds you use, and you only pay back what you use.

Lines of credit will take a little more information to get approved for, and better credit. They’re not as quick as working capital loans, but often lines of credit can be a quicker option because once you get one, the funds are open for use whenever you need them. Since you only pay interest on what you spend, they’re a more ideal option for emergency funds. If you’re able to plan ahead and take out a line of credit before you actually need the cash, you can use it when you get in a bind an avoid the high interest rates that come with working capital loans.

We know there’s a lot of options and information out there, and that’s why FaaSfunds offers advice for your financial questions and situations. Make sure you talk to your FaaSfunds financial advisor about lines of credit and working capital if you’re in need of quick funding. Our advisors will work with you to figure out the funding option that will fit your company.


Words can weapons – “the pen is mightier than the sword,” as they say. Sometimes through confusing financial jargon, certain words can lead to uninformed consumer decisions. When banks or financial institutions make their funding options hard to understand, they create a disadvantage to their customers. They throw around terms and concepts without ever explaining what they mean, and not everyone has an MBA or the time to research it all.

If you’re trying to get a business loan or receive any sort of funding for your business, all of the financial jargon and literature can get overwhelming. There are terms you hear over and over again, but never actually see defined. There are words that mean multiple things when used in different ways. Not to mention the words that sound complicated but actually mean simple things. We’re here to break down some of these complicated terms in an understandable way.

Here’s our glossary of some common financial jargon:

Accounts payable vs. accounts receivable:

Accounts payable are the debts that your business owes to vendors or creditors, while accounts receivable are the money owed to your business by your customers. This type of credit is done through invoicing and is always short-term.

APR:

APR stands for the annual percentage rate, and it’s the total rate charged for borrowing money from a lender. It includes the interest rate and all fees associated with borrowing. It’s expressed as a percentage that represents the annual cost of funds over a loan term. It does not, however, take into account compounding interest.

((Fees + Interest/Principal)/Number of days in a loan term) x 365) x 100

Broker:

A broker is a middle man within any type of sale. For houses, a broker is a real estate agent – they sell the product on behalf of another person or entity. Brokers facilitate sales for a client or investor, and they often charge a commission on the things they’re selling.

Cash flow:

Cash flow is the money your business is bringing in. the ability of a business to create value is determined by its ability to create a positive cash flow, and this is reported on a cash flow statement. Cash flow is used to access a company’s overall financial performance.

Collateral:

Collateral is what you use to secure a loan, and you pledge it as security of repayment. Not every lender needs collateral, but often when they do, they’ll require things such as investments, property, cars or savings deposits. If you don’t pay your loan, they’ll seize your collateral as payment.

Compounding Interest:

Compounding interest is the calculated interest from the principal amount along with the accumulated interest of a loan. It can be compounded after various periods of time – annually, semi-annually, monthly, quarterly – and will make the sum of your loan grow at a faster rate than simple interest, which is just calculated from the principal amount. If you compound a $10,000 loan quarterly at 5%, you’ll be paying not only on the $10,000, but also the 5% interest it accumulated after every quarter.

Credit

Credit is borrowed money that you use to purchase things. Loans are credit, and credit cards give you access to credit. As opposed to cash, credit is money you don’t actually possess, but pay back at a later time.

Credit score:

Your credit score is a statistic that evaluates how worthy you are of credit based on your history with it. They range from 300 – 800, with a score of 700 and up considered “good.” Credit is your ability to buy things before you use actual cash. Your credit score takes into account all of the loans and credit cards taken out in your name and scores you based on how well you pay on them. They also score based on how intelligently you use them – such as if you pay more than the minimum. This score is what other credit and loan providers use to decide if they’re going to give you money. If you have a good score, they know you’re more likely to pay them back.

Fixed asset:

Fixed assets are a tangible property that businesses use in operation. Fixed assets generate income for a company, and aren’t expected to be used or sold for cash within a year. Fixed assets include things like buildings, computer hardware or vehicles.

Guarantor:

A guarantor is a person who guarantees something will be paid. For loans, it’s a person who co-signs with you in order to assure the lender they’ll be paid. In the event that you are unable to make a payment, your guarantor takes on the responsibility. They pledge their own assets in case you cannot pay what you’re obligated to by the lender.

Loan term:

A loan term is the period of time your business has to pay off a loan. During a loan term, the payments are set up to be paid however often the loan is designed for. For example, if you get a $10,000 loan, your loan term might be 24 months paid monthly, so you’ll be paying about $417 per month during your loan term of two years.

Prime rate:

The prime rate is the interest rate that commercial banks charge their customers with the best credit. It’s largely determined by the federal funds rate set by the government. It serves as a base to determine most interest rates for borrowers.

Principal:

Your principal amount is the starting amount of your loan, and id usually the amount of money you receive.

Working capital:

Working Capital is the difference between a company’s current assets (cash, accounts receivables, inventories, etc) and their expenses or liabilities. It’s the amount of capital a business is operating on, and if its assets are less than its liabilities, the business has a working capital deficit.

Assets – liabilities = working capital

Underwriting:

An underwriter determines if a business gets a loan. The underwriting process is what a business goes through to get a loan. An underwriter assesses the risk a business may be to a financial institution and determines whether or not they are worth lending to or not, based largely on their credit history and financial health.

Unsecured vs. secured loan:

Secured loans require collateral in order to receive them. Unsecured loans do not require collateral, but will often require a better credit history.

FaaSfunds helps you out with all this complex information, and shows you all the things you need to know when it comes to getting a loan. Reach out to us today to learn about the best funding options for your business. Don’t let the banks confuse you – get FaaSfunds.

Equipment financing is used specifically for large equipment purchases – like industrial kitchens, company vehicles or even party inflatables. Getting an equipment loan is usually the most convenient way to purchase new equipment for your business. Usually, it’s an inevitable purchase – if your equipment is outdated you need to update it, or if you’re starting a business, you certainly need equipment. Getting a loan makes those purchases just a little bit easier.

You use equipment financing loans the same way an individual would use a car loan. You receive the sum of the loan upfront and then pay it back via monthly payments. New equipment can help your business bring in more revenue – whether it be a van to help deliver catering or another oven to meet higher demand. Handing over the cash for these purchases can set you back significantly, and that’s what makes equipment financing an attractive option for expanding, starting or updating a business.

If you’re going to a large equipment vendor, like John Deere, they’ll usually offer in-store financing for your business. Smaller or less-broad vendors will not, so you have to go through a bank or other lender to get the funds you need to pay the vendor up-front.

Do You Qualify for Equipment Financing?

Most businesses in good standing can qualify for equipment financing loans. Since the equipment you’re financing acts as the collateral, these loans can be easier to secure if your credit is less than stellar. Lenders are interested in securing a loan, so when you’re financing equipment, they’re often not as concerned with your borrowing history because if you can’t pay the loan back, they’ll just seize the equipment. This way, they don’t lose any money, so they’re more likely to be a little generous with their lending. The details of how much the loan will be for and for how long depends on the type of equipment and how much it costs. If you plan on investing in a piece of equipment that will retain its value with time, then lenders will often be willing to work with you, even if you don’t have the best finances.

Be aware that the term length depends on the type of equipment and its expected lifetime. Most lenders will not extend the loan payments past the lifetime of the equipment – they want it to be a tangible asset that’s worth something should they have to repossess it.

How to Apply

Like most loans, you’ll need to provide the financial health of your business along with your credit score. Most equipment lenders will also ask for information about the equipment you’re looking to buy and a quote of how much it will cost. The documents you’ll need are:

  • Driver’s License
  • Voided business check
  • Bank statements
  • Business tax returns
  • Credit score
  • Equipment price quote

What’s the Difference Between Equipment Financing and Equipment Leasing?

Some equipment sellers offer the option to lend equipment directly to their customers and charge a monthly rental fee, much like renting an apartment. With this option, you can only use the equipment while you’re paying for it, and no matter how long you use and pay for the equipment, you don’t own it. This is a good option if you only need equipment – like a forklift or a van – for a shorter period of time.

If you chose to finance equipment with a loan, you’ll own the equipment when you’re done paying for it. If you know your business will need the equipment for a while, financing with a loan is usually a better investment.

What Will Equipment Financing Cost You?

The appeal of equipment financing is that it doesn’t require you to pay the steep price for equipment upfront. It gives you a way to pay it off in increments. Because of the interest generated by getting a loan, you inevitably end up paying more for the equipment than it actually costs. Part of this is an investment – if you choose to finance the equipment you really need, then you’ll receive more output and money because of it. Part of it, however, is the fee you have to pay for convenience – lenders are making this money more accessible to you, and expect you to pay them for it.

To help break equipment financing down, here’s an example: Let’s say your restaurant needs a new set of dining-room furniture. The expected price of this new furniture is around $12,000 total for all the tables, chairs and booths. After you get approval from a lender, you use that money to purchase the furniture and agree to pay 12% interest back to the lender, along with the money from the loan. Because technology doesn’t improve very quickly when it comes to dining furniture (like it does with computers), the value of the furniture isn’t expected to depreciate significantly over the next few years, so the lender gives you five years to pay the loan off.

$13,440 is the total amount you’ll have to pay back, making your monthly payments $224 for five years. After it’s paid off, you own all the furniture.

Things to Consider

In order to know if equipment financing is the best option for your business, you have to understand your business financials and opportunity costs. If you planned for these costs or have the money on hand,  sometimes it’s worth it so you don’t have to pay the extra money in interest. It’s also an option to wait and save the money, but if you need the equipment immediately, saving isn’t really an option. For many new or small businesses, handing over $12,000 in full isn’t a possibility. It will set them behind significantly, and hinder their ability to start or grow their business.  

This can all sound very overwhelming, but that’s why we’re here. When you sign up with FaasFunds, we analyze your business needs and finances and figure out if equipment financing is the best option for you. We’ll also link you up with an industry expert to help you through tough financial decisions. Navigating the financial world is tough, so make it easier with FaasFunds.

If you like the Harry Potter universe, think to the beginning of the spin-off film Fantastic Beasts and Where to Find Them. In 1920s New York City, An ambitious Muggle named Jacob Kowalski pitches his bakery business to a banker in hopes of getting a loan. He’s passionate and driven by a valid business plan, but he’s very quickly denied due to various reasons. Most of these reasons are due to the time period, but nevertheless, this fictional instance illustrates the frustrations that come with getting a bank loan. For most of modern history, getting a loan has required business owners to go through the strict vetting and application process from a bank. Often, this required going to a bank, sitting across from a banker and pleading that your business was worth funding. This took a significant amount of time, and the majority of applicants were denied. This is what led to the creation of the lending marketplace.

Banks have been the gatekeepers of loan financing until recently. The internet has managed to change the nature of getting a business loan, and you – the businesses – are the ones who benefit from the new idea of a “lending marketplace.” This disruption of traditional loan sources was created, in part, by public trends (trust in online transactions, demands for immediacy, and proliferation of public data, according to a report by Deolitte), and part from the 2008 financial crisis. Businesses trying to start, or restart, after the crisis kept getting denied for funding because the stakes were higher and businesses were in worse financial shape than before. The online lending marketplace was a response to the strictness of banks, as a way for businesses to get funded in an easier way.

A lending marketplace, as defined by the U.S. Treasury Department, is “the segment of the financial services industry that uses investment capital and data-driven online platforms to lend either directly or indirectly to consumers and small businesses.” Basically, this means that the “lending marketplace” is just the plethora of online lenders that provide loans to individuals and businesses via an online platform. You don’t have to go to a bank or search through piles of business documents. In the same way Uber disrupted the old-fashion taxi industry, online lenders disrupted the loan industry. Lending marketplaces popped up as a way to finance businesses that banks denied.

Originally called “peer-to-peer lending,” as the industry grew, so did its investor base. There are a lot of different lenders within the online lending marketplace, but they all have key similarities:

  1. You’re more likely to get approved than at a bank because they make their money solely from lending money.
  2. The process to get funded is much quicker because they use technology-enabled underwriting – meaning they automate the process of determining credit risk and identity.

In fact, according to the U.S. Treasury Department, businesses that apply to the online lending marketplace for funding get approved 70% of the time. They streamline the application process and cut the barriers to entry because they’re designed only for lending money. Because they’re online, they take less time and resources to figure out, making them an attractive option for businesses looking to get funded in less time.

The lending marketplace is packed full of loan options – hence the “marketplace” side of it. No matter what type of funding you’re looking for, chances are there’s a loan that fits your needs. Here are the most popular business-funding options from online lending marketplaces:

  • Lines of credit
  • SBA loans
  • Short term loans
  • Business term loans
  • Merchant cash advances
  • Business credit cards
  • Equimentment loans

The Disruption Factor

As the online lending marketplace expands and further disrupts the loan business, so does the need for greater consumer knowledge surrounding their offerings. America’s competitive business nature often means that consumers can get bogged down with decisions with very little discretion as to which is the best one. This is what FaaSfunds does, we take out all the variables of getting funded and automatically show you what works best so you can be fully informed. Like the marketplace lenders, FaaSfunds uses data technology to analyze your finances, but instead of getting you a loan directly, we take that data and use it to figure out which loan fits best with your financial situation. The process is entirely transparent, and the goal is to keep you informed so you can make the best decisions.

There are also products that create loan-specific comparisons for your business finances, and break down the costs and payoffs of certain loans, like the SMART Box Capital Comparison Tool.

What’s the Catch?

You can receive student loans, consumer loans and an array of business loans online, with the interest rates being the main difference from banks. Since marketplace lenders take on higher credit risks, they charge higher interest rats. If your credit is bad, unfortunately, this means you’ll be considered a “high risk” client. Lenders take the chance of losing the money they’re owed, so they compensate for this with high rates. Banks also have access to “cheaper money” through their many other sources of revenue – banks don’t operate solely to lend money, but the marketplace lenders do. Also, the Federal Reserve (the bank for the banks) lends money to banks at very low rates. Online marketplace lenders receive their funds from alternate sources – venture capital firms, investors, and hedge funds – who don’t have the government’s blessing.

Is the Lending Marketplace Better?

The discretion of what’s better or worse for borrowers depends entirely on their financial situation. The basic tenets for what would make turning to the online lending marketplace appealing depends on your experience with getting loans in the past or your credit health. If you’ve had trouble getting approved for business loans from a bank in the past, then the lending marketplace offers a solution for that. Mistakes happen, as well, and sometimes less-than-ideal situations result in hits to your business credit. Marketplace lenders are there for businesses that don’t meet high bank standards – because sometimes high standards don’t necessarily determine worthiness.

The best advice is to really understand your business’s needs and finances – FaaSfunds can help with this – and be aware of the tradeoffs for each different type of loan. FaaSfunds will help you sort through all the options within the online lending marketplace, and help you figure out not only what you qualify for, but also what will fit best with your business needs.

A Quick Guide to SBA Loans

First off, SBA stands for the Small Business Administration. The SBA is a U.S. government organization that seeks to stimulate economic growth by providing loans to small businesses. The SBA doesn’t actually lend money directly to businesses, it “backs up” the loans from banks – meaning it acts as a guarantor so the business receiving the loan gets lower interest rates. This “back up” makes SBA loans incredibly cost-effective, and frankly, the cheapest option out there for business funding.

Is there a Catch to SBA Loans?

That’s the thing – there’s really no monetary, long-term downside to getting an SBA loan, other than the fact you have to pay it back. The interest rates are very low for SBA loans compared to most loans, and the payback terms are favorable – up to 25 years for an SBA 7(a) loan.

The only drawback is how long it takes to get an SBA loan. SBA loans are easier to qualify for than traditional bank loans, but regardless, you’re still working with a bank. Even with the government guaranteeing a portion of SBA loans, the process is still slow and tedious – banks review credit, financial statements, legal documents, business plans, and often even expect collateral.

Also, unfortunately for those without stellar credit, borrowing history is important to the banks giving out SBA loans. A great credit score is what makes your loan application stand out, along with being well-established. SBA 7(a) and CDC/504 loans are often exclusively given to non-startups, and you have to have a pretty good track record of repayment. SBA microloans, however, are often given to startups, albeit they’re significantly smaller in amount.

Types of SBA Loans

SBA loans come in three kinds: 7(a), CDC/504 and microloans. They vary mainly in size and purpose.

SBA 7(a) Loans

An SBA 7(a) loan is the most popular SBA loan program, and it’s good for up to $5 million. It works for most general needs, and repayment terms can be up to 25 years. With it, you can purchase just about anything you need, but it’s usually used for larger investments. Some options are:

  • Purchasing new land
  • Generating working capital
  • Repairing existing capital
  • Purchasing or expanding an existing business
  • Refinancing debt
  • Buying industrial equipment or other large purchases

Qualifying

To qualify for a 7(a) loan, there are specific requirements:

  • Your business is for-profit
  • You’ve been in business for a pretty significant amount of time, although there are no specific time requirements.
  • You have to meet the SBA definition of “small business,” which varies by industry. The specifications and requirements can be found via the SBA in this PDF.
  • You are located and operate in the U.S.
  • As a business founder, you’ve invested your own money (and time) in the business.

On top of these requirements, there are certain factors that SBA loan lenders will look for in a company’s application.

  • You have to have good credit. There’s no minimum, but it’s usually expected that your credit score is 650 or above.
  • Collateral is also not required, but it’s a valuable asset to have. If you have collateral to use as security, it can make you stand out more to lenders.
  • It’s usually expected of you to be making revenue. Lenders want you to be able to pay back a loan, and that usually equates to you being profitable (around $100,000 a year or more).
  • Your debt service coverage ratio (DSCR) compares your incoming cash flow and debt obligations, and it’s expressed as a decimal. The SBA usually requires that this be at least 1.15.
  • You should have a solid business plan for the next three to five years. It should express your financial projections, competition and market understanding.

Types of 7(a) loans

To make things more complicated, there are several different types of SBA 7(a) loans

  • A standard 7(a) loan can go up to $5 million and will be approved or denied within about five to 10 days. Collateral isn’t required if the loan is under $25,000, but over $25,000 requires that banks follow the same policies they use for non-SBA loans.
  • A 7(a) small loan functions the same way, but is only for amounts up to $350,000 and it prescreens the applicant’s personal credit, business credit, and business finances. If you pass, your application jumps the line. If you don’t pass, you go through a more strict underwriting process.
  • An express loan is also for up to $350,000 but offers a quicker turnaround. Usually, this means the SBA will notify you of initial approval within 36 hours. However, the SBA only guarantees up to 50%.
  • An export express loan has a 36-hour turnaround as well, but it is for up to $500,000 and is guaranteed for up to 90% by the SBA.
  • An export working capital loan can be for up to $5 million, but specifically for businesses that produce export sales. You’ll hear back in around five to 10 days, and it’s guaranteed for up to 90% by the SBA. It does, however, require that the SBA take export-related inventory as collateral, as well as all receivables from export sales.
  • International trade loans are for businesses that compete internationally for businesses. They have the same rules as export working capital loans.
  • CAPLines of credit are lines of credit offered by the SBA. They go up to $5 million, last for five to 10 years, and are intended for all different business types. The SBA will guarantee up to 85%, and as with all the 7(a) loans, interest rates are negotiated by lenders and borrowers, but will never exceed the SBA maximum (which varies based on the Prime rate and market trends but is usually relatively low).

What does a 7 (a) loan cost?

  • The question everyone wants an answer to. Like every loan, the interest rate will vary based on your business’s financial health, but overall, SBA 7(a) loans are relatively low-cost. Remember, SBA loan interest rates are based on the Prime rate, which fluctuates, so your formal interest rate will change depending on when you get the loan. In addition to the Prime rate, SBA loans have negotiable interest rates tacked on, but they set maximums for these rates. The maximum rates are as follows:
Loan maturity under seven years
<$25,000 = Prime + 4.25%
$25,000 – $50,000 = Prime + 3.25%
>$50,000 = Prime + 2.25%
Loan maturity over seven years
<$25,000 = Prime + 4.75%
$25,000 – $50,000 = Prime + 3.75%
>$50,000 = Prime + 2.75%
  • 7(a) loans also come with fees. The highest of these is the guaranty fee, which the SBA charges for guaranteeing the loan from a bank. It’s technically charged to the lender, but the lender will pass that fee on to the borrower. They’re calculated based on the percentage of the loan that is guaranteed, not on the entire loan amount, so they’ll vary based on the type of loan and loan amount.
  • Repayment terms for 7(a) loans depend on what you’re buying:
    • Up to seven years for loans going toward working capital.
    • Up to 10 years for loans going toward equipment purchases.
    • Up to 25 years for loans going toward real estate.

CDC/504

The SBA CDC/504 is another SBA loan program, and it’s meant to purchase only fixed assets, like equipment and real estate. It cannot be used for working capital. It’s good for up to $5 million ($5.5 million for green energy companies), and the repayment terms are 10 years for non-real estate, and 20 years for real estate.

Qualifying

To qualify for a CDC/504 loan, you have to meet the same requirements as a 7 (a) loan, along with some more specific requirements on how the property is to be used.

  • You must plan to use at least 51% of the property for its own operations within one year of it being owned.
  • If you’re building from scratch, you have to use 60% all at once, and then plan to occupy 80%.
  • The project has to create or retain jobs. This is the “current jobs requirement,” and says that your business must create or retain one job for every $65,000 of the loan, and 75% of the jobs must be within your own community. The purpose of this is to guarantee that you’re business will be contributing to sustained economic growth, and you’ll have to prove this with a very realistic estimation.
    • OR, instead of promising to create jobs, you can try to prove that your company will satisfy another “public policy goal,” like aiding rural development or revitalizing a district.

CDC/504 loan specifics

It’s the process behind a CDC/504 that makes it so different. The loan is distributed by three parties – the bank, the Certified Development Company (CDC) and you, the business. You put down 10% of the loan (15% if it’s for “special uses,” which basically means the property is only be used for one purpose, like a gas station), the CDC provides 40%, and the bank provides 50%.

  • What is the CDC, you might ask? CDCs are established under the 504 code as local, non-profit corporations that support economic growth in their localities. There are hundreds of them.
  • The funds the CDCs provide are raised through monthly bond auctions 100% guaranteed by the government.

What do CDC/504 loans cost?

Interest rates for CDC/504 loan programs can get complicated. A portion is from the bank and a portion is from the CDCs. In short, the exact rate won’t be known until about 45 days after the loan is secured, but you can usually expect it to be between 5% and 6%.

  • CDCs pool their projects and auction them to investors. This sale determines the interest rate, and the sale takes place about 45 days after you close the loan. Historically, it’s been around 4% to 5%, and after the bank rate, the total interest usually comes to between 5% and 6%.
  • This complicated process, thankfully, is all handled automatically. Plus, the interest rate for CDC/504 loans are fixed, so once you get your rate based on all these factors, it’s the same for the life of the loan.

Fees are comprised of a guarantee fee, annual servicing fee, and a CDC fee. These are relatively small compared to interest rates and vary depending on the current rates set by the SBA.

SBA Microloans

The last SBA loan program is SBA microloans. Hence the name, microloans are smaller amounts but aren’t considered short term because as with the other SBA loans, they can be extended over a long period of time. They can be used for a range of things, including working capital, but are often used to start or expand new or startup businesses, which isn’t the case for the other two SBA loans. Microloans can be for up to $50,000, and allow for up to six years for repayment.

Also unlike the other two SBA loans, the microloan program loans money to intermediary, nonprofit lenders, and these lenders, in turn, provide loans to startups and small businesses. Most of the time these nonprofit lenders are specific to certain causes – such as expanding women-, minority- or veteran-run businesses.

Qualifying

The SBA doesn’t review microloan applications for creditworthiness, so that makes them a little easier to qualify for. There are other requirements, however:

  • You must be a for-profit business.
  • You don’t need good credit, but you need to be able to make up for it if you have bad credit. Things like collateral, a co-signer, or proving that your business makes a decent revenue.
  • You have to submit a solid business plan that includes your financial projections for the next three to five years. You also should describe your background, history, target market, competitors and growth strategy.
  • You will usually need collateral, and if your business doesn’t own anything yet, you’ll have to use your personal assets as collateral.
  • You must demonstrate “good character,” which essentially means you’re not a flight risk and are responsible. Usually, you shouldn’t have a criminal record of crimes involving theft or fraud. It won’t disqualify you, but it will certainly make it harder.

How much do microloans cost?

  • The SBA sets its own maximum interest rates that their intermediaries are allowed to charge. Depending on how much the intermediaries had to pay for the loan in the first place, the interest will usually be between 6.5% and 13%, but the average was around 7.6% in the 2018 fiscal year.
  • The SBA doesn’t charge intermediaries fees for the loans, so they usually won’t charge fees to those they lend to. They are, however, allowed to charge up to 3% in packaging fees, and sometimes closing costs.

So How Do You Decide if SBA Loans Are Right For Your Business?

After looking at all the details of SBA 7(a) loans, CDC/504 loans and microloans, it’s pretty natural to be a little overwhelmed with all the information. As we warned – because you’re working with banks and the government, the details are plentiful and the paperwork is complicated. The point of FaaSfunds is to help you with all of this, and figure out if you qualify for an SBA loan, and which specific SBA loan is your best bet. We’ll help you figure out all the paperwork, and answer any and all questions pertaining to SBA loans. Give your business a helping hand, and make your financial world a little bit easier – sign up with FaaSfunds.