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SBA Loans
What is an SBA Loan?

The SBA, or Small Business Administration, is a federal agency dedicated to providing assistance to small businesses in order to promote the economy. SBA Loans are business loans guaranteed by the SBA at up to 85% of the loan amount. They’re provided through an approved lender (AKA a bank).

As one of the lowest-cost loan options for business owners, SBA loans are of serious interest. FaaSfunds is here to help you understand the requirements and appeal of an SBA loan and to find out if it’s right for your company.

$5K - $5M

Maximum Loan Amount

5 - 25 years

Loan Term

Starting at 7.75%

Interest Rates

As fast as 2 weeks

Speed

How Does an SBA Loan Work?

Despite its name, an SBA Loan isn’t given out directly by the SBA. The SBA backs up a portion of bank loans, giving lenders less of a risk, and giving borrowers a better chance of consideration. This guarantee for the lender lets them offer longer repayment terms, which means lower monthly payments for the borrower. They can also be used for almost any business expenditure.

Pros & Cons

Pros of an SBA Loan

  • Lowest Down Payments
  • Longest Payment Terms
  • Reasonable Interest Rates
  • Suitable for a wide range of business needs

Cons of an SBA Loan

  • Lengthy Paperwork
  • Longer Approval Times
  • May require collateral
Based on previous FaaSfunds customers
Most Customers who were approved had:
Annual Revenue
$180K
Annual Revenue
Credit Score
680
Credit Score
Time in Business
+4years
Time in Business

SBA Loans 1

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SBA Loans
Compared to other loan types

What Qualifies a Business for an SBA Loan?

Getting an SBA loan isn’t an easy process, so how can you help secure one for your business?

The most important factor is your credit score because SBA loans are mainly for business owners with strong borrowing history.

Remember that:

  • SBA loans take longer to receive actual funds
  • They also take more time to apply for
  • Startup companies find it harder to qualify for SBA loans

How Do You Apply for SBA Loans?

Banks take weeks to process SBA loan applications, but FaasFunds offers a quicker and easier way. Apply online and we’ll connect you to the top SBA lenders.

What You're Going to Need:

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

Applying for 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.

Because your borrowing history is especially important to banks giving out SBA loans, a great credit score will get your application noticed. In addition, you’ll also need a solid business plan, a track record with repaying loans, and most of the time, business profit.

On a brighter note, however, the payoff of SBA loans are usually worth the long process. The low interest rates and long repayment terms are highly appealing, and here’s how you can get these benefits.

How to Choose the Right SBA Loan Program

The three most popular SBA loan programs are:

  • The 7(a) Loan Program
  • The CDC/504 Loan Program
  • The Microloan Program

To figure out which is right for you and your business, the loan program you’ll apply for depends on your goals, age and size. Below are your options. 

SBA 7(a) is the most popular SBA loan program. It works for most general needs. With it, you can:

  • Purchase new land
  • Repair existing capital
  • Purchase or expand an existing business
  • Refinance existing debt
  • Purchase machinery, furniture, fixtures, supplies or materials

SBA 7(a) loans are for a loan amount of up the $5 million, and offer up to 25 years for repayment.

With the more specific CDC/504 program, they can only be used for purchasing fixed assets – things like equipment and real estate.

CDC/504 loans can be for up to $5.5 million, and allow for 10 to 20 years for repayment.

Per the name, these loans are smaller amounts but aren’t considered short term because as with the other loans, can be extended over a long period of time. They can be used to start or expand newer businesses.

Microloans can be for up to $50,000, and allow for up to six years for repayment.

If you’re feeling overwhelmed by all the SBA loan options, don’t stress, because that’s what FaaSfunds is here for. We’ll help figure out which loan you qualify for and which will work best for you and your business. And even if you don’t qualify yet, we’ll figure out what your business can do to get there.

Not sure which SBA loan is right for you?

Let us walk you through your options and help you decide which program is right for you.

What Will an SBA Loan Cost You?

Cost will vary based on the SBA loan type. Here are the fees, interest rates and repayment terms for the aforementioned loans.

There do seem to be a lot of fees associated with SBA loans, but they end up being the most cost-efficient of any other loan program. The amount of money you’ll save is far greater than any spent on fees.

Fees

The SBA isn’t lending to you directly, so it charges a guaranty fee for its loan guaranteeing service. This is originally charged to the lender, but the lender then passses it on to the borrower.

  • Guaranty fee of 1.7% for loans up to $150,000
  • Guaranty fee of 2.25% for loans greater than $150,000

Often, partnered banks will charge fees for origination or loan packaging. These, however, just depend on the bank.

Interest Rates

  • A maximum of 2.75%, depending on your credit score, plus the Prime Rate (which is determined by the government).
  • the Banks determine if the interest rates are fixed or variable for SBA 7(a) loans
  • The SBA restricts how much a bank can make off of a loan by limiting the maximum spread.
    • Greater than $50,000 borrowed and a repayment term less than seven years = Prime Rate + a maximum spread of 2.25%
    • More than $50,000  and a repayment term greater than seven years = Prime Rate + a maximum spread of 2.75%

If you choose to apply for an SBA 7(a) loan with FaaSfunds, the banks we partner with offer interest rates of 8.25% total, subject to change with the Prime Rate.

APR

Different than your interest rate, APR will include the guaranty fees and origination fees, which will give you the total cost of your loan.

Repayment

  • Seven years for working capital
  • 10 years for equipment loans
  • 25 years for commercial real estate loans

Fees

CDC/504 loan fees are typically 3% of the loan amount. These can sometimes be paid with the loan. You’ll also need to put at least 10% down on your purchase.

Interest

Interest rates for CDC/504 loan programs can get complicated. 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%.

This is because the CDC/504 loan isn’t just one loan – 50% comes from the bank and 40% comes from a Certified Development Corporation (a CDC). They other 10% is your down payment. They pool their projects and auction them to investors.The 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 bank rate, the total interest usually comes to between 5% and 6%.

This complicated process, thankfully, is all handled automatically.

Repayment

  • 10 to 20 years

Fees

There are no fees with SBA microloans.

Interest

You can expect interest rates for microloans to range from 8 – 13%. Your bank will set the exact rate depending on your business credit score and other specifics.

Repayment

Microloan repayments depend on how much you borrow and what you’re using it for, but the maximum term the SBA allows is six years.

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