What Is The SBA Loan Guarantee Program?
The Small Business Administration (SBA) loan guarantee program is a federal government program aimed at helping small business by offering local banks federally-backed loans to qualified borrowers.
What Can the SBA Loan Program Do for A Borrower?
- Offer extended loan terms/amortization which will improve cash flow
- Reduce down payments
- Cover collateral shortfalls
- Provide extension of credit when not available elsewhere
- Mitigate change of ownership risk by leveraging the SBA guarantee
- Eliminate financial covenants (but not reporting requirements)
- Consider the entire project for financing – including all soft costs
3 Main Lending Program Types
(1) 7(a) Program
- 75% guarantee
- Loans of $350,000-$5,000,000
- Used for start-ups, business acquisitions, goodwill, debt refinance, commercial real estate, equipment, leaseholds, and expansions
- Loan fees: As of mid-2023, the fees are:
- For loans up to $1 million: 1.45%
- For loans of $1-2 million: 1.45% of the guaranteed portion of the loan up to and including $1 million, plus 1.7% of the guaranteed portion over $1 million
- For loans over $2 million: 3.5% of the guaranteed portion of the loan up to and including $1 million, plus 3.75% of the guaranteed portion of the loan over $1 million.
(2) 504 Program
- Used for real estate or large equipment purchases (hard assets)
- Typical structure: 50/40/10 or 35/50/15 for new entities/startups
- Fixed rates available on both bank term debt and debenture (i.e. bond)
(3) Express Program
- Used as revolving line of credit for business working capital purposes
- 50% guaranty
- Loans up to $500,000
Not all loans require SBA backing, and not all banks offer SBA backed loans. If you’re interested in a SBA backed loan, contact your local bank for more information. Note: the SBA often requires additional information from the borrower (such as a business plan) as part of the approval process, and SBA approvals often take longer than conventional loans without SBA guarantees.
Visit the SBA at https://www.sba.gov/funding-programs/loans