SBA loans are loans issued by private lenders and backed by the U.S Federal Government’s Small Business Administration (SBA). These fixed-rate loans are designed to make it easier for small businesses and entrepreneurs to get financing.
More than 800 lenders, community development organizations, and micro-lending institutions are authorized to issue SBA loans. Under the SBA’s 7(a) loan guaranty program, the lender provides the loan and the SBA promises to pay the lender a portion of the loan if the borrower defaults.
Having government backing allows lenders to take on more risks when it comes to providing loans to small businesses. In the 2018 financial year, lenders issued a combined $25.4 billion in SBA loans.
A loan guarantee is the amount the federal government has agreed to pay on the loan. It can be as high as $3.75 million, and it guarantees that in the event of deferral, the lender will still receive that amount from the government. Loan guarantees are what give private lenders the confidence to offer SBAs with lower payments and more flexible terms.
SBA fees and interest rates vary by the type and amount of loan you take out, as well as market interest rates that fluctuate. The current maximum interest rates for standard 7(A) loans range from 7.75%-10.25%, the former for loans repaid in less than 7 years and the latter for repayment that takes more than 7 years. Repayment terms expand if you use the capital to purchase new equipment (10 years) or real estate (25 years).
SBA loans typically take 60-90 days from application to receival of funds. Of course this depends on the loan type, the eligibility of the applicant, as well as other factors unique to each business. However, Liquid FSI relationship with multiple banks can facilitate the process. Here are other factors that can help: