Reviews of SBA Lenders and Loan Programs for Business Borrowers

The Small Business Administration (SBA) offers a variety of loan programs to help small businesses access the funding they need to start, grow, and recover. With so many options available, it can be overwhelming for business owners to identify the best lending partners and loan products for their specific needs. This article provides an overview of popular SBA loans, eligibility requirements, how to apply, and factors to consider when choosing an SBA lender.

Overview of SBA Loan Programs

The SBA guarantees loans made by approved lenders to qualifying small businesses. By reducing the lender’s risk, the SBA encourages lenders to provide financing to small businesses that might not otherwise qualify for traditional loans. Here are some of the most common SBA loan programs:

7(a) Loans

The 7(a) loan is the SBA’s primary and most flexible loan program. It can be used for nearly any business purpose including working capital, equipment, furniture, fixtures, inventory, business acquisition, and refinancing debt. Loan amounts range from $5,000 to $5 million with interest rates capped at prime + 2.75%. 7(a) loans have repayment terms up to 10 years for working capital and generally up to 25 years for equipment and real estate.

504 Loans

The 504 loan program provides long-term, fixed-rate financing for major fixed assets like real estate or heavy equipment. A 504 project includes a loan from a private-sector lender covering 50% of the project cost, a loan from a Certified Development Company (CDC) covering up to 40% of the cost, and a contribution of at least 10% equity from the business. 504 loans cannot be used for working capital or inventory.

Microloans

SBA microloans provide up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. These loans are delivered through mission-focused lenders who are also able to provide business counseling.

Disaster Loans

SBA disaster loans help businesses recover from declared disasters. There are loans for physical damage as well as economic injury disaster loans (EIDL) to meet working capital needs. Disaster loans are a critical resource for businesses impacted by hurricanes, floods, and other catastrophes.

Export Loans

The SBA offers two loan programs specifically tailored for businesses engaged in exporting. The Export Working Capital Program provides short-term working capital financing up to $5 million. The Export Express Program offers more streamlined processing for lines of credit and loans up to $500,000.

SBA Loan Eligibility Requirements

While each loan program has specific qualifications, there are some common requirements for SBA loan eligibility:

• Be a for-profit business
• Operate in the United States or its territories
• Meet the SBA size standards for your industry
• Demonstrate the ability to repay the loan
• Have a reasonable invested equity
• Use alternative financial resources first, including personal assets
• Be a qualified type of business – the SBA does not loan to nonprofits, speculative businesses, or those engaged in illegal activities

In addition, the borrower generally needs good personal credit (minimum 680 score recommended) and sufficient collateral. Requirements vary based on factors like the loan type, loan amount, and lender policy.

How to Apply for an SBA Loan

The process for securing an SBA loan includes these primary steps:

1. Find an SBA approved lender in your area. All SBA loans are ultimately issued by participating lenders, not the SBA directly.
2. Submit your loan application and supporting documents to the lender. Exact requirements vary but generally include personal/business financial statements and tax returns, business plan, debt schedule, and collateral details.
3. The lender will review your application and make an initial credit decision. If they approve the loan, they will submit it to the SBA for final approval.
4. After SBA approval, you will work with the lender to close the loan and start receiving funds. Closing costs may apply.

Many small business owners seek assistance from accountants, lawyers, or SBA advisors when navigating the loan process. Thorough preparation and persistence are key. It can take 2-3 months from application to funding.

Choosing an SBA Lender

With so many lenders to choose from, it helps to shop around and compare options. Here are some factors to consider when evaluating SBA lenders:

Interest Rates and Fees

Interest rates on SBA 7(a) and 504 loans are quite competitive, but can still vary between lenders. Also look out for junk fees and closing costs that can add up. Ask lenders to fully disclose rates, APR, and all associated fees.

Customer Service and Communication

The loan process involves extensive paperwork and waiting periods. You want a lender who communicates frequently, responds promptly, and guides you through each step. Ask current customers about their experience working with the lender.

Industry Expertise

Some SBA lenders specialize in certain industries like manufacturing, healthcare, hospitality, or professional services. Look for lenders with experience in your specific field. Their familiarity with your type of business can help the process go more smoothly.

Local Presence

Many borrowers prefer lenders with a physical presence in their community. This provides more convenient access to meet face-to-face and work directly with their loan officer. Review options among both local banks and national lenders.

Speed and Efficiency

Loan decisions and funding timeframes vary greatly between lenders. If speed is critical, look for lenders like Live Oak Bank and Newtek known for fast turnaround. But don’t sacrifice proper due diligence just to get quick funds.

Loan Approval Rates

One useful metric for comparing lenders is their SBA loan approval percentage. US Bank and Wells Fargo for example consistently rank among the top lenders based on SBA loan volume and value. Higher approval rates may indicate a lender is easier to get approved with.

Online Process

Many lenders now allow you to apply and manage SBA loans online through user-friendly portals. This can be more efficient than traditional paper applications. Top lenders with digital services include Kabbage and Lendio.

Alternative Options

If you get declined by one lender, don’t give up. Consider alternative lenders like OnDeck or Funding Circle that may offer more flexibility with credit requirements. Peer-to-peer lending networks like Lending Club are another option.

Pros and Cons of SBA Loans

SBA-backed financing provides many advantages but also some potential drawbacks to weigh:

Pros

• Low interest rates and long repayment terms
• Larger loan amounts than conventional business loans
• Lenient collateral requirements
• Funding for applicants with lower credit scores
• Fixed rates provide stability and predictability

Cons

• Extensive paperwork and strict eligibility requirements
• Slower application and funding process
• Upfront fees and closing costs
• Potential prepayment penalties
• Requirement of personal guarantees and liens
• Ongoing compliance and reporting

For many small business owners, the benefits outweigh the downsides. But consider both carefully before committing to an SBA loan.

The Bottom Line

Access to capital is essential for small business success. SBA lending programs expand financing options for entrepreneurs who don’t qualify through traditional channels. Do your homework to find the right loan product and lending partner for your business. With proper preparation and persistence, an SBA loan can provide the affordable, long-term funding you need to start strong and grow your business.