Interestingly, the Small Business Administration doesn’t actually offer small-business loans (other than for disaster assistance). Instead, the SBA guarantees a portion of commercial loans, which can make banks more comfortable lending to small businesses. The SBA guarantees more than $10 billion in business loans every year.
You apply for an SBA-guaranteed loan through your local bank, which must follow certain rules to be eligible for the SBA’s programs. The agency’s most popular financial-assistance program, the 7(a) loan program, is available to wholesale businesses with no more than 100 employees, and retail or service businesses with less than $21 million in annual revenues.
You negotiate the terms and interest rate with a lender, subject to the SBA’s rules. Loans that provide working capital can mature in as few as seven to ten years. Loans for machinery and equipment can be repaid over ten to 25 years, and loans for real property may last up to 25 years. The interest rate may not exceed 2.25 points over the prime rate for loans of less than seven years, or 2.75 points over prime for loans of seven years or longer. Loans of $50,000 or less may be subject to slightly higher rates.
The SBA generally guarantees 75% of the loan (85% for loans of less than $150,000), and the borrower usually pays the SBA lender fee; the standard fee is 2.0% for loans of $150,000 or less that last for more than a year. The SBA also offers special loan programs for veterans, active-duty members of the military and their spouses, and fast-turnaround micro-loan programs of up to $35,000 made through nonprofit lenders. SeeSBA.gov for links and more information about the loan programs.
