What is the SBA?
Founded in 1953 under President Dwight D. Eisenhower, the mission of the Small Business Administration (SBA) is to "aid, counsel, assist and protect the interests of small business concerns," with the aim of strengthening the economy by promoting the vitality of small businesses. To that end, the Administration acts as a loan guarantor for small business loans, but it also provides numerous complementary services at all stages of the small business lifecycle via offices in all 50 states.
Types of SBA Loans Offered
The SBA offers several types of loans, each tailored to different business needs and businesses' unique circumstances. These include term loans, revolving lines of credit, working capital loans, and standby letters of credit. The most popular classes of SBA loans include:
- 7(a) Loans: The most popular SBA loans, 7(a) loans are term loans for expansion, renovation, working capital, business startup, and seasonal lines of credit. They offer fixed maturity and no repayment penalties.
- 504 Loans: Offered via SBA-licensed Certified Development Companies (CDCs), 504 loans are long-term fixed asset loans (i.e., they are intended for the purchase of real estate, machinery, and the like) that are secured by a lien on project assets. It features a low down payment and long-term fixed rate.
- SBA Express Loans: Intended as a revolving line of credit, the SBA Express Loan has a quicker turnaround and comparatively more streamlined application process.
- SBA Veterans Advantage: For businesses with a minimum 51% veteran or active-duty military ownership, SBA Veterans Advantage loans are issued under the aegis of the SBA Express or 7(a) programs, depending upon the size of the loan.
- Microloans (Non-7(a)): These are short-term loans issued via nonprofit lenders, and are intended for fixtures, physical plant purchases, working capital, and other smaller expenditures.
Other loans are also available that are tailored to disaster relief and recovery, export businesses, mission-based lenders, and businesses seeking to compete in overseas markets.
Qualifying for an SBA Loan
As their name suggests, the Small Business Administration deals exclusively with small businesses. For some businesses, this is a relatively straightforward proposition; if you're a sole proprietorship, or only have fifty employees and a small amount in annual receipts, it isn't rocket science. For other businesses, figuring out where "small" starts and ends can be a bit more of a challenge.
The SBA has size standards that change across industries and industry groups, so that the definition of a small agribusiness is different than the definition for a telecom, retailer, or a professional services company. The maximum number of employees can range from 150 to 1,500, and the amount of a business's maximum annual receipts can vary as widely as $750,000 and $550 million. Furthermore, businesses in some sectors do not meet the requirements for SBA loans, including those related to adult entertainment, gambling, and a handful of other industries.
Besides meeting small business standards, any loans issued under 7(a) criteria must also show good character, good credit, proper management, and the ability to repay. SBA Veterans Advantage candidates must be owned and controlled (a minimum of 51%) by a member or spouse of active-duty military, National Guard, TAP, National Guard, or Reserves, or may have a service-connected disability. 504 loans require recipients' properties to be 51% owner-occupied for existing structures, or 60% for new construction. Further layers of qualifications are required for businesses requiring disaster assistance, export, and international trade loans.
The SBA Loan Application
The SBA loan application process is designed to determine the business's financial need, its financial stability, its creditworthiness, its management structure, and its ability to repay. To that end, the application process is nothing if not thorough. Expect a credit check, naturally. But your business should also have a clearly defined business plan, air-tight financial reporting and accounting, and a thorough P&L.
SBA Loan Rates and Terms
Loan terms vary by the type of loan. Furthermore, each loan has a maximum loan amount; these range from $50,000 for a non-7(a) Microloan to $5 million for 7(a), CapLines, and Export loans (504 loans up to $5.5 million can be extended under certain circumstances).
SBA Loan Providers
Most banks that provide small business loans have partnerships with the SBA. The Administration maintains a list of its top 100 lenders on its website, sorted by the amount of money each lender has lent to businesses. The top ten through the end of Q3 in fiscal year 2015 were:
|Rank||Lender||Number of Loans||Total Loans|
|1||Wells Fargo Bank, National Association||4,247||$1,223,804,100|
|2||Live Oak Banking Company||685||$804,803,100|
|3||JPMorgan Chase Bank, National Association||2,935||$538,706,300|
|4||U.S. Bank National Association||3,030||$469,757,000|
|5||The Huntington National Bank||3,282||$444,730,800|
|6||Celtic Bank Corporation||942||$292,306,200|
|9||CDC Small Business Finance Corporation||224||$204,614,000|
|10||Newtek Small Business Finance, Inc.||217||$203,319,400|
(Data from SBA.gov)
You may have a long-standing relationship with a local or regional bank, whether for your personal or business finances. In that case, it may be worth your while to see what SBA-affiliated loans and services they offer.
Other Services Offered by the SBA
SBA resources can help prospective business owners determine whether they're ready to start a business, to draw up a business plan and appropriate business structure, to choose an appropriate location, to legally name and register their business, and to obtain the needed licenses and permits. In addition, the SBA assists in navigating the laws, rules, and regulations that govern small businesses, offering information on taxation, HR issues, management, leadership, day-to-day operations, and even devising an exit strategy if you've decided it's time to close, sell or retire. In short, the SBA provides services and resources that extend far beyond loans and grants.
As you may have gathered, dealing with the SBA often involves a seemingly Byzantine maze of rules, regulations, metrics and exceptions. However, the SBA -- often in tandem with a lender -- will typically provide assistance to prospective borrowers as they navigate the selection of the appropriate loan and complete the application process. Even in the event that your business does not require a loan, the variety of services offered by the SBA makes them a useful ally to those starting or operating small businesses.