Fiscal year 2014 was a good year for America’s small businesses seeking SBA lending. SBA’s 7(a) Loan Program approved 52,044 small business loans totaling almost $20 billion. This was a 12 percent increase in the number of loans extended and a 7.4 increase in dollars loaned in 2013. Don’t give up on seeking financing for your small business just because you have been denied financing through the mainstream loan process. If you are considering a small business loan to start or breathe fresh financial resources into your small business, educate yourself about SBA’s loan programs.
SBA 7(a) Loans – Amounts, fees, and interest rates
Loan amounts. Your SBA 7(a) loan terms will be negotiated between yourself and an SBA-approved lender. SBA 7(a) loans ranged from an average of $337,730 to a maximum of $5 million in 2012.
Loan fees. SBA 7(a) loans are based upon a guaranteed fee considering the loan’s maturity and loan amount – not the total loan amount. The lender will pay the guaranteed fee and likely pass this cost on to you at the closing of your loan to be included in the loan proceeds.
• Post-October 1, 2013 fees for loans under $150,000 – zero percent.
• Post-October 1, 2013 fees for loans over $150,000 maturing at one year or less – .25 percent.
• Post-October 1, 2014 fees for loans between $150,000 and $700,000 maturing over one year – 3 percent.
• An additional fee of .25 percent applies to loans of more than $1 million.
Interest rates. All actual interest rates on a SBA 7(a) loan are negotiable between you and the SBA-approved lender. Fixed and variable interest rates are offered. The interest rate is comprised of (1) a base rate, and (2) an allowable spread.
The three typical base rates:
• A prime rate published in a daily national newspaper.
• London Interbank One Month Prime plus 3 percent.
• SBA’s Peg Rate.
SBA’s role as guarantor
The SBA 7(a) loan is means by which a guarantee is provided to SBA-approved banks and financial lenders for money lent to small business owners. The SBA guarantee provides these lenders with protection should there be a default. Basically, SBA loans reduce the risk related with extending loans to small business owners and entrepreneurs while at the same time stimulating America’s economy by providing financing opportunities to start-ups, growing businesses, minorities, and veterans.