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SBA loans from a banker’s perspective

As a lender, it’s absolutely humbling to hear stories about how people have sacrificed in order to achieve their dream of entrepreneurship. And as most business owners know, the biggest issue small businesses face is getting access to capital. 

Fortunately, the SBA works with banks in order to provide a loan guarantee to assist banks in making certain loans to small businesses when they don’t conventionally qualify.     

For larger loans (like for business acquisitions or expansion), SBA has two popular lending programs: 7(a) and 504. 

SBA 7(a) —- This program allows small businesses to finance inventory, working capital, vehicle and equipment purchases, business acquisitions and more. An average SBA 7(a) loan term (that doesn’t rely on real estate) are up to a 10 year term with market rates typically in the 4-8 percent range. SBA 7(a) can also be used for real estate with terms up to 25 years. 

For borrowers who are seeking loans under $350,000, the SBA Small Loan and SBA Express program has increased overall efficiency with less paperwork the borrower needs to fill out and quicker turnaround times.  With an average 7(a) loan amount around $350,000, this small loan program can really assist businesses get capital that they need quickly.

SBA 504 — This program is great for business owners looking to purchase large equipment or owner-occupied commercial real estate.  An average SBA 504 Loan allows the borrower to have as low as a 10 percent down payment, which keeps more capital in the business. The SBA lender then provides the funding for 50 percent of the loan and a Certified Development Company (a.k.a. the SBA portion) finances 40 percent. The best part of this program is that the SBA/CDC portion of the loan typically has a 10 or 20 year fixed interest rate.

To qualify for either, your company must do the following:

  • Be an organized, for-profit business.
  • Be a sole proprietorship, corporation partnership or limited liability company.
  • Have a net worth no greater than $15 million and average net profits (after tax) of less than $5 million in the last two fiscal years.

When applying for SBA loans, banks still look for the 5 C’s of credit: 

Character-Having good credit personally and for the business will always be a big deciding factor in getting a loan. It is important to check your personal credit each year. 

Capacity- Be able to show you have a financial plan or historical proof on how you plan to pay back the loan.  Having multiple sources of repayment is always a plus.

Capital- Lenders will always look to see how much cash or equity you put into the project. There are very few 100% lending programs for businesses available. 

Collateral- Even though the SBA can be flexible with collateral, having some collateral is still required. 

Conditions- How you are going to use the loan funds is also important. Make sure you have a solid budget and business plan. 

When you are ready to take the next step seeking capital for your business, make sure to reach out to a local lender – a bank with experience. The SBA has also made it easier to connect borrowers with local SBA lenders with a service called SBA LINC. (www.sba.gov/tools/linc) Borrowers answer a few questions about your business and in as little as two business days, hear from local SBA lenders interested in your request.

Author Paul Long has almost 20 years experience in financial institutions and is a VP Business Banking Officer with Timberland Bank based in Tacoma. A graduate of Eastern Washington University, he is also active in Tacoma-Pierce County Chamber of Commerce, Transportation Club and Emergency Food Network.   ptlong@timberlandbank.com

This article is featured in the 2017 Small Business Resource Guide, a free publication from Business Examiner Media.