Many business borrowers recognize the value of the SBA in accessing business capital at good rates with mid-to-long repayment terms, but SBA loans come with a strong bias from many business owners: long delays and an arduous review and approval process. That’s not always the case, as we’ll demonstrate.
Let’s take a look at the options when it comes to SBA financing.
SBA Express – When You Need Speed and Simplicity
Express loans benefit small businesses and startups with a fast turnaround for loans under $500,000. These loans often fund working capital, equipment, property improvement, and other near-term needs with a quicker turnaround and reduced paperwork.
Approval is often very quick. The SBA has committed to initial response within 36 hours though it can take 30 or more days to close and fund, depending on the lender and borrower readiness. That certainly beats the 45-60 days common of SBA loans above $500,000.
Speed comes with trade-offs. SBA Express loans tend to have shorter repayment periods and can carry higher interest rates than other SBA options. The loan amount also caps out early, so it is not the right choice for larger initiatives or long-term investments.
To prepare for borrowing and to shorten the time from application to close, borrowers need a comprehensive loan package. The loan should solve a clearly defined problem. It could fund a seasonal inventory purchase, cover payroll during a delay in receivables, or support a targeted campaign that already has a plan in place. Loan brokers are an asset in this area. Working with a loan broker who understands packaging can significantly expedite the process through experienced packaging and thoughtful loan placement.
SBA 7(a) – Supporting Larger Projects with Structured Financing
The SBA 7(a) loan is often the most flexible option for business owners planning longer-term projects. It is commonly used for buying commercial property, acquiring another business, purchasing large equipment, or funding business expansion and growth. The 7(a) program offers longer terms, lower down payments, and access to larger loan amounts compared to the SBA Express program.
Loan amounts can go up to $5 million, and repayment periods can stretch up to 10 years for working capital or equipment and up to 25 years for real estate. This gives business owners more room to manage their payments alongside other obligations. Interest rates are usually more favorable than market rate loans not backed by the SBA for businesses that meet SBA qualifications.
However, this flexibility requires preparation. The application process takes more time and documentation. Borrowers must provide detailed financials, a clear business plan, and projections showing how the loan will be repaid. Delays can occur during underwriting, and closing may take several weeks or longer.
One of the biggest challenges for SBA borrowers is matching with the right lender. SBA loans might seem like they are all the same, but in reality many private lenders offer SBA backed loans. And each lender has their own lending box. If you are a construction company and apply to an SBA lender that doesn’t work with construction, you’ll get denied, not on the quality of your application, but because the lender isn’t a match. Or, they’ll offer less than favorable conditions.
Getting the right loan is a game of matching the right package with the right lender.
To make the most of a 7(a) loan, the financing should support a business plan with measurable goals and a clear path to repayment. Maybe you can document demand in a new location or region. Maybe your goal is to replace leased equipment with owned assets that reduce monthly costs over the long term. The lender wants to see a success plan, not just a business plan. This approach allows them to have confidence in you rather than fear you will become overextended.
SBA 504 Loans – Focusing on Real Estate and Construction Projects
The SBA 504 Loan program is an excellent option for small businesses seeking to invest in commercial real estate or fund construction projects. These loans are specifically designed to support economic development by making it easier for businesses to grow through fixed-asset acquisitions. SBA 504 loans typically feature favorable terms, such as below-market fixed interest rates, long repayment periods of up to 25 years for real estate, and a low down payment requirement, usually around 10% of the total project cost. This makes the program particularly attractive for small businesses that want to retain cash flow while funding major capital investments.
To qualify for an SBA 504 loan, businesses must meet specific criteria. The business must operate as a for-profit entity within the United States, and its tangible net worth should not exceed $15 million, with an average net income of $5 million or less for the past two years.
Additionally, the project being financed must align with the SBA’s job creation and public policy goals, meaning the business should demonstrate its potential to create or retain jobs or contribute to community development in some way. Borrowers are also required to occupy at least 51% of the property for existing buildings or 60% for new construction projects.
To succeed in securing a 504 loan, preparation is key. Business owners should be ready to present a solid business plan that outlines how the investment will contribute to growth and financial stability. This includes providing detailed financial projections, documentation of the project’s costs, and a clear repayment strategy. One practical step is to partner with an experienced Certified Development Company (CDC), which serves as an SBA partner throughout the loan application process. CDCs are critical in facilitating the transaction and helping businesses align their loan package with program requirements.
Another crucial factor is matching the loan to the specific business goals. For example, if a construction company plans to grow capacity, the loan could finance new facilities or equipment that enhance operational efficiencies. Alternatively, businesses looking to acquire real estate for expansion can build equity while reducing long-term leasing expenses. Presenting a compelling case for how the loan will fuel measurable outcomes makes the application stand out.
Success with the SBA 504 loan program requires both strategic planning and attention to detail. By meeting the eligibility criteria, working with the right partners, and demonstrating a clear vision for growth, businesses can secure the funding they need to thrive.
Add SBA-backed Loans to Your Financing Toolbox
SBA-backed loans may seem daunting, but with our support the process can become extremely manageable. Whether you need smaller dollar amounts, or you are looking for funds for real estate or significant expansion, our team can help you package your application and match with the right SBA lender.
For many small businesses, SBA Express can make for fast work when it comes to accessing capital. For those with a mid to long-term plan and larger demands for capital, SBA is often a great choice. While they come with far more stringent metrics, SBA 504 loans can give businesses rates that allow them to add jobs, strengthen the economy, and expand career opportunities in their region. If you’ve considered SBA loans in the past but ultimately chose other financing, it might be the right time to start a conversation with our team about upcoming projects. It’s likely there’s an SBA loan that can save you money and get you the resources you need.