There are numerous loan programs that the Small Business Administration (SBA) works with lenders to provide to small enterprises. Although SBA itself does not lend money to businesses, the agency guarantees 75%-85% of the principal amount on various loan programs. Thereby reducing the risk borne by its lending partners, micro-lending institutions, and community development organizations and facilitating access to capital for small businesses to grow.
One of SBA loans’ primary benefits is that the agency designed specific programs to encourage individuals to pursue their business ventures and assist business owners in easing the financial burden caused during a disaster. Another more prominent benefit of SBA loans is the very low rates at which these loans are lent. Below we showcase the current loan rate for various SBA loan programs. We also profile the three most popular loan programs the SBA offers small businesses; the 7(a) Loan, the CDC / 504 Loan, and the Disaster Loan.
The SBA Loan Rates in 2021
As of April 2021, the SBA loan rates by loan type are:
|SBA 7(a) loans||In the range of 5.50% – 9.75%|
|SBA CDC/504 loans||In the range of 2.97% – 3.82%|
|SBA COVID-19 Economic Injury Disaster Loan (EIDL)||For-profit businesses – 3.75%|
|Nonprofit businesses – 2.75%|
|PPP loans||If PPP loan is forgiven – 0%|
|If PPP loan is not forgiven – 1%|
|SBA disaster loans||Credit not available elsewhere – 4.00%|
|Credit available elsewhere – 8.00%|
SBA 7(a) loans
The SBA 7(a) loan program is one of the most commonly utilized SBA loan programs. The program is ideal for a small business purchase, especially if real estate is part of the transaction. The uses of an SBA 7(a) loan can also include:
- Working capital needs
- To refinance existing business debt
- Procure furniture, fixture, and office supplies
Although the SBA isn’t involved in actually lending the money to business owners, that’s the banks’ or financial institutions’ responsibility to wet businesses eligibility and creditworthiness; the agency does guarantee the loan between the range of 50%-85%, depending on the size of the loan. The SBA also sets caps on the interest rates spreads, loan size, fees, and duration of the loan the lender can offer.
With the CDC/504 loan program, businesses have access to capital for long-term financing at a fixed rate for as much as $5 million. The program is intended for small businesses looking to make major fixed assets purchases, such as land, buildings, or equipment, that will result in the promotion of business expansion and additional job opportunities.
The program is carried out with the coordination of Certified Development Companies (CDCs). The CDCs are community-based SBA-certified and regulated entities that oversee nonprofits and work with the SBA to promote economic development in their local communities. Specific SBA CDC/504 loans terms include:
- Loan amounts range from $50,000 – $5,500,000
- Loans have a duration of 10-20 years.
- Loan fee rates are fixed by review every five years. The percentages are usually reset to a lower amount for the borrower.
SBA Disaster Loans
The SBA Disaster Loans is meant to help small businesses to survive through a disaster. For small businesses to qualify for an SBA Disaster Loan, the business needs to be located in a region declared a disaster area. Small businesses can use the loan to cover any costs not covered by FEMA or insurance.
Business owners who have had their business impacted by a disaster may be eligible for a low-interest long-term loan to cover the costs of physical or economic damage.
The loan for physical damage can be used to cover expenses for repairs or to replace damaged property. The loan for economic damages can offer working capital liquidity to stay afloat until business activity returns to normal following a disaster.
SBA COVID-19 Economic Injury Disaster Loan (EIDL)
Unfortunately, given the language of SBA’s Disaster Loans requirements, as disastrous as COVID-19 has been, it does not technically qualify as a disaster for businesses to be eligible for an SBA Disaster Loan. As a result, the SBA offers businesses the COVID-19 Economic Injury Disaster Loan (EIDL). EIDL allows companies to get an SBA loan to cover payables, payroll, and other fixed debt payments.
The Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) is another loan offered by the SBA during the COVID-19 pandemic. The loan is available to small businesses, sole proprietorships, independent contractors, and nonprofit organizations. Congress made iterations to the PPP loan forgiveness covenants allowing for all loans below $150,000 to be forgiven if the loan funded payments of payroll, rent, mortgage payments, and utilities within 8-24 weeks of receiving the loan, so long as the payroll part of the payments was at least 60% of all outlays.
Congress also included other enhancements to the updated PPP loan, such as targeted funding for:
- Movie theaters, museums, and live entertainment venues that saw their revenue drop by at least 25%.
- Loans are applied for and disbursed through small depositories and community-based financial institutions.
- Money for small businesses with a staff of 10 or less.
- Loans amount increased to $250,000 from $150,000 in low-income designated areas.
The interest rate on the PPP loan is 1% if not forgiven. If the loan is forgiven, it carries no interest rate.
There are a multitude of SBA loan programs that are available to small business owners at any time. SBA works as a conduit between lenders and small business owners looking to access capital by guaranteeing a portion of the principal amount lent to facilitate lending activity. The SBA works closely with community development organizations and micro-lenders, among others, to carry out its lending objectives.
It’s important to remember the SBA loans offer businesses the lowest interest rates possible. The caveat is that the loan application process will be complicated and cumbersome. Businesses are encouraged to work with banks in their region or numerous online fintech companies that can help borrowers choose the loan that best works for them and guide them through the loan application.