Is an SBA loan right for your business?

By Rodney Borges, SVP Small Business Lending
October 2021

Loans from the U.S. Small Business Administration can provide a portion of the capital you need to kickstart your business and help it succeed. This guide will help you understand when to access SBA loans, from what they are to which small businesses qualify. 

Plumas Bank is proud to have Preferred Lender status with the U.S Small Business Administration. This means that we have the ability to make final credit decisions on SBA-guaranteed loans instead of submitting loans directly to the SBA for approval. This creates a more streamlined and personal experience. If you decide an SBA loan might suit your business needs, get in touch with one of our commercial loan officers to begin your SBA loan application.


What is an SBA Loan? What are the Benefits?

First, it’s important to understand how SBA loans work. SBA loans aren’t actually issued by the SBA— instead, the SBA partially guarantees loans that are made by their network of approved lenders. This allows small businesses to access capital more often, with longer terms and lesser down payments compared to conventional financing. In addition, those loans have reasonable interest rates and repayment terms for small business owners. 


Which SBA Loan is Right for Your Business?

7(a) Small Business Loan
Of SBA’s business loan programs, 7(a) Small Business Loans are the most basic and commonly used. Designed to help businesses who are unable to obtain financing from other types of lending sources, a 7(a) loan is a great choice for businesses who need to refinance their business debt, purchase supplies or require working capital. 

Use of Funds/Terms
•    Fully amortized, assumable
•    Business acquisition—as low as 15% down, up to 10 years
•    Equipment acquisition—up to 100% financing, up to 10 years
•    Permanent working capital—up to 7 years
•    Debt refinancing—7 to 10 years
•    Real estate purchase, construction, refinance or improvements (majority of space must be owner-occupied) —25 years

SBA Fee
•    SBA guarantee fee can be financed in most circumstances
•    Variable rates

 
SBA 504 Loan Program
A 504 Loan provides long-term, fixed-rate financing for significant assets that will bolster employment and business growth, including real estate, equipment, machinery and repaired or upgraded facilities.

Use of Funds
•    Purchase, construction and renovation of commercial, industrial or retail real estate
•    Can be combined with major equipment purchase
•    Majority of space must be owner-occupied

Loan Structure
•    Up to 65% LTV first mortgage on General Purpose Property-we provide up to $5 million
•    Up to 60% LTV first mortgage on Special Purpose Property
•    25% to 40% LTV SBA 504 second mortgage-SBA provides up to $4 million
•    10% minimum down payment

Terms
•    First Mortgage—25 years, fully amortized
•    Fixed and variable rates
•    Second Mortgage—20 or 25 years, fully amortized
•    Fixed rate is determined at SBA-guaranteed 504 debenture sale

Fees
•    First Mortgage-competitive fees
•    Second Mortgage—2.65% (on average) plus legal review fee (SBA fee is financed)
•    Additional fees applicable on construction loans


What Do I Need to Apply for an SBA Loan?

Eligibility for SBA loans varies, and restrictions can often be extensive. Keep in mind that some industries not eligible to receive an SBA loan, including nonprofit businesses, lending businesses, lobbying businesses, life insurance companies, businesses making the majority of their revenue from gambling activities, consumer or marketing cooperatives, and passive income businesses. For a full list and accompanying special circumstances, take a look at the SBA’s eligibility questionnaire

There are a few general requirements for most SBA loans:  

U.S. Based
Your business must be officially registered and operating legally in the United States of America or its territories.

Have Good Personal and Business Credit Scores
Show the SBA that you are a trustworthy and low-risk choice for receiving a loan.

Meet SBA Size Requirements
SBA loans are for small businesses only, which the SBA defines based on industry. To see if your business is an eligible size, use the SBA’s online size standards tool.

For more information, get in touch with our SBA business development officers to discuss financing options and begin your SBA loan application.