SBA Loan Interest Rates for August 2017

When you’re considering an SBA loan, there are a few things to keep in mind. Certainly, finding the right lender is a consideration. But regardless of the lender you choose, the interest rates are the same across the board. This means not only being aware of what kind of loan you need. There are six different types of SBA loans, but two are the most common: 7(a) Loans and CDC/504 Loans. But depending on your unique circumstances and the kind of loan you’re looking for, you can also look into an SBA CAPLines Line of Credit, an SBA Export Loan, an SBA Micro Loan, or an SBA Disaster Loan.

If you’re looking at investing in owner-occupied commercial space or the purchase of other fixed assets, the CDC/504 is designed specifically for that purpose. The 7(a) Loan can be used for anything from working capital and equipment purchases to debt refinancing, as well as buying a business franchise or commercial real estate.

However, most people are really talking about 7(a) loans when they’re talking about SBA loans. The advantage of a 7(a) loan is its flexibility. Where the CDC/504 loan limits the type and purpose of the property and the function it serves – it must be 51% owner occupied as well as meet job creation or public policy goals – the 7(a) provides more flexibility. This is probably why of the six loan types, the overwhelming majority of SBA loans given in 2016 were 7(a) Loans.

While the specifics of each loan are a little different, they all have a minimum credit rating requirement and some have partial or complete collateral requirements. Since the 7(a) Loans are the most common type, we’ll start there.

7(a) Loans

The minimum requirements include

  • a credit score of 680 or better,
  • 10-20% down payment, and
  • some collateral. But the loan doesn’t have to be completely collateralized.

The maximum interest rate on SBA 7(a) loans depends on three factors:

  1. A base interest rate is determined using the Prime Rate, LIBOR (one month) +3.0%, or SBA Peg rate. Each of these is researchable and publicly available.
  1. The Term of the loan. Borrowers can opt for less than 7 years or more than seven years. This also means that 3 or 5 year terms fall under the less than 7 year terms. Likewise, terms of 10, 15, or 20 years fall under the terms for more than 7 years.
  1. The size of the loan. SBA 7(a) loans can be for up to $5 million. As you can see on the chart, the interest rate for a $5-million-dollar loan is the same as the interest rate on a $51K loan.
Loan size Interest (Repayment term of less than 7 years) Interest (Repayment term of more than 7 years)
Less than $25K 8.5% (4.25% base rate + 3.25% markup) 9% (4.25% base rate + 4.75% markup)
$25K-$50K 7.5% (4.25% base rate + 3.25% markup) 8% (4.25% base rate + 3.75% markup)
$50K-$5M 6.5% (4.25% base rate + 2.25% markup) 7% (4.25% base rate + 2.75% markup)

CDC/504 Loans are also very common.

Minimum requirements include:

  • a credit score of 680 or better,
  • a 10% down payment,
  • meeting job creation or public policy goals, and
  • real estate must be at last 51% owner occupied.

Other qualifications include:

  • having a tangible net worth less than $15 million and an average net income less than $5 million after taxes for the previous two years,
  • not being engaged in speculation or investment in rental real estate,
  • not having funds available from other sources, and
  • you must have the ability to repay the loan on time from the projected operating cash flow of the business.

A CDC loan can cover up to 40% of the total project cost.

The CDC abides by limits on the interest rates, terms and fees set by the SBA. These loans must have terms of either 10 or 20 years. The interest rate must be fixed. This rate is tied to the 5-year and 10-year US Treasury rate.

Term of loan Treasury rate Fixed Rate Maximum Interest Rate
10 years 5 year (1.75%) 0.38% 3.96% (1.88% + 0.38% + 1.7% ongoing fees)
20 years 10 year (2.38%) 0.48% 4.56% (2.38% + 0.48% + 1.7% ongoing fees)

NOTE: Unlike a 7(a) loan, loan rates for the CDC portions of an SBA CDC/504 loan are fixed for the life of the loan. They will not go up or down. The portion of the loan provided by another lender does not need to be fixed. It may have a variable rate or a balloon payment.

SBA MicroloansSBA Microloans were the second largest type of loan given in 2016, although only $58 million was actually issued in loans.

This loan program provides loans to nonprofit intermediary lenders who in turn lend amounts under $50,000 to for-profit small businesses and nonprofit childcare centers.

NOTE: The SBA does not guarantee any portion of the loans made under the SBA Microloan Program. Microloans have terms up to 6 years and average $14,215.

The minimum requirements include:

  • a credit score of 640 or better, and
  • some type of collateral.
  • Non-profit childcare centers can also be eligible.

SBA Microloans can be used as working capital to buy:

  • materials and supplies,
  • furniture and fixtures,
  • marketing and advertising,
  • inventory,
  • equipment, and
  • labor.

The only things you can’t use a SBA Microloan for are real estate purchases and refinancing debt. The nonprofit intermediary will scrutinize how you plan on using the proceeds. This can have an impact on approval.

Please note that these loans have higher interest rates than other loans, somewhere between 8%-13%.

SBA Disaster Loans have an interest rate between 4% and 8%, with terms up to 30 years, for up to $2 million.

Minimum requirements include:

  • a credit score of 660 or better,
  • your business must have suffered physical or economic damage from a disaster, or
  • your business must be located in an SBA declared disaster area, or
  • for Military reservist loan, an essential employee must be called to active duty, and
  • you must demonstrate the ability to repay.

You can use proceeds from this loan:

  • to repair or replace damaged property, or
  • as working capital, or
  • operating expenses.

The one catch is that you can’t use the proceeds of this loan to replace or repair things that insurance fully covers. Only uninsured or otherwise uncompensated disaster losses are eligible.

SBA Export Loans help American small businesses expand their export activities, engage in international transactions, and enter new foreign markets. There are 3 types of SBA Export loans.

SBA Export Express Loan Streamlines funding up to $500K in working capital Terms up to 7 years
SBA Export Working Capital Loan Funding up to $15M in working capital to fund export transactions when the business has a purchase order from a foreign customer. Terms from under 12 months and up to 3 years.
SBA International Trade Loan Program Funding up to $5M in working capital and/or fixed assets for businesses that export or for businesses hurt by imports. Terms up to 25 years.

The last kind of SBA Loan Program available is the SBA CAPLines Program.

This program is designed to help businesses meet short-term ad season working capital needs. There are 5 different lines of credit available.

Seasonal line of credit For seasonal increases in accounts receivables, inventory needs, or related increased costs of labor Up to $5 million
Contract line of credit For materials and labor associated with a project. Up to $5 million
Builders line of credit For contractors that build or renovate residential or commercial buildings used for materials, equipment, permits, labor, and land associated with a project Up to $5 million
Standard Asset-Based line of credit allows small businesses to convert short-term assets, like pending invoices, into cash Up to $5 million
Small Asset-Based line of credit allows small businesses to convert short-term assets, like pending invoices, into cash Up to $200,000

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