September 11, 2018

SBA 7(a) Loan vs. SBA Express Loan

In this post, we’ll compare two popular types of SBA Loans, the 7(a) Loan and the Express Loan.

Comparing SBA 7(a) Loans and SBA Express Loans:

About SBA 7(a) Loans and SBA Express Loans

While the SBA doesn’t lend the money themselves, they guarantee a partial amount for loans, making it easier for small businesses to be approved. The SBA 7(a) Loan is the SBA’s main funding program, which can be used to cover expenses for working capital, purchasing machinery and equipment, purchasing land or real estate, improving current property, and refinancing debt. The are several types of 7(a) loans, and the SBA Express Loan is one of those. The benefit of choosing this loan option is that you’ll receive a decision from your lender much faster; within 36 hours of applying. Express Loans can be used for the same purposes as a 7(a) Loan.

Terms of the SBA 7(a) and SBA Express Loans

 The standard option for SBA 7(a) Loans provides loans for up to $5 million. The loans have an interest rate of 6.75 to 9.25 percent and have terms up to 10 years. The SBA guarantees 85 percent of loans up to $150,000 and 75 percent for anything above that amount. Express Loans can be taken for up to $350,000 with interest rates between 9 and 11 percent. Express Loan terms can be up to 7 years. The SBA guarantees 50 percent of the loan amount for Express Loans.

Eligibility and Applying for SBA 7(a) and SBA Express Loans

 To qualify for either the SBA 7(a) or SBA Express loan, you must own a for-profit small business. These are the SBA guidelines for defining a small business:
  • Have less than 500 employees
  • Earn less than $7.5 million average annual revenue
  • Have less than $5 average annual net income
  • Have less than $15 million net worth
Because the SBA doesn’t provide loans directly, you’ll need to apply through a local lender that partners with the organization. Each lender will have their own unique process and set of forms to determine if you qualify to borrow from them. For your best chance of qualifying for either a SBA 7(a) of SBA Express Loan, be prepared when you meet with your lender. Bring all necessary documents, including a business plan and tax information to show your annual revenue for the past 3 years. Be prepared to discuss exactly how much money you’ll need and how you’ll use it. Your lender will use your credit score to help determine whether you qualify for a loan. Collateral may also be required for loans over a certain amount. Typically, that amount is anything over $350,000 for 7(a) Loans and anything over $25,000 for Express Loans.

Choosing the Right Loan for Your Small Business 

Ultimately, the loan you choose will depend on your business’s unique needs. SBA 7(a) Loans are a good option for new businesses that require a financial boost to get started. With a higher limit, this might be the loan for you if your business makes large purchases like real estate or expensive equipment. The major benefit of SBA Express Loans is the faster turnaround time. You should consider these loans if you need a small amount of money, quickly. If your small business needs funds to rent space and purchase inventory, an Express Loan might be the right fit. Of course, these aren’t the only financing options available. The SBA has other types of loans, or you could apply for a business loan from an alternative lender. It’s important to consider all types of financing, so that you can do what’s right for your business!