SBA 7(a) Loans vs. SBA Export Loans
About SBA Loans
The SBA is a federal program, but the loans don’t come directly from the government. Lending institutions provide the loans, and the SBA guarantees a percentage of the repayment amount. For lenders, that means less risk when working with businesses with a new or less than stellar credit history. For borrowers, it means a great chance at qualifying for a loan with good terms and a reasonable repayment plan.
SBA 7(a) Loans and SBA Export Loans Explained
SBA 7(a) Loans are the most popular option, and the one that most owners are able to secure. Because the SBA is a federal organization, the interest rates and terms are affordable for small businesses. An SBA 7(a) Loan can be acquired for up to $5 million, and can be used to refinance debt, purchase business related equipment, buy or rent property, improve current property, buy a company, or act as working capital.
SBA Export Loans are focused on a much more specific purpose; helping small businesses to expand by exporting products and taking part in international business. There are three types of export loans:
- SBA Export Express Loans: This option goes up to $500K and can be used to bring products and services to a wider, international market through trade shows and new facilities.
- SBA Export Working Capital Loans: These go up to $5 million and can be used for major purchases to launch an international branch of a business, from production costs to paying suppliers.
- SBA International Trade Loans: This product goes up to $5 million, and are designed to cover the costs of a business’s US operations as it enters the international market.
Qualifying and Applying for SBA 7(a) and SBA Export Loans
To qualify for either loan, a business must fit the SBA definition of a small business by meeting the following characteristics:
- 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
If you’re unsure if your business meets these qualifications, review this SBA guide.
As with any loan, your business’ financial history will be taken into consideration when you apply for a SBA 7(a) Loan or a SBA Export Loan. Credit scores are a major factor, with most lenders looking for a score above 660 for established businesses and well over 700 for new companies. Any recent financial issues, including bankruptcies and tax liens, will be taken into consideration as well.
The SBA offers a detailed list of the materials you should have prepared when beginning the application process. The list includes documents like your business plan, tax information for the previous three years, and copies of any documents related to your business property lease.
Ultimately, you should have paperwork in order and work with a lender that has SBA loan experience to ensure the process goes smoothly.
Details of SBA 7(a) and SBA Export Loans
Typically, an SBA 7(a) loan will come with an interest rate between 6.75 and 9.25 percent depending on the financial situation of your small business. Your credit score, financial history, and loan repayment terms will all have an impact on the interest rate. Many SBA 7(a) loans have 7-10 year term. However, some larger loans needed for purchasing real estate will have a longer 25 year terms.
The average interest rates and terms of SBA Export Loans vary by loan type.
- SBA Export Express Loans typically have an interest rate of 8 to 10 percent with up to 7 year terms.
- SBA Export Working Capital Loans have unrestricted interest rates, but are monitored to ensure that they remain reasonable. Typically, interest rates are between 6 to 10 percent and have relatively short terms, under 3 years.
- SBA International Trade Loans typically have interest rates between 6.75 to 9.25 percent and terms up to 25 years.
Choosing Your SBA Loan
The loan you apply for will depend on the unique needs of your small business.
SBA 7(a) Loans are a good option for startups and businesses that are in need of capital to give production a boost.
SBA Export Loans are designed for small businesses that are expanding to an international market.
Regardless of the option you choose, you’ll likely benefit from having access to additional business financing!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.