The SBA provides resources to small businesses all over the country. Some of the loan options they offer are the SBA 7(a) loans and SBA Export Loans. We will compare the two options and explain how to apply and utilize both products.
The SBA is a federal program, and they guarantee a percentage of the repayment amount. This means the loan does not come from the government directly, but it comes from lending institutions instead. For lenders, it means less risk when working with businesses with a new or less than stellar credit history. For borrowers, it means a great chance of qualifying for a loan with good terms and reasonable payment plan.
SBA 7(a) Loans and SBA Export Loans
SBA 7(a) loans are the most popular option and the one most owners are able to secure. The interest rates and terms are affordable for small businesses because the SBA is a federal organization. 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 more specific purpose such as helping small businesses expand by exporting products and taking part in international business. The following are the three types of export loans:
- SBA Export Express Loans: This option goes up to $500,000 and can be used to bring products and services to a wider market through tradeshows and facilities.
- SBA Export Working Capital Loans: This goes up to $5 million to be used for purchases to launch an international branch of a business, from production costs to paying suppliers.
- SBA International Trade Loans: This also 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 needs to 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
Just like with any loan, your business’s 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 businesses that are established and over 700 for companies that are new. Any bankruptcies and tax liens are 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.
Make sure that you have the paperwork in order and work with a lender that has experience with the SBA loans to ensure the process goes by smoothly.
Details of SBA 7(a) and SBA Export Loans
An SBA 7(a) loan comes with an interest between 6 and 9 percent depending on the financial situation of your small business. Your credit score, financial history, and loan repayment terms will 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 Bottom Line
The loan you apply for will depend on the unique needs of your small business. The 7(a) loan is good for businesses that are in need of capital to give production a boost. And export loans are good for those businesses that are expanding into an international market. Whichever option you choose, your business will gain lots of benefits.