Small Business Administration Loans are a popular option for businesses that need financing quickly. Unfortunately, many businesses struggle to secure financing through banks and other alternative sources. Start ups are usually too risky because these business owners have low credit scores.
Because of this reason, the SBA offers a variety of loan programs, including an Express Loan. This program is designed for businesses that struggle getting approved for traditional business loans.
In this post, we will discuss how this program works as well as the pros and cons of receiving an SBA Express Loan.
What is an SBA Express Loan?
The SBA created the Express Loan for business owners who need financing quickly and cannot wait weeks or months for an approval. Once you submit your application, you can get financing as soon as 36 hours.
Express Loans are not offered directly by the SBA. Instead, you will be working with a lender and the SBA will guarantee a portion of the loan amount.
The government will pay the lender the guaranteed amount. This lowers risks for lenders, allowing them to lend to higher risk borrowers. This lowers risks for lenders, allowing them to lend to higher risk borrowers. Each lender uses their own producers and processes for evaluating and approving or denying loans.
SBA Express Loan Features:
- Revolving lines of credit can have terms up to seven years.
- Interest rates are negotiated between borrowers and lenders.
- Interest rates can be variable or fixed.
- Collateral might be required.
The Pros of SBA Express Loans
An SBA Express Loan will provide your business with additional working capital. You can use this capital for buying equipment, acquiring a business, hire people, and grow your business.
Other benefits include the following:
- Interest rates are low for a business loan.
- Long repayment terms are available.
- Down payments are affordable.
- Excellent for building business credit.
- Fast approval.
The SBA will guarantee up to 50 percent of the SBA Express Loan. For lenders, this lower risks substantially. Lenders can pass on these lower risks to borrowers resulting in the above benefits.
The Cons of SBA Express Loans
The SBA Express Loans are a great resource for small businesses, but just like with everything there are some drawbacks. One disadvantage is that you need a high credit score. Also, if you default on an SBA loan, you will be barred from accessing SBA loans in the future.
Other disadvantages include the following:
- The Express Loan application process requires extensive paperwork.
- Paperwork and application procedures will vary from bank to bank.
- The wait time is lengthy compared to other lending options.
- There are restrictions on how money is spent.
- There might be fees such as late payments, service fees, and application fees.
The Bottom Line
SBA Express Loans are a great option for small businesses, especially those that need immediate financing without high interest rates. They offer fair repayment terms and funds are distributed quickly. There are drawbacks including an extensive application process and strict requirements to apply.
There are several options out there to consider for financing your business including a merchant cash advance, business loan, credit card, and more. One of these options will work best for you and your business needs.