SBA loans

about SBA loans

What is an SBA loans?

An SBA loan is a business loan that is guaranteed by the U.S. Small Business Administration (SBA).

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An SBA loan is the Holy Grail when it comes to small business expansion. Small business owners can use these funds in a multitude of ways with the aim of business growth through the SBA 7(a) or wealth creation through the SBA 504 loan program.

The SBA essentially guarantees a portion of a loan that is acquired through an SBA approved lender. There are two main SBA funding programs which we focus on. SBA 7(a) and SBA 504.

SBA loans typically can range from around $200,000 up to $22,000,000. The term of the loans can also range from 5 years to 25 years depending on the use of proceeds. The interest rates on SBA loans can be anywhere from mid 3% range to the low 8% range, depending on numerous factors.
Section 01

Why choose an SBA Loan?

There are a plethora of reasons for taking out an SBA loan for your business. Simply stated, an SBA loan has affordable interest rates, requires a smaller down payment, has favorable repayment terms, and can be used for a myriad of purposes. However, to enjoy the benefits of an SBA loan, you need to know who qualifies for an SBA loan and the differences between each program.
Another reason to choose an SBA loan is that you can often be denied an SBA loan from a bank only to receive approval on the same loan from a nonbank direct lender. Banks are risk averse and slow which doesn’t fit well with most entrepreneurs who value speed. As a nonbank direct lender, Fountainhead makes a lending decision quickly based on diving into and understanding your unique business situation. You’re not a number or credit score to us. You’re a person, a business owner with a story that we listen to in order to find the best SBA option for you.
Also, it’s easy to use technology to apply for an SBA loan. Each lender will have its own terms for the SBA loan program, but through an online platform like Fountainhead’s Pronto AI, you can upload all your documentation and receive a loan decision FAST. Two hours and we can get back to you. Why waste days, weeks, even months waiting to see if a bank will approve your loan when we can give you a decision the same day? We spare you the hassle and rejection you would face having to go from bank to bank and make the entire SBA process quick and easy.
Section 01.1

Applying for an SBA loan

Though you may not be applying for a traditional bank loan, if the institution offering the loan is a bank, you can expect the speed, service and bureaucracy associated with an ordinary bank.
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The only difference is that SBA loans are moderately easier to qualify for than traditional loans.

Qualifying for an SBA loan doesn’t have to be an elaborate and time–consuming process if you choose the right lender. The application process for an SBA loan can seem daunting, but again if you choose the right lender, they will be able to seamlessly walk you through the process.

One of the main determining factors, as with most financing, will be your credit score. Most business owners who qualify have an annual revenue stream of over $350,000 per year, have a credit score of 650, and have been in operation for over three years, but there are many exceptions to these.

You’ll need to fill out and submit the required documentation including financial statements, description of the collateral, a business description and an outline of how you plan to spend the loan among other documents. The lender offering the loan will want to see a business with a solid credit history, a sound business plan, a business that has been profitable for its recent existence and an ability to repay the loan.
Section 01.2

Choosing the right SBA Loan

There are a variety of loan funding programs offered by the SBA but
the two most popular programs by far are:
  • The SBA 7(a) Loan Program (general financing needs)​
  • The SBA 504 Loan Program (owner occupied commercial real estate and/or heavy equipment). The SBA loan you qualify for will depend on several factors, mainly about the use of proceeds.
Section 02

SBA Loans: The Basics

The Small Business Administration (SBA) is a government agency that was founded in 1953 to offer business support to small business owners across the United States of America. One of the forms of support the SBA offers is financing, in the form of loans. The SBA also helps small scale entrepreneurs improve their business processes, learn how to take advantages of opportunities when they present themselves and how to get access to other forms of financing. An SBA loan is a small business loan characterized by long repayment periods, low down payments, and low interest rates while being guaranteed by the government.
It is crucial to know that the agency itself does not provide the loans directly. The loans are offered by lenders and the SBA guarantees the loan, effectively promising to pay back the lender a portion of the loan if the borrower defaults. The guarantee is a risk reduction tool for lenders which enables them to offer more loans to more small businesses on better terms. Increasing the incentive to lend by financial institutions is the motive behind the creation of SBA loans.
Section 02.1

SBA 7(a) loan program

The 7(a) program is the most popular among the SBA loan programs. This is because the loan is pretty flexible and can cover most general financing needs. Needs like working capital, relinquishing old debt obligations and renovating the business premises are the main reasons for applying for a SBA 7(a) loan.
SBA 7(a) loan terms include:
  • A maximum loan amount of $5 million.
  • Repayment periods of up to 10 years for working capital loans or up to 25 years for commercial real estate loans.
  • To be used for general financing needs
SBA 7(a) loan program
Section 02.2

The 504 loan program

The 504 Loan Program is also popular but much more specific than the 7(a) program. You use the 504 loan to specifically buy major fixed assets, more particularly owner occupied commercial real estate and/or heavy equipment.
The terms of an SBA 504 loan are as follows:
  • No maximum loan amount, but for practicality’s sake, around $22 million
  • Repayment period of 10 to 20 years
  • To be specifically used to buy fixed assets
Section 03

SBA Loans Cost

One of the most pertinent questions you should ask before applying for an SBA loan is, “how much will it cost?” The answer to that question will depend on the type of SBA loan that you choose.
Simply put, an SBA loan is the cheapest source of financing available to small business owners. The SBA decides the maximum amount that can be charged on any of their loans.
The two popular SBA loan programs both have different fees, repayment terms and interest rates as we will see below:

SBA 7(a) Loan Program Fees


The SBA charges a fee for providing additional security for the loan, known as the guarantee fee. Though the lender usually pays the guarantee fee, they can pass it along to the borrower as an expense of the loan.

They charge a guarantee fee of 1.7% of the loan amount for loans up to $150,000, 2.25% for loans between $150,000 and $700,000, and 2.625% on loans exceeding $700,000. For loans over $1.333M, the fee increases slightly based on the loan amount. If you’re in that bracket, we can calculate the exact fee for you.

Depending on the lender from which you acquire the loan, you may be liable to pay an origination fee or loan packaging fee. The fees may seem like a burden but they are paperweight compared to the burden a smaller, faster to process but much more expensive loan would be.

Interest rates

SBA 7(a) loans come with either a fixed or variable interest rate which is usually adjusted every quarter. The lender that finances your loan will be the one to decide which to offer.

The SBA has a cap on the spread a bank is allowed to place above the loan’s base interest rate, minimizing how much profit the bank can make off your SBA loan. This protects you as a borrower.

If your loan amount exceeds $50,000 and the repayment period is less than 7 years, the loan’s interest rate will be determined by the Prime Rate and the maximum allowed spread on the rate is 2.25%.

If your SBA loan is more than $50,000 and has a repayment period of more than 7 years, the loan’s interest rate will be determined by the Prime Rate and the maximum allowable spread will be 2.75%. It is paramount to understand that the interest rate on an SBA loan is also determined by your credit history and the repayment terms.

The repayment terms of an SBA 7(a) loan are the best you will find in the market. You should expect to make monthly payments for 25 years if you acquire a commercial real estate loan, and 10 years for equipment loans or working capital loans.
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SBA 504 Loan Program Fees


To put it in extremely simple terms, you should expect an interest rate of 4-5% on the loan. However, you will not know the exact interest rate on the loan until 45 days after acquiring the loan.

The reason for the complication arises from the fact that a 504 loan comprises of two separate loans.

One is from the lender which makes up 50% of the total loan amount and the other loan is from the Certified Development Company (CDC) and makes up 40% of the total loan amount. The other 10% comes from your down payment.

The repayment terms for SBA 504 loans is 25 years.
SBA 504 Loan Program Fees
Section 04

SBA Loan requirements

There are personal and business requirements that one needs to fulfill in order to qualify for an SBA loan. The actual requirements to qualify for the loan will be decided by the individual financial institution from which you acquire the loan.

However, generally speaking, a business should qualify for an SBA loan if they have been in operation for at least 3 years, have a good credit history, have not recently experienced any bankruptcies or foreclosures and have enough cash flow to make monthly payments on the loan for the entire duration of the loan. Startups will be considered depending on the lender, if you have a solid business plan and relevant experience in the industry which the business is operating.

The ability to come up with cash flow to make the monthly loan payments should be demonstrated using tax returns and financial statements from both the business and the owner. Moreover, the business should not have any delinquencies or have defaulted on any government loans in the past to qualify.

To qualify for a commercial real estate loan through the SBA, the real estate needs to be majority owner-operated. This means that at least 51% of the square footage of the property you plan on purchasing or refinancing should be occupied by and used by your business to qualify for an SBA loan.

Also, there are exceptions.

The business owner must be a US citizen or a legal permanent resident of the United States.Fountainhead’s policy is that the business owner’s credit score must be 650 or above for SBA loans up to $350,000 and a credit score of over 660 for commercial real estate loans up to $15 million.

Section 04

Required documents

To qualify for an SBA loan, there are certain documents you’ll need in your possession. You should have these documents ready before applying for the loan in person or online. The more readily available and easily retrievable your documents are, the faster you will move through the application process.

Applying for an SBA loan online is better in this regard as you can have all the necessary documents in one folder ready to upload when prompted. On the contrary, if you forget a single document when visiting a bank’s physical location, it will set you back weeks on the application process.

You can consult an accountant or tax attorney before compiling the necessary documentation. The following are the most requested documents when applying for an SBA loan:

personal & business tax returns
Most financial institutions will require business and personal income tax returns for the past few years, typically 3.
personal financial statements
You will have to submit your personal financial statements if you own more than 20% of the business.
Profit and Loss Statements
Also called the ‘Income Statement,’ the profit and loss statement shows the company’s performance for the stated period.
You’ll be required to present documents proving ownership of the asset you will be putting up as collateral for the loan.
other documents
You may have to submit other documents such as business licenses, Articles of Incorporation, commercial leases, or franchise agreements.
Required documents

What loan type are you looking for?

SBA 7(a)
Our SBA 7(a) loan program is the ultimate business growth tool and offers the most flexibility in use of proceeds. SBA 7(a) funds can be used for a variety of things — you can refinance existing debt, purchase inventory, buy out a partner, make upgrades. The list goes on and on.
SBA 504
Our SBA 504 loan program is designed to help business owners create wealth through commercial real estate ownership. Our 504 loans can include: the acquisition of commercial real estate; renovation of commercial real estate; new construction; refinancing; and/or heavy equipment.
Our conventional loan program is the perfect alternative to traditional bank financing. Our conventional loans are ideal for purchasing, renovating and/or constructing commercial real estate or refinancing existing commercial property loans(with or without cash out) especially floating rate SBA 7(a) loans.

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