Small Business Loans (SBAs) are among the most popular and reliable ways to get financing for small businesses. As with any financial product, though, loan rates change. What are the fees for entrepreneurs wishing to obtain financing? It depends on the specific loan from the SBA.
Current interest rates on 2020 SBA loans
Current SBA 504 rates: from 2,231% to 2,399%
Current SBA 7 (a) rates: from 5.5% to 11.25%
Current SBA microcredit rate: 7.75-8.5%
Economic Disaster Lending Rate (EIDL): 3.75% (2.75% for non-profit organizations)
Other disaster lending rates: typically 2.75% - 4%
SBA CARES Payment Protection Program (PPP) loan rate: 1%
SBA Express loan rate: up to 7.75% or 9.75%
Here are more details on the interest rates and terms of the different SBA loan programs.
SBA PPP loan fees
Payment Protection Program loans have a flat rate of 1% for all outstanding loans. The repayment period is two years for loans approved by the SBA before June 5, 2020, or 5 years for loans approved after. (Lenders and borrowers can agree to a 5-year term for loans approved before June 5, 2020).
SBA EIDL loan rate
COVID-19 disaster damage loans have a fixed rate of 3.75% (2.75%) for a maximum term of 30 years. (The loans appear to be offered for a 30-year repayment period.)
SBA emergency loan rate
The disaster relief program has been around for many years. There are other small business disaster loans for businesses in a federally declared area (e.g., areas affected by hurricanes, earthquakes, fires, or other disasters). Businesses can apply for loans of up to $2 million for physical damage caused by disaster. Businesses that have suffered economic damage as a result of the disaster loan can apply for an economic damage loan of up to $ 2 million, and the loan proceeds can be used as working capital to help the business to repay the bills that would have been paid if the disaster hadn't happened.
The interest rate will be fixed at the time of the disaster declaration and will cover all loans processed per the disaster declaration. In recent disasters, the interest rate was 4% (2.75% for private non-profit organizations).
By law, the interest rate depends on whether or not the business has "credit available elsewhere." The SBA will determine whether or not the applicant has sufficient funds or other resources or the ability to borrow from non-government sources to ensure their disaster recovery. It is believed that those with other resources have loans available elsewhere.
The maximum term of an SBA loan in the event of a claim is 30 years. Companies with loans available elsewhere have a maximum repayment period of 7 years. The SBA sets the payment amount and the repayment term based on the debtor's repayment capacity.
MREIDL loan rate
For loans under the MREIDL, the published interest rate allocated to MREIDL loans changes quarterly. However, once the corresponding interest rate is assigned to an MREIDL loan after approval, it remains fixed. The interest rate that will be applied to any MREIDL loan is the EIDL interest rate published by the SBA at the MREIDL application's approval.
SBA Express loan fees
SBA Express Loans fall under SBA 7 (a). It's faster and easier to register.
Creditors can charge up to:
4.5% of the principal loan rate is between $ 50,000 and $ 350,000 ($ 500,000 for Export Express), which leads to a continuous rate for these loans of up to 7.75%.
6.5% on the prime rate for loans of $ 50,000 or less, regardless of the term of the loan, bringing the current rate for these loans to 9.75%.
There are other pricing options available to creditors, as long as they don't exceed the SBA's maximum interest rate.
These loans typically offer loans of up to $350,000. However, the CARES Act temporarily raised this limit to $1 million by the end of 2020.
SBA microcredit
Are you considering the smaller but potentially cheaper SBA microloans? When paying off your SBA loan, be aware that fees can vary from lender to lender. However, the SBA sets limits on creditors when charging interest to debtors. The current maximum interest rate is:
7.75% for loans over $10,000.00
8.50% for loans of $10,000.00 or less
The terms of these commercial loans will never exceed six years. Not all microloans will require collateral, making it an attractive option for small businesses requiring smaller funding sources.
Micro credits are truly "small business loans" in that the loan amount is limited to less than $50,000. They can be used to purchase "furniture, fixtures, consumables, materials, equipment, and/or working capital." Borrowers cannot use the funds to purchase real estate or a business owner's house unless the house is used specifically for business. Lenders can choose to allow microcredit to refinance debt at their discretion when they believe it will improve the business's cash flow.
SBA 504 loans (CDC loans)
SBA 504 loans (also known as CDC 504 loans) provide funding through two different lenders and are serviced by a single lender. Half of the loan is gotten from the bank, but the other amount comes from a Certified Development Company (CDC), which sells the debt (also called a bond) to a private investor. The remaining 10-20% comes from the borrower in the form of an advance.
The formula for calculating SBA 504 loan rates is complicated. The current methodology calculates the effective monthly rate based on the declining balance.
Currently, the program allows interest rates for 10, 20, and 25 years, at 2.231%, 2.364%, and 2.399%. The SBA announced the new bond rates on November 13, 2020.
There is no project size limit for these loans, but the maximum SBA obligation is normally $ 5 million. The funds are often used for large projects, such as real estate acquisitions (where at least 51% must be owner-occupied and in some cases more), expansion of facilities, or acquisitions of large equipment. The maximum repayment term is 10, 20, or 25 years.
How can I qualify for an SBA loan?
Except for SBA loans, small business owners apply for these loans through a financial institution authorized to provide SBA loans. Some lenders are "preferred lenders," meaning they have the ultimate authority to approve SBA loans instead of submitting them for SBA approval. All lenders should ensure that their loans meet the minimum requirements of the SBA loan. These include:
Your business should be viewed as a small business, usually based on SBA size standards.
Similar funding may not be available elsewhere.
You must prove that you can repay the loan.
You must have invested some of your money in the business, even if you are a startup.
Must have an acceptable personal and/or professional credit rating. (PPP loans generally do not require good credit.) 7 (a) Loans of $ 350,000 or less will be rated for an SBSS FICO rating of 140 or higher (many financial institutions require a rating of 160-165 or less. bigger).
In many cases, debtors have to make a down payment of 10%.
Because credit can be a big factor in approving an SBA loan, it's worth knowing your personal and professional credit scores. Please review them before signing up to avoid any surprises when meeting with creditors. Creditors should use this information to determine their ability to pay and may decline without it.
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