U.S. Small Business Administration (SBA)

The SBA is a federal agency that offers two key longer-term financing programs that enable new or expanding small businesses to secure permanent working capital and purchase equipment and/or real estate. Loans of $500,000 or less will have zero SBA fees in FY2023 (October 1, 2022, to September 30, 2023) 

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SBA 7(a) Loan Program:

• Participating lenders receive a guarantee that the SBA will repay up to 85% of the loan if the business borrower defaults on payments

• Loans of up to $5 million and terms of 25 years for real estate, 10 years for machinery, and 10 years for working capital and inventory 

• Eligible uses: working capital, inventory, machinery, real estate purchases, and refinancing debt

• Guarantee fee ranging from 2% to 3.75%, the cost of which can be included in the loan amount

• Interest rates may be fixed or variable, and are negotiated between the borrower and the lender (subject to SBA maximums, which are pegged to the prime rate, the LIBOR rate, or an optional peg rate)

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SBA 504 Loan Program:

• Borrower requirements of only 10% equity contribution - loans are administered through a partnership between an SBA-approved lender that covers 50% of the project cost and a community development corporation that funds up to 40%

• Loans of up to $5.5 million and terms of 10, 20 or 25 years at a below-market fixed-interest rate

• Eligible uses: fixed asset expenses such as real estate or equipment. Real estate expenditures include purchase of owner-occupied commercial property, land to construct a business location, and construction to renovate these facilities