What Is An SBA Loan?Dec 14, 2022
On this post we invited David Price and Zhenya Slack from Delphinus Capital. Here is a guest post from them:
What is an SBA 7(a) Loan?
The SBA 7(a) loan program is the most popular and most used type loan of the Small Business Administration's lending program. The loan program is designed to assist small businesses obtain capital with reasonable terms and rates. SBA 7(a) loans are issued by private lenders and backed by the SBA. Terms can vary by loan type and lender. Loan amounts can range from $50,000 up to $5 million. The maximum length of the loan is 25 years for real estate and seven years for working capital. The maximum loan amount is $5 million.
SBA 7(a) loan interest rates are set based on the prime rate plus 1-2.5 points, depending on the lender.
Who is Eligible for an SBA 7(a) Loan?
To be eligible for an SBA 7(a) loan program, businesses must meet the following criteria set by the Small Business Administration:
- Must operate as for-profit
- Must meet the small business definition set by the SBA
- The business must have fewer than 500 employees, and less than $7.5 million revenue on average each year for the past three years
- Tangible net worth must be less than $15 million
- Having been in business for at least two years
- Must operate in the USA
- Be able to demonstrate a need for a loan
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
- Borrowers must be US citizens or Green Card holders
Certain types of businesses — such as real estate investment firms, multifacility homes, religious organizations and gambling businesses are not eligible for SBA 7(a) loans. The lenders will typically require a credit score of 680 or higher to be considered for the loan.
SBA 7(a) funds can be used for operational expenses, refinancing certain high-cost debts, hiring employees, purchasing new inventory or equipment, supporting marketing costs, purchasing land and commercial real estate.
In addition to the traditional SBA 7(a), there are 2 very rare programs that aren’t offered through most of the traditional banks. It’s through the SBA 7(a) Express Working Capital program.
There is the BOLT program that is a working capital only option through the SBA up to $150,000. This is a very easy and straight forward program with minimal paperwork. The program highlights are as follows:
- 680 FICO
- 2 Years in Business
- Working Capital Only Use of Proceeds
- 30% of Gross Revenue from prior Tax Return up to $150k
- One week process – 10-year term, Prime+2.75, no prepay penalty
With the Bolt program we just need the last 2 years of the tax returns (personal and business), a Personal Financial Statement. The loan amount is calculated based on the gross revenue on the latest tax returns, and is up to a maximum of 30% of the gross revenue.
There is also the FLASH CAP option that is also an SBA program. This is a working capital option that can go up to $350,000. With Flashcap, the documents are a little more involved and it's a cashflow based loan.
- 660 FICO
- 2 Years in Business
- Working Capital, Debt Refinance, or Equipment Purchase only use of proceeds
- Max loan amount $350k
- No collateral
- Average turn time 3 weeks –10-year term, Prime+2.75, no prepay penalty
For Flashcap, we need 2-3 years of personal tax returns, debt schedule, a Personal Financial Statement, and Interim Financials.
With both options the borrower cannot have any bankruptcies, criminal background, or defaulted loans.
We are very excited to offer these 2 programs for smaller businesses that don’t want to go through the hassle of the traditional loans and just need working capital for business operation.
When trying to raise capital, a business will be faced with many options. It’s a complex, daunting process, with many pitfalls. Having the knowledge of the different options that are right for your business and funding needs can save you time, money, and heartburn.
About Delphinus Capital
Delphinus Capital is a financial consulting firm focused on providing funding solutions for small to medium size businesses in the US. We have a nationwide reach and can place the borrowers anywhere in the US.
Our primary focus is to find creative funding solutions and make the process easy and seamless. Delphinus Capital has 100s of preferred lenders that specialize in various credit profiles for all types of businesses. We go beyond just finding lenders by working with our clients with their best interest in mind, to make sure that not only they have access to funding, but they chose the best option for their business. We source the most creative solutions with optimal terms that help the business owner save significant time and money. We can help business owners access cheap capital without having to jump through all the hoops that are sometimes necessary with commercial loans. We offer a wide range of funding options but, for the purposes of this call, we have prepared some information about SBA 7(a) loan program as there is a lot of interest but not enough clarity around this program.
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