Trouble getting a loan or looking for more options? Don’t give up. If you’ve tried unsuccessfully to finance your business, consider a Small Business Administration (SBA) loan. These can fund equipment, real estate, working capital and many other needs. A local, relationship bank can talk with you about SBA loan options for Minnesota businesses. Your lender can also see if a customized traditional loan might better address your unique challenges.
SBA loans aren’t just for new or struggling businesses. We learned this lesson during the Pandemic and the use of the SBA PPP loan program to help many of our local small businesses with small business loans.
A range of unique circumstances can make an SBA loan more attractive to your company. If you’re an exporter, self-funded search fund, operate in a rural area, or have other special requirements, an SBA loan could be the right solution. If you’ve been unable to find sufficient funding through traditional means for some reason, consider an SBA loan.
Whatever your need, it may be time to expand your options.
Look into an SBA loan by talking with a Minnesota SBA-approved lender. The SBA does not make loans directly to businesses. SBA loans allow banks to offer more options by partially backing up the loan. This way, a lender can offer financing with a lower down payment or a longer term without taking on increased risk. If the borrower defaults, the SBA will cover a portion of the loan.
Most small businesses are eligible for SBA funding. These are the main requirements:
A SBA 7(a) loan can be used for a wide range of needs, including start-up costs and working capital. It can also be used for fixed assets and to refinance debt. Uses include:
As the primary program, SBA 7a loans also have a number of specialized programs that can be used as a subset of the larger options. The programs fit a certain set of needs and challenges. The options include:
The Cares Act had some changes for the pandemic, the following table overviews some of the key changes:
| Traditional Features |
COVID-19 Cares Act Changes in 2021 For Loans Approved through September 30, 2021 |
|
| New SBA 7a Loan Payment Relief | Not Applicable |
Three months of Section 1112 P&I payments (max $9,000/month) will be made by the SBA on behalf of the borrower, beginning with the first payment. This is considered nontaxable income. New loans to a borrower that previously received Section 1112 payments are not eligible for additional payments. |
| Existing SBA 7a Loan Payment Relief | Not Applicable |
Existing 7(a) loans that were approved prior to 3/27/20 will receive two additional months of Section 1112 P&I payments made by the SBA (max $9,000/month) Businesses in specified NAICS codes may be eligible for an additional three months of Section 1112 payments immediately following the two months. 7(a) loans that were approved between 3/27/20 and 9/27/20 and previously received six months of Section 1112 P&I payments are not eligible for additional payments. |
| Maximum Loan Size | $5 million | $5 million |
| Maximum SBA loan guarantee |
85% for loans up to $150,000 75% for loans greater than $150,000 |
Loan guarantees increased to 90% |
| SBA 7(a) Loan Interest Rates |
Lenders and borrowers negotiate the interest rate but it may not exceed the SBA maximums. Loans < $25K with maturity less than 7 years: WSJ Prime rate + 4.25 Loans < $25K with maturity greater than 7 years: WSJ Prime + 4.75% Loans $25,001 to $50,000 with maturity less than 7 years: WSJ Prime + 3.25% Loans $25,001 to $50,000, with maturity greater than 7 years: WSJ Prime + 3.75% Loans > $50k with maturity less than 7 years: WSJ Prime + 2.25% Loans > $50k with maturity more than 7 years: WSJ Prime + 2.75% |
No Changes. |
| SBA Guaranty Fees | 2 - 3.75% of the guaranteed portion of the loan | Guaranty Fees for both lenders and borrowers have been waived. |
| SBAExpress Loan Size | The maximum loan size is $350,000 |
The maximum loan size has been increased to $1 million until Sept. 30, 2021. Beginning Oct. 1, 2021, the maximum size is permanently increased to $500,000. |
| SBAExpress SBA Guaranty | 50% of the loan principal balance |
For loans of $350,000 and less, the guarantee is increased to 75%. For loans above $350,000, the guarantee remains at 50%. |
| SBAExpress Interest Rates |
Lenders and borrowers negotiate the interest rate but it may not exceed the SBA maximums. Loans < $50,000: WSJ Prime + 6.5% Loans > $50,000; WSJ Prime + 4.5% |
No changes. |
Here are the maximum terms:
The SBA 504 loan finances the acquisition of fixed assets, like real estate or equipment. A key component that makes the SBA 504 different from other SBA loans is that it comes with three parts: the lender, the Certified Development Company (CDC) and a borrower. It was designed businesses to buy new real estate and/or heavy equipment without having to significantly hurt cash flow.
A SBA 504 Loan is usually structured:
A 504 loan can come with a fixed rate of up to 10 to 20 years and a maximum loan amount of up to $5 million.
The borrower cannot use this money for overhead, payroll, debt servicing, inventory or any other general operating expenses. It can only be used on major, fixed assets such as real estate or heavy equipment. Per an SBA guidance, examples of acceptable 504 loan expenses include:
The CDC SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. The interest rates for the CDC portion of the SBA loan provides a long-term fixed rate based on debenture funding. The underwriting and credit approval for the SBA 504 loan from the CDC is separate from the underwriting and credit approval from the bank.
The effective rates below include fees to CDC, SBA and central serving agent based on debenture pricing published by NADCO:
| Type of Loan | May 2021 |
| 25 Year SBA 504 | 2.933% |
| 20 Year SBA 504 | 2.845% |
| 10 Year SBA 504 | 2.612% |
| 25 Year SBA 504 Refinance | 2.974% |
| 20 Year SBA 504 Refinance | 2.887% |
For a interest rate history of SBA 504 effective rates.
An SBA loan is worth investigating and may end up being the right solution for you. But they’re not easy to get, and they can come with some drawbacks: the process can be slow and, in some cases, the collateral requirements can be high.
In 2017, Security Bank & Trust Co., formerly Flagship Bank, became a financing partner with Brenda Nolby on the new construction and SBA 504 loan financing of a 43,000 SF facility to consolidate locations.
In late 2017, the new world-class facility was completed. The facility includes 25,000 square feet of main gymnasium that contains three spring floors, multiple training pits, and four trampolines, a 200 stall parking lot, and a pro shop. Since moving into their new facility, Jam Hops has experienced growth of over 30% and now has over 1,300 youth enrolled in classes every week.
Security Bank is proud to be a financing partner and continues to congratulate Jam Hops on their success and accomplishments in servicing and improving the lives of its community.
An SBA loan isn’t a silver bullet. To find the loan that fits your business’ situation, give yourself as many options as possible.
If you haven’t already, consider the limitations of the lenders you’ve approached. They may not understand your business and its needs well enough, or they may not have the flexibility to tailor their products to your situation. You may not really have exhausted your traditional loan options yet.
If you’ve been unable to get the loan you need, establish a relationship with a bank that can help you take a fresh look at your situation. A lender with experience handling SBA loans can help you evaluate this option. Consider working with a local, Minnesota lender focused on personalized service and building customer relationships.
You may find, as you talk with your lender, that an SBA loan would be a good fit. You may find, though, that working closely with a consultative lender leads to other options. A traditional loan can often be a better choice. A lender who knows you and the Minnesota small business environment well may be able to create the right solution.
The way to truly expand your options is to build a relationship with a bank that can customize a loan to fit your unique needs.
In the end, what you may need most is a partner who can offer knowledge and personalized options.
Security Bank & Trust Co. is an experienced SBA Lender. As we get to know you, your business, and your current needs, we can help you evaluate the fit of an SBA loan. Because investing in clients is what we do, we’re committed to finding the solution that’s right for you.
We’re also experts on Minnesota small businesses. We can combine that knowledge with our growing knowledge of your company to create a traditional loan solution to meet your unique need. We’re always investing in you.
At Security, we’re only satisfied if you succeed. We’d love to learn about your business and help you tackle your current challenges.