Learning & Insights

SBA loans and starting a business

If you have plans to start or expand a business, the Small Business Administration (SBA) can help. The SBA participates in loan programs for business owners who may not qualify for a traditional loan to get them the funding they need.

The SBA 7(a) guaranteed loan

The most common SBA loan is a 7(a) guaranteed loan. Here are some details specific to the SBA 7(a) loan:

  • This loan is made by a private lender (often a bank), and the SBA provides a guarantee on 75% of the amount of the loan.
  • There are some maximum business size restrictions on these loans. For example, a retail or service company could have at least $7.5 million in sales (and perhaps up to $29 million) and still be eligible. A wholesaler can have up to 100 employees and still qualify.
  • The maximum amount that the SBA will guarantee is $3,750,000, and therefore the maximum loan amount is $5 million.
  • The interest rate on SBA 7(a) loans is tied to the prime rate. For loans of $50,000 and more, the rate is up to 2.25% above prime for loan terms fewer than 7 years, and up to 2.75% above prime if your term is 7 years or more.

Allowable use of SBA loans

While there are some restrictions on the use of SBA loan proceeds, generally they can be used in the normal course of business. Here are some of the allowable uses of loan proceeds:

  • Real estate purchase for housing the business
  • Construction, renovation or leasehold improvements
  • Acquisition of furniture, fixtures and equipment
  • Business purchases
  • Working capital

The SBA process timeline

While an SBA loan can be a good source of capital for your business, be aware that these loans come with several requirements. You can ease—and in some cases, shorten—the process by taking these steps: 

  • Complete and provide proper documentation and applications
  • Work with a bank or other lender that is familiar with the SBA process
  • Be prepared to provide collateral or personal guarantees

The bottom line

SBA loans can be a useful source of needed capital for many small businesses. Interest rates are generally a couple of percentage points above prime and repayment terms can be negotiated.

If you're considering an SBA loan, be prepared to spend some time and effort securing one. Being well organized, having patience and working with an experienced SBA lender can make the process less burdensome.

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The information provided is not intended to be legal, tax, or financial advice. BB&T cannot guarantee that it is accurate, up to date, or appropriate for your situation. You should consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

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