To help businesses in underserved markets get access to financing the SBA offers the Community Advantage Loan Program, which guarantees up to 85% of these loans, further reducing the risk to lenders. Limited to loans up to $250,000, these loans are available to businesses that meet the SBA criteria but which may not qualify for a standard 7(a) loan due to low earnings or lack of collateral.

Qualifying businesses include those with more than 50% of their work force residing in low to moderate income communities, Empowerment Zones and Enterprise Communities and HUBZones. In addition, some startups (in business less than 2 years) may qualify regardless of worker residence parameters, as well as veteran-owned businesses and those that would be eliglble for Patriot Express.

Limited to loans of $350,000 or less, the express loan program can greatly speed the process of applying for a 7(a) loan. Expedited processing guarantees a response to your loan application within 36 hours. In practice, what this means is that the SBA will notify your lender within 36 hours if you are approved for an SBA guaranteed loan. Your lender may still require a significant amount of time to complete their internal loan application process, approve the loan and advance funds. Interest rates on Express Loans may be higher, with rates up to Prime + 6.5% for loans under $50,000 and up to Prime + 4.5% for loans over $50,000.

As of the time of this writing, the guarantee fee for loans under $150,000 is being waived by the SBA.

7(a) loans come with a fee that is based on your loan’s maturity. The lender will initially pay the fee, but they do have the option to pass that fee on to the borrower. These fees can range from 0 percent for loans under $150,000 to 3.5 percent for loans over $700,000. There’s an additional 0.25 percent fee on any guaranteed portion over $1 million.

Interest rates range from 5.75% to 8.25%, depending upon such factors as your credit score and the term of the loan. Both fixed and variable rate loans may be available. In addition to interest, SBA guarantee fees, packaging fees and closing costs will apply. In many cases, the lender will include these fees in the loan, but be aware that this is additional debt you are incurring.

The maximum loan amount under this program is $5 million. While there is no set minimum most lenders will not consider loans of less than $30,000. The average loan amount is between $350,000 and $400,000.

SBA 7(a) loans for the purchase of real estate will usually have a 25 year term. Loans for other purposes will, in most cases, have a maximum term of 10 years.

Benefits

• Set payments at regular intervals
• Can be used for a wide variety of purposes
• Relatively low interest rate
• Long repayment schedule

Drawbacks

• Lengthy application process
• May carry early payment penalty
• Variable interest rates may increase