Guide: Fund Your Business | Option Five

SBA and Bank Loans

Many banks work with the SBA to provide small business loans. The SBA does not loan money directly to businesses, but instead works with local banks to provide a loan guarantee. This decreases the level of risk for your bank, which then makes it easier for your bank to provide your loan. There are several types of SBA loan guarantee programs that may work for you and your banker: 

The 7(a) loan program is the Small Business Administration’s (SBA) primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan.

Standard 7(a) | Find A Lender

Max Loan Amount: $5 Million
Max % Guaranteed by SBA: 85% for loans up to $150,000 and 75% for loans greater than $150,000
Interest Rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
Eligibility: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review
Forms: SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)
Collateral: Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.

7(a) Small Loan | Find A Lender

Max Loan Amount: $350,000
Max % Guaranteed by SBA: 85% for loans up to $150,000 and 75% for loans greater than $150,000
Interest Rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
Eligibility: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review
Forms: SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)
Collateral: Lenders are not required to take collateral for loans up to $25,000. For loans over $25,000, up to and including $350,000, the lender must follow the collateral policies and procedures that it has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans, but at a minimum the lender must take a first lien on assets financed with loan proceeds and lender must take a lien on all of the applicant’s fixed assets including real estate. Lender is not required to take a lien against an applicant's real estate when the equity is less than 25% of the fair market value. The lender may limit the lien taken against real estate to the loan amount.

SBA Express | Find A Lender

The SBA Express program features an accelerated turnaround time for SBA review. The SBA will respond to your application within 36 hours.

Max Loan Amount: $350,000
Max % Guaranteed by SBA: 50%
Interest Rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
Eligibility: Made by the lender
Forms: Lender primarily uses own forms and procedures, plus SBA Form 1919
Collateral: Lenders are not required to take collateral for loans up to $25,000. May use their existing collateral policy for loans over $25,000 up to $350,000.

Export Express | Find A Lender

The Export Express program provides exporters and lenders a streamlined method to obtain SBA-backed financing for loans and lines of credit up to $500,000. Lenders use their own credit decision process and loan documentation. The SBA will respond to your application within 24 hours.

Max Loan Amount: $500,000
Max % Guaranteed by SBA: 90% for loans of $350,000 or less, 75% for loans more than $350,000
Interest Rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
Eligibility: Made by the lender
Forms: Lender primarily uses own forms and procedures, plus SBA Form 1919
Collateral: Lenders follow collateral policies and procedures that the lender has established for its non-SBA-guaranteed loans.

Export Working Capital | Find A Lender

Export Working Capital loans are for businesses that can generate export sales and need additional working capital to support these sales. Lenders review and approve applications and submit the request to the U.S. Export Assistance Center location servicing the exporter's region.

Max Loan Amount: $5 Million
Max % Guaranteed by SBA: 90%
Interest Rate: Lenders and borrowers negotiate the interest rate and there is no SBA maximum interest rate limit.
Eligibility: By the SBA. Qualified lenders may be granted authorization to make eligibility decisions.
Forms: SBA-EIB 84-1, plus attachments
Collateral: Lenders follow collateral policies and procedures that the lender has established for its non-SBA-guaranteed loans

International Trade | Find A Lender

International Trade loans provide long-term financing to businesses that are expanding because of growing export sales, or that have been adversely affected by imports and need to modernize to meet foreign competition. 

Businesses can use International Trade loans for fixed assets for construction, building, real estate equipment, and for working capital for export transactions.

Max Loan Amount: $5 Million
Max % Guaranteed by SBA: 90%
Interest Rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
Eligibility: Made by SBA
Forms: SBA-EIB 84-1, plus attachments

Veterans Advantage

Veteran-owned businesses are one of the fastest-growing and significant segments of the U.S. economy. SBA loans made to veteran-owned small businesses come with reduced fees.

To be eligible to receive fee relief through the Veterans Advantage program, a small business must be at least 51 percent owned and controlled by someone in one of the following groups:

  • Honorably discharged veterans
  • Active Duty Military service member eligible for the military’s Transition Assistance Program (TAP)
  • Service-disabled veterans
  • Reservists and/or active National Guard members
  • Current spouse of any veteran, active duty service member, Reservist, National Guard member, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability
 

Other Options

Line of Credit
Line of Credit is an arrangement with your bank to lend you credit up to an agreed amount.  It’s a type of loan that doesn’t give you one lump sum like a traditional loan, but works more like a credit card in that you borrow against your line of credit when you are in need of money to cover short term expenses.

Home Equity
Home Equity Loans are basically a second mortgage on your home provided by a lender, which allows you to borrow money against the equity (current market value) of your home. These can be a cost-effective alternative to other types of loans because the interest rates are usually lower.  However, you have to consider that you will be risking your family home to obtain the funds.

Grants
The government does not provide free grant money for small business startups or expansion. BE VERY CAREFUL of advertisements that promote “free money for your business.”  These ads are misleading, and often suggest you can receive a list of grant resources by paying a fee to the advertiser.  These lists typically contain a list of microloan programs that have funds you need to repay, or list grants available only for non-profit businesses.

Grants for Nonprofit Business 
Nonprofit or social entrepreneurs (people using innovative business applications to solve a social need - TOMS shoes is an example), might benefit from looking through the Iowa Community Foundation’s Grant Search and/or their Endowment Search.

Factoring
If your business has outstanding long-term accounts receivables, working with a factoring company might be an alternative to waiting for collection. Factoring companies buy accounts receivables at a discounted rate. This allows your company to receive cash quickly to help ease cash flow.

Connect with us!

Get insights, inspiration and events to help you start, grow and accelerate businesses in Iowa.

Subscribe

How can we help you?

Our team helps grow entrepreneurship in Iowa every day.