Interest rates can be changing, and procedures involved in SBA loans may be tricky. Interest rates are one area where many business owners looking to understand the difference between a bank and a non-bank SBA lender get confused with regards to their loan.
It is one of the most widely common ways of financing small businesses, yet with interest rates and a myriad of lenders, a bit hard to learn the ropes of. Let the next video walk you through the common SBA loan interest rates, their type, and how they work—to the factors to consider when seeking them.
Let’s talk about interest rates for SBA loans and the components involved. I also introduce herein this chapter, bank and nonbank lenders. We get into some really useful tips to put you in position where you can efficiently get through the loan process. If you are looking at a working capital loan or real estate financing, these will become very principal components for you to really make the right decisions with respect to the best possible loan terms.
Types of SBA Loans
SBA 7(a) Loan
This type of loan is the single most flexible working capital that an owner of a small business under SBA can source. Some included critical components in this facility are:
- Up to $5 million
- Generally, 10 years of a repayment term
- Prime rate plus a margin—usually between 0 to 2.75 percent
SBA 504 Loan
Loan amounts go up to $5 million
Tenor of around ten years
Also, prime rate plus a margin—usually between 0 to 2.75 percent
SBA 504 Loan
The SBA 504 loan is designed to purchase real estate or massive machinery. It provides:
- Repayment Term: As much as 25 years.
- Interest Rates: Generally fixed, prime rate plus a margin.
How Interest Rates Work for SBA Loans
Rate Rule
Interest rates for SBA loans are generally the prime rate plus a percentage. The prime rate is variable according to Federal Reserve policy and it’s the interest rate banks charge their best customers. Here is how this works:
- Prime Rate: The prime rate as of now is 7.5%. It has been growing since then from about 3.25% a year and a half ago due to the pressures of inflation.
- Margin: This is typically added to the prime rate for the SBA loan. Assuming a prime rate of 7.5%, and if the margin were 2%, then the interest rate would now be 9.5%.
Fixed vs Variable Rates
- Variable Rates: The policymakers grant most of the SBA 7(a) loans with variable interest rates. By variable, it means that the rate may increase when there is a change to the prime rate. While it may work in the borrower’s favor when the interest rates are at their lower values, it also carries the interest rate risk of rising when interest rates rise.
- Fixed Rates: Most SBA 504 loans are fixed-rate products, especially when purchasing real estate. This stability is of much help in an interest rate environment that is unstable.
Bank vs. Non-Bank SBA Lenders
Bank Lenders
- Process: Banks may take as long as 90 days or even more in processing SBA loans.
- Experience: Big banks are far less flexible and not really specialized in SBA loans, so you may get less of a personal touch with them.
Non-Bank Lenders
- Specialization: As independent SBA loan providers, they have more time to process applications at fast competitive rates.
- Speed: Quicker application time, so faster approval times, typically about 45-60 days.
- Flexibility: Non-bank lenders will be more open to industries that conventional banks would shy away from, and that includes restaurants.
How to Get an SBA Loan
Preparation
- Documentation: Ensure you have three years of your personal and business tax returns, financial statements, and a personal financial statement.
- Profitability: Be prepared to present your most current tax returns and prove that your business is sufficiently profitable to service all of its new debt.
Finding the Right Lender
- Shop Around for Comparisons: Compare banks and nonbank lenders in a bid to find a suitable match for your business and the best rates possible.
- Think Ahead: Variable rate is not so bad if today’s prime rates are pretty high and you believe the rate will go down in the near future. In real estate, it gives constant payment at a fixed rate and easy to manage.
Apply through Online Lending Platforms
National Business Capital:
Online lending platforms like National Business Capital help smooth the process. It opens your access to many other diverse lenders with a good mix of loan products. They have tools like — let’s say the SBA loan calculator alone gives one an idea of eligibility fast enough.
Know the difference between bank and non-bank lenders and the SBA loan interest rate—the two important elements you will need to make a decision on your business finance. Take advantage of business loans by securing the proper documents on your part and choosing a type of lender that will serve your purpose. Go for avenues like National Business Capital in pursuing seamless applications and possibly hasten your processes for funding. It becomes a manageable step to travel this road of SBA loans, benefiting business growth if approached with the right knowledge and preparation.
