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SBA loan explain

Updated: Jun 13, 2020

Over the first three quarters of 2019, there were 38,521 loans approved under the SBA 7(a) program, with a total dollar amount of $17.1 billion. The average 7(a) loan size increased from $358,200 in 2015 to $443,900 this year.

SBA 7a Industry covers:

Assisted living Facilities

Motel, Hotels, and Bed and Breakfast


Nightclub and Bar

Retail stores

Business Services and Office-based Companies

Auto repair shops

Auto and RV dealership

Car wash facilities

Childcare and Preschool

Self-storage facilities

Gas station or convenience store

Importer and wholesaler

Advantages of SBA loans

SBA loans allow for projection-based underwriting, which means prospective franchise business owners can obtain capital for initial businesses or store expansion based on profitability estimates. Other benefits may include:

Generous term lengths, such as a 10-year term on non-real estate loans. 20 to 25 year on real estate purchase.

Financing for up to 80 to 90 percent of project costs.

Lower down payment requirements.

The SBA guarantee enables banks to extend more favorable loan terms and to lend to businesses that sometimes wouldn’t be able to borrow money conventionally. Businesses can use these funds for many different purposes, including:

Purchasing fixed assets (equipment, machinery and commercial real estate)

Refinancing existing debt

Buying another business

Bolstering working capital

SBA loans usually have lower down payment requirements than traditional bank loans.

Gathering enough money to make a 20-30% or higher equity contribution on a traditional loan is a big challenge for many small businesses. Many SBA loans (including the popular SBA 7(a) loan) require an equity contribution as low as 10%. This enables businesses to keep more cash in their coffers instead of tying it up in fixed assets.

SBA loans usually feature longer repayment terms than traditional bank loans.

The benefits here are similar to the benefits derived from lower equity contribution requirements. By stretching out payment terms over a longer period of time, businesses are able to conserve critical cash. If the loan has a term of 10 years or less, there is no prepayment penalty, so SBA loans can be repaid sooner if cash flow allows.

Both new and established businesses can apply for SBA loans.

SBA loans can be used to start a new business or expand an existing one. Businesses in practically any industry that meet the SBA’s size regulations are eligible to apply, including franchise businesses.

For more information, or 888-269-1033

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