At SouthStar Bank, it is our priority and honor to educate our clients to the fullest extent on your loan application, options and how the SBA program can benefit your business. We have compiled information and resources below to get you started.
How much down payment is required for an SBA loan?
SouthStar Bank requires a minimum of 10% down payment on all SBA loans.
Experienced principals who are able to show outside source of personal income for the household are preferred. Any owner of a small business with at least a 20% stake is required to provide an unlimited personal guaranty.
What is the difference between an SBA 7(a) loan and an SBA 504 loan?
While there are actually six types of SBA loans, the most popular are SBA 7(a), Express and 504. CAPLines, Export loans, Microloans, and Disaster loans also exist. Their guidelines will vary and much of your decision will depend on the amount of financing required and type of business. If you would like to learn about the additional small business loans, please don’t hesitate to contact us.
SBA 7(a) Loans
This program provides financial assistance to small businesses seeking to start operations or expand. Generally geared towards unsecured lending, SBA 7(a) loans are considered general purpose loans.
Business applicants typically look at SBA 7(a) loans because they relate to financing working capital needs. These loans may include real estate and can be used for almost any type of business purpose beyond working capital, including the following short-term assets:
- FFE (furniture, fixtures, and equipment)
- Debt consolidation
- Business acquisition
- Purchasing or constructing real estate
SBA Express Loans
SBA Express loans are similar to 7(a) loans, however, they are limited to $350,000 loan amounts.
SBA 504 Loans
SBA 504 Loans provide financing to owner-occupied commercial real estate and equipment, which are considered fixed assets for expansion and modernization. More specifically, this includes:
- Purchasing existing buildings
- Acquisition of land
- Ground-up construction
- Financing building improvements
- Equipment acquisition
As such, they offer long-term, fixed-rate financing at below-market rates. This type of loan requires a minimum 10% down. An SBA 504 Loan promotes business growth and job creation as it expands capital access. This specialized program brings two separate lenders together – in this case, SouthStar Bank and a Certified Development Company (CDC). CDCs are nonprofit corporations dedicated to promoting economic development within their communities.
Getting Started: Qualify for a Small Business Loan
In order to come to the table fully prepared, you will need to ask yourself the following questions:
- What are the needs of your business?
- What is required to align your business for success over the next 12 months?
- What are your short-term and long-term needs?
- Who is your target customer?
- Have you performed market research?
- Who are your trusted advisors?
- What is your exit strategy?
An often overlooked but crucial consideration is the location of the business. Details to keep in mind include:
- Entry and exit points
- Potential construction in the area
- Geographic suitability with your target customers
- Foot traffic
- Future development of the area
A thoroughly thought out and reviewed business plan is key. Collect and review tax returns and be prepared to speak knowledgeably about your experience, as well as current and projected cash flow numbers: annual revenue, costs, margins, etc.
With an understanding of your unique goals, the expert lending team at SouthStar Bank can offer guidance on business loans and the options available to you.
Who qualifies for an SBA loan?
A business applicant must be able to demonstrate ability to repay the loan. This includes good personal credit score, experience in the industry, historical financials, and a good sound business plan. If you are a start up, the business plan and well vetted projections are key. Below are additional items specific to SBA requirements.
To be eligible for a loan, an applicant must operate as a for-profit business. Further, the products and services must be offered to the general public. For instance, a neighborhood bakery would be a potentially qualified business, whereas a non-profit organization collecting gently used clothes for children in need would not.
Active vs. Passive
The business must be an operating company with active day-to-day management by the applicant and its principals. A business owner operating passively behind the scenes would not qualify. For example, a developer who finds land for buildings and maps out structures would be considered a passive investor. The job of a landlord would also be considered a passive position. In those examples, there are no products or services offered directly to the public.
Employees and Revenue
An applicant must keep in mind that their business should be small in size, both in the number of employees and the amount of revenue earned. While these may seem like simple details, qualifications are specific and can be found in the SBA Small Business Compliance Guide. Talk to your SouthStar Bank representative about the North American Industry Classification System (NAICS) code.
New or Existing?
Both start-up businesses and ongoing business operations are eligible for small business loans.
Startup businesses cost money to get off the ground. With any new business, the biggest initial decision is how to finance your endeavor. Typically, a 7(a) or 504 loan is suitable, but other options, such as microloans, are also available.
Ongoing operations include existing businesses. However, this can also refer to buying another business or franchise, a relocation, or support growth of a new product line or services.
Are SBA loans hard to get?
The simple answer is this: without assistance, it can be. There is a lot of information to collect, review and evaluate. Without prior familiarity with existing laws and guidelines, maneuvering the process could be challenging.
Fortunately, our team at SouthStar Bank is here to guide you through the process. We can assist you in collecting the proper documentation and act as a resource throughout.
SouthStar Bank is community-focused. We have experienced lenders ready to simplify the process for you. We are headquartered in Central Texas, and understand local dynamics. We value open communication with our clients.
There are many resources available for small business owners. If you haven’t already checked out the Small Business Administration website or the Texas State Small Business Development Center, we at encourage you to do so.
How does an SBA loan work?
The program provides borrowers an option to obtain alternative financing when conventional financing isn’t available. Additionally, an SBA loan is re-amortized annually to assist the borrower in reducing principal faster and offering easier repayment terms.
Surety Bond Guaranty
Essentially, the SBA lends indirectly through a third party, thus offering a bonding incentive for eligible contractors. This strengthens a contractor’s potential to obtain bonding and provides greater access to contracting opportunities for small businesses. Therefore, it is structured according to the use of the loan proceeds as well as the assets and collateral pledged.
Venture Capital Program
The SBA works through a Small Business Investment Company (SBIC). It is a financing alternative specific to small businesses that addresses the growth capital and requirements through the backing of the federal government. This SBA loan structure is able to more easily assist small businesses in need of debt or equity financing. The SBIC is limited by SBA regulations.
Business Financing Takeaways
Selecting the right lending partner is to put your trust in a financial institution, and we know this can be difficult. It’s important to us that you work with experienced lenders who can answer your questions thoroughly in a way that makes sense.
Our focus is on our Central Texas community. We take pride in our neighbors and seek to help folks succeed, and work to build relationships for years to come. And, because we’re local, you can rest assured that SouthStar Bank will always be available to discuss your financial goals. We are excited to put your small business on the road to growth, sustainability, and long-term success.
If you have further questions or concerns, or if you’re ready to begin the application process, contact us today!