SBA Express Loans, types of SBA express loans, rates and fees applicable, eligibility criteria, pros and cons
As the name suggests, Small Business Administration (SBA) Express loans are super-fast in SBA review turnaround time. Other SBA Loans, like SBA 7(a) Loans, have a turnaround time of 5-10 business days. But in the case of SBA Express loans, the SBA will respond to your application as fast as within 36 hours.
If you’re starting a small business, an SBA Express loan could get you the startup capital you need with a fast turnaround time. SBA Express loans have tight lending standards, but their flexible terms and low-interest rates can make them one of the best ways to fund a business.
What is SBA Express Loan?
SBA Express loans are small business loans that fall within the SBA’s 7(a) loan program. It is the speedier version of the SBA’s standard 7(a) loan. SBA Express loans can be used for a range of business purposes, including working capital or the purchase of equipment, real estate or an existing business.
There are two options available for business owners to choose from under SBA Express loans. They are Standard Express loans or Export Express loans. Export Express loans are reserved for small export businesses.
Loan amounts extend up to $500,000 for both standard Express loans and Export Express loans. The Small Business Administration (SBA) guarantees up to 50% of these loans, which are funded by third-party lenders.
What are the types of SBA Express Loans?
There are two types of SBA express loans that are part of the SBA 7(a) program. Both the express loan options share some common characteristics, but export express loans are specifically meant for small export businesses.
The two types of SBA Express Loans and their features are compared below.
What is the rate of interest applicable to SBA Express Loans?
In all SBA loans, lenders and borrowers can negotiate the interest rate, but it must not exceed the cap put by the SBA.
The SBA Express loan interest rates are directly linked to the benchmark prime rate.
What is the prime rate?
The prime rate, as reported by The Wall Street Journal’s bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the federal funds rate, which is set by the Federal Reserve. The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages.
As of August 1, 2022, the prime rate is 5.50%. The maximum interest rate on SBA Express loans of $50,000 or less is the prime rate plus 6.5%. On loans over $50,000, the maximum rate is the prime rate plus 4.5%.
So, the maximum interest that can be charged by lenders on SBA Express loans is restricted to the following.
|Loan amount||Prime Rate (Aug 2022) (%)||Maximum Lender Margin (%)||Maximum Interest Rate %|
|Less than $50,000||5.5%||6.5%||12%|
The final interest rates are negotiated between the borrower and the lender.
What are the eligibility criteria for SBA Express Loans?
To be eligible for SBA express loan assistance, businesses must:
- Operate for profit
- Be considered a small business, as defined by SBA. For an Export Express loan, the entity must be engaged in export-oriented businesses.
- Be engaged in, or propose to do business in, the United States or its possessions
- Have reasonable invested equity
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for a loan
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
If your business fulfils the following minimum requirements, then you should seriously consider applying for SBA funding:
- 2+ years of business history under your belt
- A 640+ personal credit score for the business owner
- $100,000+ in annual revenue for your business
You can find more details about eligibility requirements for SBA loans here on the official government website.
What are the fees applicable to SBA Express Loans?
The SBA assesses a fee on the guaranteed portion of the loan. This fee is based on the loan amount and repayment term.
Although the guarantee fee is charged to the lender, it typically passes the fee on to borrowers. The fee you could be expected to pay is as follows:
- SBA Express Loans to qualified Veterans & Spouses up to $350,000: Zero
- Short-term loans (12 months or less): 0.25% of the guaranteed portion
- $150,000 or less: 2% of the guaranteed portion (lender can retain 25% of the fee) of the loan plus an annual service fee of 0.49% of the guaranteed portion of the outstanding balance.
- $150,001 to $700,000: 3% of the guaranteed portion of the loan plus an annual service fee of 0.49% of the guaranteed portion of the outstanding balance.
- $700,001 to $1 million: 3.5% of the guaranteed portion of the loan plus an annual service fee of 0.49% of the guaranteed portion of the outstanding balance.
- More than $1 million: Upfront guaranty fee of 3.75% of the guaranteed portion up to $1 million and 3.75% of the guaranteed portion over $1 million; annual service fee of 0.55% of the guaranteed portion of the outstanding balance.
What are the prepayment penalties applicable to SBA Express Loans?
These SBA loans for general business expenses come with prepayment penalties if the loan’s repayment term exceeds 15 years. For loans with a maturity of 15 years or longer, prepayment penalties apply when:
- The borrower voluntarily prepays 25% or more of the outstanding balance of the loan.
- The prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.
The prepayment penalty is as follows when you prepay the loan:
- During the first year after disbursement, 5% of the amount of the prepayment.
- During the second year after disbursement, 3% of the amount of the prepayment.
- During the third year after disbursement, 1% of the amount of the prepayment.
SBA Express loans: Pros and Cons
There are pros and cons of SBA Express loans that you should consider when weighing your options. SBA loans are just one of the options that small business owners have when seeking funding. You may be able to fund your business yourself, borrow money from friends or family or get a traditional bank loan or a business line of credit.
- Quicker turnaround time than standard SBA 7(a) loans
- No collateral is required if borrowing up to $25,000
- More flexibility and authority for lenders on loan approval
- Can negotiate interest rates, which are capped by SBA
- It may have higher interest rates and loan fees than some other available loan options
- Not available to borrowers with poor or fair credit
- Usually requires a personal guarantee from the business owner
- The application requires extensive paperwork
- Wait time may be longer than other non-SBA lending options
What is the application process for SBA Express loans?
Step 1: Make sure you are eligible
You need to assess whether you qualify for the loan or not before you discuss it with a lender.
- Plan your business– You need to have a strong business plan before you go for any SBA loans. You need to ensure the areas to be covered in your business plan are well managed. The SBA offers tips on how to make a business plan.
- Calculate your total capital requirements– Before your business opens its doors, you’ll have bills to pay. Understanding your expenses will help you launch successfully. You must have a clear idea of how much funding is required and a clear plan on how to utilize the same.
- Have a healthy credit score– Maintaining a healthy credit score is essential to qualify for SBA loans. While the SBA doesn’t have a set minimum credit score, most lenders require a minimum credit score of 680 to get an SBA 7(a) or Express loan.
- Project your financials– A perfect projection of your revenue and net cash flows is something highly essential that every lender wants to see. A financial projection will help to plan your repayments, estimate profitability and make future development plans.
- Ensure assets that can be kept as collateral: There is no collateral requirement for SBA loans up to $25,000. However, if your loan requirement is above $25,000, you may need to place the assets as a guarantee for the loan. This can be your personal properties, business properties, accounts receivables, inventories, business equipment etc.
Step 2: Keep the financial documents ready
In addition to the documentation to support the criteria listed above, your lender may ask for:
- Your personal identification details via SBA Form 912
- Certificate or license for the business
- Proof of business ownership
- Business financials via SBA Form 413
- Profit and loss statements
- 2 years of business tax returns
- 2 years of personal tax returns
- History of any past loan applications and decisions
Step 3: Lender Match and Application
As the key step towards applying for an SBA loan, you should start with a Lender Match. SBA website provides a convenient Lender Match tool to match potential borrowers with lenders within two days. The lender Match page will help you with the following:
- Describe your needs: Answer a few questions about your business in as little as five minutes. These are the basic details that help the lender to take a decision.
- Get matched in two days: Receive an email with the contact information of lenders who express interest in your loan.
- Talk to lenders: Compare rates, terms, fees, and more.
- Apply for the loan: Submit loan applications and paperwork using SBA Form 1919. You’re well on your way to securing a business loan!
Step 4: Wait for the approval
The SBA Express loan program is designed for fast approvals. Once the lender submits your SBA Express loan application and supporting documentation, the SBA will respond to your application within 36 hours.
The SBA doesn’t enforce strict guidelines on how quickly your lender needs to return a decision on a loan application or disburse funds. So depending on your lender, you may need to factor a longer waiting period into your timeline.
How can funds from an SBA Express Loan be used?
The SBA enforces limitations on how a business owner can use the funds provided. The funds must be used in accordance with the guidelines for SBA 7(a) loan usage. That said, SBA loans are well known to cover a wide variety of central business activities, making them an invaluable resource for any small business.
What are the acceptable uses for SBA Express loan proceeds?
- Providing long-term working capital
- Accounts payable, purchasing inventory, and other operational expenses
- Providing short-term working capital
- Seasonal financing, contract performance, construction financing, and/or export
- Purchasing real estate
- Purchasing equipment, furniture, machinery, supplies, and materials
- Covering construction and/or renovation costs
- Establishing or acquiring a new business, or expanding an existing business
- Refinancing existing business debt (so long as the lender and ultimately the SBA are not in a position to sustain a loss through refinancing)
What are the purposes for which SBA Express Loan proceeds cannot be used?
- Reimbursing an owner for any previous personal investments toward the business
- Repaying any delinquent withholding taxes
- Affecting any change or change of business ownership that will not have a positive effect on the business
- Any purpose not deemed a “sound business purpose,” as determined by the SBA