What Is An Sba Loan Used For

How Do Banks Approach Sba Loans

This is often one of the first questions prospective borrowers ask. Because SBA loans involve a government agency in addition to a bank or lending institution, the SBA loan application process appears more involved than obtaining a standard loan.

Many banks offer SBA loans. However, their SBA loan offering is usually an insignificant part of a larger catalog of financial products and services. At American Bank of Missouri, we take a highly specialized approach to SBA lending.

We devote more focus to SBA loans, so our expertise and resources can expedite the SBA loan process. We lead in regional SBA lending, successfully approving $25 million in lending through the SBA 7 program in both 2018 and 2019. We were the leader in SBA lending in Eastern Missouri in 2018, and we led both Eastern Missouri and the entire state of Missouri in 2019.

Because we have an entire division dedicated to SBA lending, we can eliminate confusion and streamline the SBA loan application process.

Is It Illegal To Find An Alternative Use For The Money

When you borrow money, you might end up with more cash than you needwhether it’s intentional or an accident. It’s especially common with student loans. If that happens, are you allowed to spend the money on anything you want? The answer depends on the terms of your loan. Some loan agreements may restrict your use of the money, while others may not.

We Can’t Save Our Businesses And Our Lifestyles At The Same Time

Heres the big trap. We have mortgages, car payments, school tuitions, and other personal expenses that have to be paid, and soon. But simply put, SBA loans are meant to save your business, not your lifestyle. Discuss all your options with advisors and friends you trust ones that will tell you the truth! Its like going to the doctor. Your diagnosis will only be as accurate as the history you provide. These are trying times, with a triage system designed to be more expeditious than thorough.

Practice point: There is no such thing as a free lunch. Borrowing money comes with responsibility and accountability.

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Benefits Of An Sba Loan

You can reap multiple benefits from an SBA-backed loan, including lower interest rates and longer loan terms. However, your situation will be unique to your business. Weighing the benefits between an SBA loan and a conventional loan may come down to something outside of a conventional benefits list.

Economic Injury Disaster Loan Refresh

The main change brought about by the CAA, aside from $20 billion in additional funding for the Economic Injury Disaster Loan program, was an extension of time to file for a loan from Dec. 31, 2020, to Dec. 31, 2021.

On March 24, 2021, the SBA raised the EIDL limit from $150,000 covering six months of economic injury to $500,000 for 24 months of economic injury, effective April 6, 2021. Further, some businesses that previously received a loan under the lower limits may be deemed eligible to increase their loan amount. The SBA said it would notify those businesses of their eligibility.

The SBA anticipates opening up applications for Shuttered Venue Operator Grants beginning April 8, 2021.

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How Does The Sba Collect Debt

There are two ways for the SBA to collect the owned money. Either through the Treasury Offset Program or by cross-servicing.

The Treasury Offset Program recovers the debt through the business or guarantorâs income tax refund. Rather than receive the expected tax refund, the funds automatically get applied to the SBA loan default debt.

Cross-servicing refers to when the SBA sends the delinquent loans to the U.S. Department of the Treasuryâs Bureau of the Fiscal Service. They will collect the debt by:

• Sending debt collection letters
• Hiring a private debt collector
• Garnishing wages
• Alerting the major credit reporting bureaus
• Opening a case with the Department of Justice

Itâs better to offer as much as you can during the start of SBA loan settlement negotiations to avoid these unpleasant options.

How To Apply For An Sba Loan

Now that youre aware of the different kinds of SBA loans, its time to figure out how to increase the chances of approval if you apply, and how to get started with an application if you choose to move forward.

SBA resource partners offer training courses on how to develop a comprehensive plan, Manger says. Business plans need to demonstrate how a small business will use the financing to support the business. It is also imperative that the small business owner can clearly demonstrate their ability to repay the loan. Projections of future cash flow are a necessary component of any business plan.

If you decide to apply for an SBA loan, the best place to start is right where you are: the internet.Go to the SBA websiteand fill out the loan application form. To complete your application, youll need to provide documents and information verifying your identity, legality of your business, personal and business history, and creditworthiness.

This information includes:

For more information about whats required,start here. You can also visit your local district SBA office in person to ask about approved lenders who deal with SBA loans.This page is a good starting place for locating a local SBA resources.

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Types Of Business Collateral

Almost any secured loan will require collateral. Collateral can come in many forms, and there are a few different kinds of collateral borrowers can offer to banks, online lenders, and agency-approved lending outlets. Here are a few examples:

• Personal assets
• Corporate and treasury bonds
• Cash reserves

As the saying goes, cash is king, but using cash as collateral isnt always an option for small business owners. Instead, tangible items like real estate and equipment are used as collateral. Or, financial assets from accounts receivable financing, stocks, and bonds can be utilized as collateral as well.

Is An Sba Loan My Best Option

SBA loans carry the best term lengths and interest rates youll come across so why would anybody want to apply for anything else?

The SBA might not be your best option if you need a loan quickly, or you cannot qualify for a loan. Fortunately, if you fall into either of those camps, you have other options. Some independent lenders, usually called alternative lenders, or online lenders, offer loans to businesses that dont qualify for a loan from the SBA or banks. Many of these lenders have lower credit score requirements and shorter applications than SBA loans.

Head over to our Small Business Loan Comparison Chart to learn about some of our favorite online lenders.

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What Are The Differences Between An Sba 504 And 7a Loans

An SBA 504 loan is commercial real estate financing for owner-occupied properties. These loans require only a 10 percent down payment by the small business owner and funding amounts range from $125,000 to $20 million.

On the other hand, SBA 7a loans can be used to buy a business or obtain working capital. The maximum loan for an SBA 7a loan amount is $5 million.

A 504 loans interest rate is fixed, and no outside collateral is required. Also, fees are lower compared to a 7a loan.

Currently, 504 loans are amortized over 20 years, and as of April 2018 they began accepting applications for 25-year term SBA 504 loans.

The interest rate on a 7a loan, however, can be adjustable and tied to the prime interest rate. Collateral is required, at 90 percent. These loans are amortized over 25 years.

Heres some history and more specifics on each program: The SBA 504 loan program was designed for small businesses to finance commercial real estate or large equipment for use in business operations.

The 7a loan program was originally designed for higher-risk loans for things like the acquisition or starting of a business, working capital, or furniture and fixtures and leasehold improvements.

Economic Injury Disaster Loan Advance

Small business owners in all 50 states, Washington, D.C., and U.S. territories were able to apply for an Economic Injury Disaster Loan Advance of up to $10,000 as part of the application process for an EIDL loan. The loan advance did not have to be repaid, and you didnt actually have to be approved for an EIDL loan to receive the advance however, the amount of the loan advance was deducted from total loan eligibility.

The EIDL Advance program ended July 11, 2020, due to lack of funds. A new EIDL Targeted Advance program was created with passage of the Consolidated Appropriations Act , 2021.

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Changes To The Ppp Made By The Consolidated Appropriations Act 2021

The Consolidated Appropriations Act, 2021 provides $284 billion in new PPP loan funding through March 31, 2021, including special set-asides for companies in depressed areas and those with 10 or fewer employees.

The legislation provides first-time forgivable PPP loans of up to $10 million for qualifying companies with 500 employees or fewer and second-draw loans of up to $2 million for previous borrowers with 300 or fewer employees.

If you return all or part of your PPP loan, then you may reapply for the maximum amount applicableprovided you have not already received forgiveness. Further, if you would be eligible for a higher loan amount due to interim final rule changes, then you can work with your lender to modify the amount of your loaneven after forgiveness.

The list of forgivable expenses has been expanded and now includes:

• Personal protective equipment
• Complying with federal or state health and safety guidelines
• Software, cloud computing, and other human resources and accounting needs and
• Property damage due to public disturbances that took place in 2020 and were not covered by insurance.

Also new, expenses that you pay with PPP loan proceeds are now tax-deductible even if the loan is forgiven. This applies to both first- and second-draw loans.

You can now select a covered period between eight and 24 weeks from when you receive your loan, instead of needing to pick either eight or 24 weeks. Your covered period can extend through March 31, 2021.

How Much Sba Loan Can You Get

Each loan program carries a maximum loan amount for example microloans have a maximum loan amount of $150,000 and 7 loans offer a maximum loan amount of $5 million. But that doesnt mean the borrower will qualify for the full amount. The average microloan amount, for example, is about $14,000.

The lender will calculate the borrowers loan amount based on SBA criteria which include use of funds and ability to repay the loan.

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Sba Loans For Veterans

The Patriot Express program and 7 Veterans Advantage, loan programs specifically for veterans and other members of the military have expired, but the SBA continues to support veteran-owned businesses. Veterans can apply for SBA loans, of course, and receive free support and training through Veteran Business Outreach Centers. If an SBA loan isnt the right fit, it is worth exploring other loan programs for veterans.

As part of the CARES Act, Congress permanently waived guaranty fees for certain SBA loans. For all SBA Express loans to veteran-owned small businesses approved on or after March 27, 2020, the upfront guaranty fee will permanently be zero.

Sba Export Working Capital Loans

These are short-term, working-capital loans for exporters, typically in the form of a revolving line of credit. Proceeds from export loans may be used for a variety of purposes, including to purchase inventory for export or to manufacture items for export, working capital directly related to export activities, and even refinancing.

Terms

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Trust Your Business To A Preferred Sba Lender

With the passage of the Economic Aid Act, new borrowers may be eligible to receive an SBA Guaranty Fee waiver and up to three months of principal and interest SBA Debt Relief Payments on a loan approved by the SBA between February 1 and September 30, 2021, subject to the availability of funds.1

Our experienced SBA bankers are committed to your business.

Sba Business Expansion Loans

The disaster-related loans referenced above are made with funds appropriated or guaranteed by Congress. SBA business expansion loans are commercial loans, structured according to SBA requirements, with an SBA guarantee. Small business owners and borrowers who have access to other financing with reasonable terms are not eligible for this type of SBA-guaranteed loan. Guaranteed loan programs from the SBA include the following:

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Sba Deferral On Existing Home And Business Loans

If you currently have an SBA Serviced Disaster Loan that was in regular servicing on March 1, 2020, then the SBA is providing automatic deferral on your loan through March 31, 2021. Note the following:

• Interest will continue to accrue on your loan during the deferral period.
• 1201 monthly notices will still be mailed but will show no payment due.
• Pre-Authorized Debit payments will not automatically be canceled. You must contact your servicer to do that.
• You may continue making payments if you wish. No contact is necessary.
• After the deferral period, you must resume payments and set up PAD if you canceled it earlier.

Who Is Eligible For An Sba Loan

To qualify for an SBA loan, there are basic requirements you generally must meet:

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Gather The Required Documents And Apply

The SBA application requires a number of forms and documents. The exact requirements may vary by lender and loan type.

If you are seeking an SBA loan to purchase an existing business, youll also need to submit financial information for that business, as well as the terms of the sale.

Once your application is complete, your lender would send it off to the SBA. You may need approval from both your lender and the SBA before the bank can complete the underwriting process.

The overall process could take about two months, though you may receive funds sooner or later than that, depending on your circumstances.

Documents needed to apply:

What You Need To Know About Sba Express Financing

SBA Express loans fall under the federal governments SBA Loan Guarantee Program. Though similar to the SBA 7 loan, which offers up to $5 million and has a guarantee of up to 85% of the loan amount, the express loan sets itself apart by being approved or denied within 36 hours. If approved, funds become available to the business owner within 90 days. This is a far cry from the notoriously grueling process surrounding the SBA 7 loan, which requires lengthy application paperwork and even longer lead times for approvals or denials. Still, an unprepared borrower will always have a harder time in trying to get approvedno matter what loan program they apply for. That’s why we break down the entire process in detail, to help get prospective borrowers up to speed and ready to receive the funding they’re after. We want our clients to apply for their SBA Express loans with the highest confidence, backed by the knowledge of our lending specialists.

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Sba Loans That Dont Qualify For Loan Forgiveness

PPP loans and EIDL loans are just two of the many types of SBA loans out there. And unfortunately, the other kinds of SBA loans dont qualify for loan forgiveness. That includes SBA financing options like these:

• SBA 7 loans
• SBA microloans
• SBA disaster loans

If youve got one of these SBA loan types, you have to repay your loan.

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Sbas Preferred Lenders Program

If you meet the SBAs loan eligibility requirements, working with an SBA preferred lender can speed up the SBA loan approval process. First, what is an SBA loan preferred lender?

When a bank is in the SBAs Preferred Lenders Program , it has attained preferred-lender status. This means the lender has met stringent SBA requirements and the SBA has delegated its approval authority to the lender. Nonpreferred lenders must send SBA loan application packages to processing centers to gain approval, which slows the process considerably.

If you work with a preferred lender, youll still need to meet SBA loan eligibility requirements and go through the SBA loan approval process with the bank but your business will benefit from the accelerated approval process.

American Bank of Missouri has preferred-lender status, which gives you an advantage if you decide to partner with our lending experts during the SBA loan process. We typically send commitment letters out while other banks are still considering terms.

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