What to know about SBA loans

by Citizens Staff

Small Business Administration (SBA) loans can be a valuable tool for small businesses in need of financing. Below is an overview of SBA loans, related terms, and terminology to help you better navigate the SBA loan process.

What is an SBA Loan?

SBA loans are available for small business owners who meet certain criteria outlined by the SBA; they are the most common loans for businesses with special requirements. They provide an SBA lender with the SBA loan guarantee to mitigate risk, so the lender can offer borrowers loans with more flexible terms, lower down payment requirements, and an easier qualification process than conventional loans. To be eligible for an SBA loan, businesses must meet certain requirements, including:

• Operating as a for-profit business
• Showing a need for a loan
• Being classified as a small business as defined by the SBA (size and standard)
• Having enough invested equity
• Willing to pledge personal assets which could be used as collateral in support of the SBA loan
• Not being delinquent on current debt to the U.S. government

What is an SBA Preferred Lender?

As an SBA Preferred Lender, Citizens and our SBA Loan Specialists are able to streamline and provide clarity to the SBA loan application process. This means our credit team can quickly make decisions and provide capital to our clients. Once awarded with Preferred Lender status, lenders like Citizens Bank have the ability to get your loan approved on behalf of the SBA in a quicker time frame.

Common SBA Lender loan terms and acronyms

Below are some of the common SBA terms and acronyms associated with SBA loans that you may need to be aware of before you apply:

• SBA: The U.S. Small Business Administration was created on July 30, 1953, and works with organizations and private lenders such as Citizens to guarantee loans, assist with contracts, provide counseling sessions, and offer other support to small businesses.
• Loan proposal or funding request: When you apply, you will need to clearly outline how much money you are requesting, how your business will use the money, how you will repay your loan, and what type and amount of collateral you will offer to support your loan.
• SBA guaranteed loan program: While the SBA itself does not offer loans; it does guarantee loans made to small businesses by private institutions. The SBA sets the guidelines for loans, which are then made by its partners (lenders, community development organizations, and micro-lending institutions). The SBA guarantees that these loans will be repaid, thus eliminating some of the risk to its lending partners.
• SBA Small Loans (up to $500K): The SBA’s most popular loan program designed to help existing small businesses with financing for a variety of business purposes.
• SBA Express Loan (up to $500K, includes revolving Line of Credit): The SBA’s most flexible loan program. Available as a line of credit or term loan.
• SBA Standard Loans (from $501K up to $5,000,000): Can be utilized for multiple purposes such as working capital, equipment/bulk inventory purchases, debt refinance, real estate purchase/improvements, and business acquisitions.
• SBA 504 Loan: This type of SBA loan program provides long-term, fixed rate, fixed asset financing for owner-occupied real estate purchase/expansion, and the acquisition of machinery and equipment and some limited debt refinance, with your lender working with a local Certified Development Company, also known as a CDC.
• Small business: The SBA determines whether or not a business is classified as “small” by examining its industry, employment, or business receipts for a comprehensive look at size. If your business classifies as “small,” you most likely are eligible for SBA loan programs.
• Bank Prime Rate: The base rate which contributes to the interest rate at which banks will lend money to customers.
• Revolving line of credit: Flexible method to borrow funds for your small business. This allows you to borrow up to a certain amount, make payments on the line, then borrow again during the draw period. Also, the borrower is only required to make interest-only payments during that draw period.
• Term loan: A more structured method to borrow funds for a small business. This carries a fixed-interest rate with amortized monthly or quarterly payments and defined loan terms.
• Underwriting process: Handled by your chosen SBA lender, this ensures a business owner(s) can meet a business loan’s expectations. May address the borrower’s character, personal and company finances, business plan, résumés, etc.

More information

We are committed to helping your business succeed. Our dedicated business banking professionals can help you find the right product to meet your business' needs. To learn more about applying for an SBA loan, visit us online.