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SBA loan interest rates and interest rates upon default.
You've probably heard about a small business administration loan or 7(a) loan, but you might feel uncertain about the details.
What separates it from other loans? How is it repaid, and what do the SBA loan rates look like?
If you're seeking out an SBA loan, you'll need to know all those details before you sign your name on any lines.
Where do you start researching? You've come to the right place. In this article, we'll tackle some of the big topics of SBA loans, giving you a nice foundation to make more informed decisions.
Read on the educate yourself about SBAs, SBA loan rates, and how you can go about obtaining your own.
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For starters, SBA loans are a great way to finance your business and really put your dreams in motion. They can get away with low-interest rates and flexible terms because they're guaranteed by the federal agency
They're a great way to launch a small business, but they also can be difficult to obtain. Intended for small businesses, they offer various loan amounts, from $50,000 with one type to $5 million with another.
We'll get to the differences between these types of loans in the next section.
SBA loans work a lot like a co-signer would. The loan guarantees to the providing bank that they'll cover you with a predetermined amount if you default.
When a new business owner, small business owner, or entrepreneur needs money to increase return, there's less risk involved with an SBA loan.
If you've been told you don't qualify for certain loans, the SBA loan will help open new doors for financing with low rates. There are a lot of people applying, though, so you have to be vigilant and bring all the right ingredients to the table.
Now, let's get into the various types of loans available.
It's not a one-size-fits-all kind of loan, as you'll see. Here are the four main types.
This one is the most recognized small business loan and the one you're likely to hear about the most. The 7(a) loan is guaranteed by the federal agency for up to $5 million.
It can be used to fund working capital, equipment, and expansion projects. It's processed through banks, specialty lenders, and credit unions.
This federally guaranteed loan also has a max of $5 million. The difference is this one can be used to buy facilities, required land, or machinery.
Instead of processing through banks, this loan is processed through nonprofit organizations and private-sector lenders.
These loans keep interest extremely low over a long-term period. The disaster loans are used to help repair the damages to private property. This is property owned by individuals, families, businesses, and other programs not covered by insurance.
The loan amount is up to $2 million. It must be used to immediately relieve and assist those affected by disasters or emergencies. They're processed through the Small Business Association.
Sometimes you don't need a massive loan to start a business. For example, it won't take you $2 million to get your cleaning service up and running.
If you need something smaller and still with low interest, then SBA microloans are for you.
These loans come in amounts up to $50,000. Similar to the 7(a) loan, the loan can be used to fund working capital, inventory, required equipment, and other costs of starting a business.
The microloans are processed through community-based nonprofits.
Now that you understand the different types of SBA loans, including the cost and the allowed use, let's talk about the SBA loan rates.
Because it's what these loans are known for, you can expect low-interest rates with SBA. When we talk about the loan rate, it includes all loan fees as well as the interest rate.
Here's how it works:
With SBA loan rates this low, getting a foot up on your business is easier, whether that's expanding, improving, or beginning from the ground up.
Besides the low SBA loan rates, these loans offer the benefit of spreading out over a long period of time.
If the money from your SBA loan is used on working capital or general daily operations, you can expect a loan term of seven years. If your money is spent on purchasing new equipment then you can expect to have a loan term of around 10 years.
Real estate purchases are huge and come in giant amounts. It's no wonder then that these loan terms tend to be a lot longer. You can have up to 25 years to pay back the loan spent purchasing real estate.
Now that you know the details, let's talk about the actual process of getting your loan.
Begin at the SBA website and educate yourself on using the government's extensive resources online.
You'll find loan application checklists that will help you gather required documentation like personal and loan history.
From there, your SBA district office can notify you of participating lenders in the area and advise you on your next steps. They can tell you how to proceed as well as how to avoid loan defaults.
The Debt Collection Act of 1982 requires the SBA, unless expressly prohibited or restricted by statute or contract, to assess interest on defaulted SBA loans.
Interest, sometimes referred to as additional interest, like all interest payments, is designed to repay the government for the loss of use of funds when the debt is not paid timely and accrues from the date of the delinquency. At a minimum, the interest rate will be set at the same rate as Treasury's Current Value of Funds Rate for the period in which the debt became delinquent. The rate is published annually, but is subject to quarterly revisions if the annual average changes more than 2%. You can, however, expect the SBA to assess the rate of interest on the loan at the time of default.
The rate of interest remains fixed for the duration of the delinquency. The agency may not compound the interest or assess interest on administrative costs and penalties.
Looking for more information on the Small Business Association and loan defaults?
Check out our blog for interesting and informative posts about SBA loan defaults and other beneficial advice.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client personally guaranteed SBA 7(a) loan balance of over $150,000. Business failed and eventually shut down. SBA then pursued client for the balance. We intervened and was able to present an SBA OIC that was accepted for $30,000.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
Client received the SBA's Official 60-Day Notice for a loan that was obtained by her small business in 2001. The SBA loan went into default in 2004 but after hearing nothing from the SBA lender or the SBA for 20 years, out of the blue, she received the SBA's collection due process notice which provided her with only one of four options: (1) repay the entire accelerated balance immediately; (2) negotiate a repayment arrangement; (3) challenge the legal enforceability of the debt with evidence; or (4) request an OHA hearing before a U.S. Administrative Law Judge.
Client hired the Firm to represent her with only 13 days left before the expiration deadline to respond to the SBA's Official 60-Day Notice. The Firm attorneys immediately researched the SBA's Official loan database to obtain information regarding the 7(a) loan. Thereafter, the Firm attorneys conducted legal research and asserted certain affirmative defenses challenging the legal enforceability of the debt. A written response was timely filed to the 60-Day Notice with the SBA subsequently agreeing with the client's affirmative defenses and legal arguments. As a result, the SBA rendered a decision immediately terminating collection of the debt against the client's alleged personal guarantee liability saving her $50,000.
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