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.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
Client personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. The client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but our SBA lawyers also saved him approximately $227,945 over the term of the workout.
The clients are personally guaranteed an SBA 7(a) loan. The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services. Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.
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