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’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
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