SBA Loan Rates of 2020
Have you applied for a business loan?
- March 3, 2020
- 10 min read
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In the eyes of many small businesses, loans backed by the government are the gold standard to achieve. Loans from the Small Business Administration tend to offer the best rates and terms when compared to non government-backed business loans, especially ones from alternative lenders. However, qualifying, applying and getting accepted for an SBA loan is also notoriously difficult due to strict standards and regulations in place.
If your business can meet the stiff standards put down by the SBA, you may have the opportunity to score some of the best terms and rates on business loans. Like mortgage rates, SBA loan rates are susceptible to constant change because they are based on the prime rate, which fluctuates. Read on to find out more about the current SBA loan rates of 2020 across all types of loans.
The SBA calculates the maximum interest rates on 7(a) loans based on the loan size, length of time for repayment and the prime rate. The current prime rate is based on the Low Wall Street Journal Prime rates, which are published on the first of every month.
As of February 2020, the current LWSJ prime rate is 4.75%, which has been the prime rate for November 2019, December 2019 and January 2020. The SBA then adds a rate percentage on top of the prime rate to determine the maximum interest rate for its 7(a) loans. Here’s how the SBA base rate and prime rate work:
Loans for less than seven years and loan amount of:
- $0 to $25,000: Prime rate + 4.25%
- $25,001 to $50,000: Prime rate + 3.25%
- Over $50,000: Prime rate + 2.25%
Loans for seven years or longer and loan amount of:
- $0 to $25,000: Prime rate + 4.75%
- $25,001 to $50,000: Prime rate + 3.75%
- Over $50,000: Prime rate + 2.75%
To get the current maximum interest rates for SBA 7(a) loans, you’d take the current prime rate of 4.75% and add it to whichever SBA base rate applies to your loan amount. Here’s what the SBA loan rates are for 7(a) loans:
|SBA Standard 7(a) Loan Size||Loan Rate if Paid Off in Under 7 Years||Loan Rate if Paid Off in Over 7 Years|
The maximum loan amount for SBA 7(a) loans is $5 million. The SBA guarantees 85% of 7(a) loans made for $150,000 or less. For 7(a) loans greater than $150,000, up to $3.75 million, the SBA guarantees 75% of the loan. In terms of what you can use an SBA 7(a) loan for, it can be spent on the following:
- Expansion or renovation
- New construction, purchasing land or buildings
- Purchasing equipment, fixtures and leasehold improvements
- Working capital
- Refinancing debt for compelling reasons
- Seasonal line of credit
- Starting a business
To qualify for an ABA 7(a) loan, your company must be a for-profit business and meet SBA size standards. You must also show good character, credit, management and the ability to repay the loan. Click through for a quick overview of SBA loan guaranty programs.
Guaranty fees are based on the loan amount and maturity date of the loan. They apply only to the guaranteed portion of the loan. If the SBA 7(a) loan amount is equal to $125,000 or less, then no guaranty fees are charged. If the loan amount is more than $125,000, then the guaranty fees break down as follows:
- 2% on loans from $125,001 to $150,000
- 3% on loans from $150,001 to $700,000
- 5% on loans from $700,001 to $1 million
- 75% on loans of more than $1 million
The lender is required to pay the guaranty fee, but some lenders will pass this expense onto you. Fortunately, the SBA puts limits on the maximum amount you can be charged for guaranty fees.
The maximum loan amount for this type of SBA loan is $350,000. The typical turnaround time when applying for an SBA 7(a) Small Loan is five to 10 business days. The interest rates on SBA 7(a) Small Loans are the same as for standard 7(a) loans. Here are the current maximum interest rates:
|SBA Standard 7(a) Small Loan Size||Loan Rate if Paid Off in Under 7 Years||Loan Rate if Paid Off in Over 7 Years|
These loans are very similar to standard SBA 7(a) loans, but there is an additional stipulation about who qualifies. You’ll have to fulfill the same criteria as a standard 7(a) loan, plus your loan application will be credit scored by the SBA.
You need to get an acceptable credit score from the SBA to qualify for a 7(a) Small Loan. Otherwise, you’ll be forced to submit for a 7(a) standard loan or SBA Express loan. Guaranty fees work the same way with 7(a) Small Loans as they do with standard ones.
Another type of SBA loan is the SBA Express program, which features an accelerated turnaround time for review. In this case, the timeframe for the SBA to respond to you is 36 hours — much faster than five to 10 business days.
The maximum loan amount for an SBA Express loan is $350,000, with a maximum SBA guarantee of 50%, noticeably less than the guaranteed percent of standard 7(a) loans and 7(a) Small Loans. The maximum interest rates for SBA Express loans break down as follows:
- Loans of $50,000 or less: Prime rate + 6.5%
- Loans over $50,000: Prime rate + 4.5%
Thus, when you take the current prime rate of 4.75% and apply the SBA base rates, you get the following maximum interest rates for SBA Express loans:
|SBA Express Loan Size||SBA Loan Rate|
Guaranty fees for SBA Express loans are the same as for standard 7(a) loans and 7(a) Small Loans. If you’re looking for less than $350,000 in funding, meet all the qualifications and want a fast turnaround, then an SBA Express loan could be ideal for you. Learn more about the SBA Express loan program and application.
Learn: How To Get a Business Loan
The SBA’s CAPLines program is designed to help small businesses meet their short-term and cyclical working capital needs. The SBA has four different working capital lines, covering different types of businesses. These include:
- Seasonal CAPLine: Used by borrowers solely to finance seasonal increases in accounts receivable and inventory — and sometimes for increased labor costs.
- Contract CAPLine: Used to finance the direct labor and material cost involved with performing assignable contracts.
- Builders CAPLine: Used to finance direct labor and material costs for small general contractors or builders performing the construction or renovation of commercial or residential buildings.
- Working CAPline: Used by businesses that are unable to meet credit standards needed for long-term credit, with the revolving line of credit underwritten by asset-based collateral.
The maximum loan amount for CAPLines is $5 million. Most CAPLines can be in the form of revolving or nonrevolving credit, except for Working CAPLine, which must be a revolving line of business credit.
The SBA determines loan rates on CAPLines just as they do with 7(a) loans. The maximum interest rates for SBA CAPLines are as follows:
|SBA CAPLines Loan Size||Loan Rate if Paid Off in Under 7 Years||Loan Rate if Paid Off in Over 7 Years|
Guaranty fees on SBA CAPLines are the same as for 7(a) loans, ranging from 2% to 3.75%. The percent of guaranty by the SBA, 75% to 85%, is also the same for CAPLines as for 7(a) loans. Find out more about applying for the SBA CAPLines program.
These SBA loans are for businesses looking to borrow money to buy land, buildings or major equipment with long-term, fixed-rate financing. To offer CDC/504 loans, the SBA works with Certified Development Companies, which is their community-based partner for providing these loans.
CDCs are nonprofit corporations that promote economic development within a community through 504 loans. These nonprofit corporations are certified and regulated by the SBA, who works with the CDCs and lenders to provide financing to small business and thus promote economic development in the community.
CDC/504 loans are generally structured with the SBA providing 40% of the total project costs, a participating lender contributing up to 50% of total project costs and the borrower contributing around 10%. When you get a 504 loan, you must use the money for fixed assets, including:
- Purchasing of existing buildings
- Purchasing of land and land improvements
- Construction of new facilities
- Modernization, renovation or conversion of existing facilities
- Purchasing of long-term machinery
- Refinancing of debt related to expansion of the business through new or renovated facilities or equipment
Businesses cannot use the 504 loan program for working capital or inventory, or for consolidating or repaying debt. In order to be eligible for a CDC/504 loan, your business must be for-profit and fall within SBA size standards. Your business cannot have a tangible net worth of more than $15 million and must have an average net income of $5 million or less after federal income taxes.
Interest rates on 504 loans are correlated with the current market rate for five-year and 10-year U.S. Treasury Issues. This is markedly different from the other SBA loans, which are correlated with the prime rate. As such, current SBA CDC/504 loan rates are at best estimates. Here are the effective rates for CDC/504 loans as of February 2020:
- Effective rate for 10-year loans: About 3.37%
- Effective rate for 20-year loans: About 3.69%
A big part of qualifying for a CDC/504 loan is showing that you have management experience and, critically, that the project your business is involved in will create jobs. The guaranty fees for an SBA CDC/504 loan work as follows:
- Participation fee on lender share: 0.5%
- Participation fee on CDC share: Up to 1.5%
- CDC monthly fee: 0.625%-2%
- Ongoing guarantee fee on principal outstanding: 0.642%
You can check out the application for a CDC/504 loan at the SBA’s webpage on Section 504 loans. There, you’ll find documents and SBA forms needed to complete the application.
The SBA has loan programs designed for individuals and businesses impacted by a declared disaster. Interestingly, you can actually apply for an SBA disaster loan even if you don’t own a business. The SBA has four types of disaster loan programs:
This program is for people who are in a declared disaster area whose businesses have experienced damage. Businesses can be of any size, and most private nonprofit organizations are eligible for this disaster loan, too. The maximum SBA Business Physical Disaster Loan amount is $2 million. You can use the loan proceeds for repair or replacement of the following:
- Real property
- Leasehold improvements
In terms of Business Physical Disaster Loan rates, the interest rate won’t exceed 4% if you cannot obtain credit elsewhere. If your business or organization can get credit elsewhere, the loan rate won’t exceed 8%. The SBA determines if your business is capable or not of getting credit elsewhere. Apply for a Business Physical Disaster Loan.
If you’re located in a declared disaster area and your personal property or home has sustained damage, you could be eligible for a Home and Personal Property Loan, even without owning a business.
Homeowners can apply for up to $200,000 to be used for replacing or repairing their primary residence. These disaster loans cannot be used to make upgrades or additions to homes, and secondary or vacation homes are not eligible. In addition, renters and homeowners may both borrow up to $40,000 to replace or repair personal property.
As with other SBA disaster loans, the loan rates are based on the availability of credit for you. If you cannot obtain credit elsewhere, the loan interest rate will not exceed 4%. If you can obtain credit elsewhere, the loan interest rate won’t exceed 8%. These loans are offered with terms of up to 30 years.
To be eligible for an SBA Economy Injury Disaster Loan, your business needs to be either a small business, small agricultural cooperative or private nonprofit, which has sustained substantial economic injury.
In this context, substantial economic injury means your business is unable to meet its obligations and pay its ordinary and necessary operating expenses. This type of disaster loan provides working capital to help your business get by until normal operations resume after a disaster.
An EIDL from the SBA can provide up to $2 million in funding to assist in meeting your financial obligations and operating expenses. The terms of these loans will not exceed 30 years, and the interest rate will not exceed 4% a year. The terms of your repayment are determined by your ability to repay the loan.
The SBA’s Military Reservist Economic Injury Disaster Loan is designed to help small businesses meet their ordinary and necessary operating expenses that could’ve been met had one of their essential employees not been called up for active service or as a military reservist. Due to this disruption to business, you may be eligible for this type of SBA loan, with maximum loan amounts of $2 million.
Businesses that are able to fund their own recovery are not eligible for the MREIDL program. The SBA will determine whether your business can access credit elsewhere, namely if credit is available from non-government sources, without creating undue financial hardship. If your business qualifies, the MREIDL interest rate is 4%, with loan repayment terms of up to 30 years. The SBA determines the terms on a case-by-case basis in accordance with the borrower’s ability to repay.
Across the board, small business loan rates offered on SBA loan products are lower when compared to private, non-government-backed lenders. This is a major part of the reason that SBA loans are considered the gold standard for business funding.
Another major reason is the large percentage of the loan the SBA guarantees, which reduces a lot of risk for the lender involved. Of course, these generous terms and loan rates come at a price, namely, meeting the high standards the SBA lays down to qualify for these loans. But if your business can qualify, applying for an SBA loan is always worth a shot.
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Photo credit: karen roach/Shutterstock.com
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