If you’re considering getting a small business loan, SBA loans may be an attractive option. However, some people don’t need large loans. That’s where the SBA Express loan program comes in, as they offer smaller loan options and a more streamlined application process.
We discuss how quickly you can get approved for an SBA Express loan, its requirements, and more.
What Are SBA Express Loans?
The SBA Express loan is a simplified SBA loan program designed to reduce paperwork and speed up funding approvals. At present, the maximum loan amount for SBA Express loans is $350,000.
Because of the Coronavirus pandemic and its economic crisis, the limit increased to $1 million until it’s permanently set at $500,000 on October 1, 2021.
The difference between small loans and short-term loans is that for the latter, the lender can obtain a decision from the SBA within 36 hour turnaround time.
Loan proceeds can serve the same purposes as other SBA loans, such as working capital, debt refinancing, and even real estate. Also attractive is that SBA Express loans may not require collateral on loans of up to $25,000.
Your loan’s repayment term depends on the loan type and its purpose. The SBA’s guidelines require that the loan term be the shortest appropriate term based on proceeds and the borrower’s ability to repay.
The following are some additional requirements of interest:
A term loan usually refers to a loan in which you obtain a certain amount of funds within a certain time. The duration of the SBA will depend on the use of funds, up to:
- The financing of intangible assets (including goodwill) and working capital or inventory loans come with 10-year terms.
- A loan for equipment, fixtures, or furniture is usually ten years. However, if the useful life of the IRS asset class supports this period, the period can extend to 15 years.
- Real estate loans (including acquisition, renovation, restoration, or construction) are 25 years unless part of the loan serves to construct or renovate real estate. In the case of construction or renovation, this period can go toward the 25-year period.
- The lease improvement must not exceed ten years, plus the additional time required to complete the lease improvement (up to an additional 12 months).
The combined term may apply to mixed-use loans (including ownership changes), where the loan funds have multiple purposes — or if 51% or more of the proceeds pay for real estate — the maximum term may be as long as 25 years.
Lines of Credit/Revolving Loans
The credit limit of SBA Express cannot exceed ten years, including the expiration period. Moreover, the loan period here refers to the time period during which you can repay the loan but cannot withdraw money.
The withdrawal period refers to the time period during which you can withdraw money from the available credit. The structure of the SBA Express revolving loan can be 12 months renewable with no term out.
However, the structure of revolving loans exceeding 12 months must be no less than the duration of the withdrawal period, and withdrawal during the suspension period is not allowed.
Under no circumstances are advance payments allowed after the first 60 months. For example, the loan term is eight years, the withdrawal period is two years, and the maturity period is six years.
Also, an eight-year loan cannot have a withdrawal period of six years and a period of two years because the withdrawal period will be longer than the maturity and will exceed 60 months.
Fees and Interest Rates
Interest rate negotiations take place between the lender and the borrower and cannot exceed the maximum interest rate allowed by the SBA. SBA Express loans may have fixed or variable interest rates.
The secured or non-guaranteed part of the loan can even use a fixed interest rate, while the other part of the loan uses a floating interest rate as long as neither exceeds the max amount of allowable interest rate set by the SBA.
Since an SBA Express Loan is considered a 7(a) loan, the SBA offers some fee waivers for all 7(a) loans approved from October 1, 2020, to September 30, 2021.
The annual service fee is 0.55% (or 55 basis points) of the guaranteed portion of the loan’s outstanding balance.
For loans that have a maturity of more than 12 months, the fees are as follows:
- For loans totaling $150,000 or less: 2% of the guaranteed portion. The lender can keep up to 25% of the fee (1.5% remits to the SBA).
- For loans between $150,001 and $700,000: 3% of the guaranteed portion.
- For loans between $700,001 and $5 million: 3.5% of the guaranteed portion of up to $1 million-plus 3.75% of the guaranteed portion of more than $1 million.
It’s worth noting that there is no upfront guaranty fee for all SBA Express loans to small businesses owned by veterans.
This is a boon for veterans and another reason to explore SBA Express loans if you fall under this category and are looking for a reasonable loan option.
Qualifying for an SBA Express Loan
Borrowers must generally meet the same eligibility requirements as other SBA 7(a) loans. This means that borrowers must meet the following requirements, among others:
- Meet character requirements for owners with 20% or more ownership. Also, business owners with certain criminal histories may not be eligible.
- Have not caused previous losses to the government due to unsatisfactory federal debt (i.e., student loan or tax debt in arrears).
- Operate as a small for-profit enterprise in the United States (based on the SBA size standards).
- At least 51% is owned by citizens of the United States or legal permanent residents.
- Do not operate in unqualified industries, including certain passive businesses.
- Have acceptable credit.
The SBA usually requires all owners with 20% or more ownership to sign the Borrower Information Form (SBA Form 1919).
You don’t really need to bother with filling out the SBA loan application, as your SBA lender will walk you through the process.
The SBA Express loan application cannot be rejected simply because of a lack of collateral. For loans of $25,000 or less, the lender does not need to provide collateral. For loans over $25,000, however, the lender may require collateral.
You must apply for one of these loans through the SBA Express Lender, which the SBA approves to issue these loans.
As this is a government program, you need to meet many specific requirements, but the lender will help you understand the requirements again.
However, you should respond promptly to any request from the lender to help ensure that your application continues to move forward.
Once your lender packages your application, they submit it to the SBA, who typically responds with approval or rejection within 36 hours. This doesn’t mean you can get funding quickly, but it does help speed up the application process.
The lender must make a “prudent” loan decision, and the applicant’s cash flow is the main source of repayment, not any expected recovery from the liquidation of the collateral.
In other words, they cannot ignore credit or cash flow issues just because the borrower provides collateral. SBA has authorized SBA Express Lenders to make credit decisions without any previous review by the SBA.
SBA does not require a minimum credit rating for SBA Express loans, but individual lenders may require a minimum personal credit rating-usually 680 or higher.
SBA loans usually include a personal credit check on all homeowners with 20% or more ownership interest.
If SBA Express lenders do so on other similar-sized loans that SBA does not guarantee, they can choose to use a commercial loan pricing model.
Its guidelines state that it is at the lender’s discretion regarding credit decisions for SBA Express loans.
Although designed to be used faster and more efficiently than other SBA loans, don’t expect to get cash from an SBA Express loan in a few days. Once you submit the loan to the SBA, the SBA lender can receive the decision within 36 hours.
This does not include all the time required to complete the loan application process. Wait up to two months, although some lenders can complete most of it in about 30 days.
SBA Express loans continue to be a popular option for small business owners everywhere during the Covid-19 pandemic, thanks to faster application processing times. If you need a hand with your small business loan, we invite you to reach out to us.
Here at Seek Capital, we have secured more than $400 million in funding since 2015. We strive to ensure that you get the best loan option based on your financial needs.