SBA Loans: Everything You Need to Know to Start the Application Process

Here in Illinois, small businesses make up 98.2 percent of our total business population. Nearly half of the state’s workers (46.4 percent) are employed by a small business.

Despite the essential role small businesses play in our local and national economy, the road to entrepreneurial success isn’t easy. Sometimes a small business loan can make all the difference between the growth or death of your business. SBA Loans are specially designed to make financing more accessible to new and established small businesses. As a Preferred SBA Lender, Town and Country Bank and Peoples Prosperity Bank created this guide to help you understand the application process. When you’re ready to get started, give us a call. We offer friendly and personalized service with a hometown touch.

What is an SBA Loan?

Created in 1953, the U.S. Small Business Administration helps American entrepreneurs with all stages of the business-building process. The SBA is an independent government agency that utilizes both public and private partnerships. In fact, SBA loans are the product of a partnership between the SBA and financial institutions. Borrowers work with SBA-approved lenders to complete the application process. In return, the SBA offers a guarantee on the loan and the lender follows certain requirements. These steps minimize risk for both parties.

Eligibility Requirements for SBA Loans

If you’re considering an SBA loan, the first thing you need to know is whether or not your business will be eligible to apply.

Perhaps the most important eligibility qualification is that applicants may qualify for an SBA loan only if they are unable to self-finance the project or obtain other financing without the SBA guaranty.

Once you clear that hurdle, you’ll find that most businesses are eligible for SBA funding. The 3 basic requirements are:

• For-profit enterprise
• Conduct business in the U.S. and/or its territories
• Invest owner equity in the business

Ineligible applicants include businesses engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending. Businesses can also be disqualified if the owner is on parole. Real estate investment firms, dealers of rare coins and stamps, religious groups, and non-profit organizations are also ineligible.

Still have questions about your SBA eligibility? Our experienced business lending team is here to help. We’ve guided many businesses in Central Illinois and the Metro East through the SBA application process, and we can get you to closing, too.

What are the different types of SBA Loans?

Now that you understand the SBA’s eligibility requirements, it’s time to review the menu of loan options to find the best fit for your needs.

• 7(a) loan program: Offers up to $5 million in financing for general business expenses, including working capital, expansion, equipment and real estate. The 7(a) is the SBA’s most popular type of loan.
• SBA Express: This is an abbreviated version of the 7(a) loan program. It can shorten the time required to obtain the SBA guaranty but is limited to a maximum loan amount of $350,000.
• Veterans Advantage: Veteran-owned small businesses may qualify for reduced fees on SBA Express loans.
• 504 loan program: A long-term, fixed-rate loan to be used specifically for buying fixed assets such as commercial real estate or heavy equipment. The bank provides financing in combination with an SBA authorized non-profit financing company. The benefits may include longer loan terms, long fixed interest rate and lower down payment than bank financing alone.
• Export Express: If you are an exporter, this program offers loans and lines of credit for up to $500,000.
• International Trade: This is a long-term financing program for growing export businesses or domestic companies struggling to compete with imports. You can borrow up to $5 million for fixed assets and working capital.
• CAPLines: Choose from 4 lines of credit designed to meet small businesses' short-term and cyclical working-capital needs.

Other Specialized SBA Loans not offered through banks:

• Microloans: These smaller loans (the maximum amount is $50,000) can be used for general business purposes such as working capital, inventory, equipment purchases, and start-up funds. Only authorized non-profit lenders may provide Microloans
• Disaster Loans: Obtain up to $2 million to be used for recovery from natural disasters and other emergencies. Disaster Loans are provided directly from the SBA.

Which SBA loan is right for me?

The 7(a) loan program is the most commonly utilized loan type. Our small business lenders can help identify the loan type that will meet the needs of your small business.

How do SBA Loans Work?

Now that we have discussed the various SBA loan types, let’s walk through each step in the application and repayment process.

How to Apply for an SBA Loan with Town and Country Bank and Peoples Prosperity Bank

First, print a copy of our SBA Application Checklist to serve as your comprehensive to-do list during the application process. You will need to compile supporting documents such as:

• Business debt schedule
• Personal financial statement
• Business income statements and balance sheets
• Business Plan with Cash flow projections for a start-up business or if going through a major expansion
• Any other relevant documents such as purchase agreements, quotes, etc.

Interest Rates

The SBA sets a maximum interest rate for each loan program, but otherwise, the lender and borrower negotiate a specific rate depending on the business’s situation and the other terms of the loan. Options may include a fixed or variable interest rate.

Fees

The SBA sets loan fees based on gross loan size and maturity.

Most loans do not have a prepayment penalty.  Prepayment penalties apply if the loan is 15 years or longer and when 25 percent or more of the loan balance is voluntarily prepaid during the first three years after the loan disbursement.

The SBA prohibits certain fees including processing fees, origination fees, application fees, points, brokerage fees, and bonus points. As a Preferred SBA Lender, Town and Country Bank and Peoples Prosperity Bank will never add these prohibited extra fees to your SBA loan. Beware of any lender who says otherwise.

Repayment terms

As with the interest rate, you can negotiate the repayment term of your specific loan with your lender. However, the maximum maturities allowed by the SBA are 25 years for real estate loans and 10 years for equipment, working capital, or inventory loans.

Timeline

Since Town and Country Bank and Peoples Prosperity Bank is authorized as a Preferred SBA Lender, our bank is able to process SBA loans much quicker than non-Preferred lenders.  As an experienced SBA lender, we will do everything we can to move you through the process as swiftly and smoothly as possible. The approval time varies based on the complexity of your project but the typical processing time for low complexity projects is similar to that of non-SBA loans.

What can you use an SBA loan for?

Depending on the type of SBA loan you apply for, there are few restrictions on use as long as it’s business-related.

• Buy an existing business or grow a business you already own.
• Purchase commercial property such as lots and buildings.
• Finance new construction of a commercial building or renovate your existing structure.
• New or used equipment purchases
• Working capital
• Inventory

Pros and Cons of SBA Loans

Benefits:

• Easier for new small business owners to get a loan than with non-SBA small business loans
• Longer repayment terms
• Lower interest rates
• No balloon payments
• Lower down payments

Considerations:

• SBA loans may have slightly higher interest rates than non-SBA financing.
• Additional paperwork and slightly longer timeline.
• The business owners must provide a personal guarantee and may need to pledge personally-owned assets.
• Existing businesses need to have a satisfactory credit history.

Town and Country Bank and Peoples Prosperity Bank is your Preferred SBA Lender in Central Illinois and the Metro East

Looking for a Preferred SBA Lender in Springfield, Buffalo, Jacksonville, Lincoln, Decatur, Mt. Zion, Quincy, Edwardsville, Fairview Heights, or Bloomington, IL? Town and Country Bank and Peoples Prosperity Bank specialize in helping businesses succeed. We’re more than just a lender—our business bankers can serve as small business financial advisers as well. To learn more about SBA loans and our other business banking services, request info, contact our business bankers, or visit your nearest branch.