The U.S. Small Business Administration offers an Express Loan Program for borrowers who need business financing of up to $350,000. Express means you’re promised an answer within 36 hours of completing your application, and there is less documentation required compared to bigger SBA loans. The SBA doesn’t make loans itself – it just provides a partial guaranty on loans made through private lenders – so you’ll need to find a bank or credit union that is committed to making Express loans.
Express loans have higher interest rates and shorter maturities than larger SBA loans. The interest ceiling is a variable rate of 6.5 percent over Prime for loans of $50,000 or less and 4.5 percent over Prime for loans above $50,000. Banks can charge less, but most banks quote the highest allowable rate. There also are a number of closing costs you’ll pay, including an SBA guarantee fee that is usually between 1.0 and 1.5 percent of the loan amount and, in many cases, a bank packaging fee that averages about 1 percent of the loan amount.
If you’re a veteran who was not dishonorably discharged, one of your benefits isqualifying for Patriot Express loans, with an interest ceiling of 2.25 percent over Prime and a borrowing limit of $500,000.
The maximum duration for an SBA Express term loan is 10 years, and the loan is fully amortized over its term. If you choose a line of credit, the maximum duration is seven years. Many lenders, however, restrict their Express loans to shorter terms.
Lenders
Not all lenders that make SBA loans make Express loans. Your local SBA office will provide you with a list of area lenders that are approved for Express loans. Start the application process with more than one of these lenders, since some approved lenders may drag their feet on actually making loans.
Application Process
If you are borrowing money for an existing business or buying someone else’s, you must supply three years of business tax returns with your application. You can’t borrow money for a business that is unprofitable, although underwriters allow adjustments or “add backs” to the bottom line for expenses like owner salary, owner benefits and depreciation expense.
If you are starting a new business, you will submit a business plan, including financial projections. Make sure it is well prepared.
Individual Requirements
Even if your business is a corporation, there are some requirements that will apply to you as an individual. Three forms you’ll always complete are the Personal Financial Statement, Statement of Personal History and Borrower Information Form. While there is not a specific SBA credit score requirement, most lenders will look for a score of about 660 or higher.
One of the questions asked on the Borrower Information Form is whether you’ve ever been charged with a crime or arrested. Answering yes doesn’t disqualify you automatically, but it means the form will be forwarded to SBA Headquarters, and it may take months to get an answer.
Guaranty and Collateral
You will be required to sign a personal guaranty. Lenders also must look for collateral – assets that they can liquidate in case you default on the loan. This can be business assets, personal assets or both. Don’t be surprised if the lender requires a second mortgage lien on your home as part of the collateral.
The SBA’s Standard Operating Procedures state: “A loan request is not to be declined solely on the basis of inadequate collateral.” Therefore, try applying for an Express loan even if you think you’re short on business and personal collateral.
Loan Underwriting
Ask your lender if you have submitted all required paperwork. If you haven’t received at least a tentative underwriting decision 36 hours after you believe all paperwork has been submitted, ask why. You may not be aware that the lender is still waiting for additional information from you.
After the initial underwriting approval, there is usually a list of contingencies that need to be met before closing on the loan and disbursing the proceeds. Examples of contingencies are turning over to the bank securities that will be used as collateral and obtaining a property insurance policy to protect the business assets.
Early Payoff
If your business does well after obtaining the SBA Express loan, you may think about paying it off early to avoid interest costs. One of the advantages of an Express loan is that there is no prepayment penalty.
