The SBA has lent over $18.75 billion through its 7(a) program this year alone. $18.75B — all through preferred lenders across the U.S., all to small business owners, and all at a very reasonable interest rates.
So how can you get your hands on some of that low-cost cash for your business?
There are a number of factors to consider before applying for an SBA loan, including whether or not your business can qualify and with which providers. Here are some things to take into consideration.
Where can I get the loan?
The SBA has a number of preferred lenders, most of which are regional who will only lend to certain area codes.
Celtic Bank and SmartBiz are two SBA preferred lenders that offer SBA 7(a) loans nationwide with a relatively smooth application process. Here’s a side-by-side comparison of these two SBA lenders.
| SmartBiz | Celtic Bank | |
|---|---|---|
| Basic Requirements | All SBA 7(a) requirements Plus: FICO SBSS score of 160+, 2+ years in business and 2+ years of tax returns | SBA 7(a) requirements, FICO SBSS score of 165+. No other added reqirements, but it’s much harder to qualify if you are <2 years in business. |
| Interest Rate | Starting at 6% | Starting at 6% |
| APR | 6.96% – 9.06% | 6% and up |
| Loan Amount [For 7(a) Loans] |
$5,000 – $350,000 | $350,000 – $5M |
| Repayment Terms | 10 years, no prepayment | 10 years, no prepayment |
| Time to Funding | 1 month or less | 1+ month |
Do I meet the basic requirements?
Each lending institution has the authority to create their own requirements for the 7(a) loans they provide. The SBA does have basic requirements all 7(a) lenders must follow, including:
- must meet business credit requirements. To pre-qualify, you’ll need a FICO SBSS score of 140 or above. To check whether or not your business credit will pre-qualify for an SBA 7(a) loan, sign up for Nav.
- operate for profit
- be a small business. The definition of “small business” will vary based on your industry.
- business location must be in the U.S., and some business must be done in the U.S.
- have reasonable invested equity. This means the applicant must own a significant portion of the business (>20%).
- must be able to demonstrate a need for the loan, and that the loan will be used for a reasonable purpose.
- must not be delinquent on any existing debt obligations to the U.S. government.
If you dig past the basic requirements, you’ll find that the 7(a) program can have some pretty strict standards. For example, Celtic Bank raised their minimum FICO SBSS score to 165. SmartBiz requires a FICO score of 160 along with 2+ years in business with 2 years of tax returns filed for the business. Celtic Bank has no official requirements for years in business, but you’ll need to build some business credit to reach a FICO SBSS score of 165, and representative told me that if your business has been in business less than 2 years, you will have trouble showing you have enough cash flow to pay back the loan.
What does the price tag look like?
Both SmartBiz and Celtic Bank offer 7(a) loans with interest rates starting at 6% (Prime Rate + 2.75% – 4.75%).
In order to decipher what the total cost of the loan will be, you’ll need to calculate the Annual Percentage Rate (APR), which will include the fees associated with the loan. SmartBiz fees include referral fees, packaging and guarantee fees, and estimated closing costs. SmartBiz boasts that their APR ranges from 6.96 % to 9.06%.
Celtic bank’s main fees are packaging and guarantee fees. The typical fee is $2,500 but can increase depending on the work involved in the underwriting process. This is very reasonable — as an example, if you’re getting a $400,000 loan with Celtic bank and your fees are $2,500, your APR will only be 6.14%.
How much can I get?
Through the SBA 7(a) program, business owners can borrow up to $5M for their business. Celtic Bank offers SBA 7(a) loans from $350,001 – $5M, while SmartBiz offers smaller loan amounts from $5,000 – $350,000. This is the biggest difference between these two SBA lenders — be sure to seriously evaluate how much money you need before deciding which SBA provider to move forward with.
One great aspect of SmartBiz’s loans is that they are one of few SBA lenders that will lend out $100,000 or less to small businesses — banks earn less on smaller loans, thus small loans are usually not their primary interest.
Are the repayment terms flexible?
Celtic Bank and SmartBiz both offer flexible 10-year repayment terms with no prepayment penalty.
How long does the application process take and how easy is it?
An SBA loan will take 1 – 4 months from start to finish. I spoke with a representative from Celtic Bank who said that the time to approval depends on how the loan will be used. Most of the time, they close their loans one month after the credit approval has completed.
SmartBiz loans take about one month from start to finish. The advantage that SmartBiz has on other SBA preferred lenders, including Celtic Bank, is that their application process is automated and can be completed entirely online.
Although SmartBiz’s automated process is easier than that of Celtic Bank, the application process through both these lenders is much more tedious than that of an alternative lender. If you’re in a cash flow emergency, SmartBiz and Celtic Bank are not for you — you’ll need to look into a faster, albeit more expensive option such as a cash flow loan or merchant cash advance.
As a business owner, you’re probably busy juggling five hats at once, and adding a sixth to complete a loan approval process could push you over the edge. That’s why it’s extremely important to evaluate the amount of cash you’re looking for, how soon you need it, and what you can afford to spend to get it. This, along with the above list of considerations will help you determine whether or not a SBA loan from Celtic Bank or SmartBiz is right for you.
This article was originally written on August 26, 2015 and updated on November 1, 2016.
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