SBA Loan Interest Rates and What to Expect
The Small Business Administration makes it possible for loans like the 7(a) SBA loan to have the lowest possible interest rates available for small businesses. The interest rates will depend on the individual amount of the loan, the term over which it is being paid back, and the current base interest rate. The base rate can be influenced by the actions of the Federal Reserve and overall market rate. Meaning that over the years, the interest rates for SBA loan can be expected to fluctuate. Currently, the base rate, also known as the prime rate, is around 4.50%, this amount is then added to the markup percentage which will depend on the size and duration of the loan. The loan you qualify for will also depend on the strength of your loan application. Most SBA loans will require the following qualifications:
- At least two years of business history
- Personal credit score of 680+
- At least $50,000 in revenue in the last 12 months
- Seeking at least $30,000 in the loan amount
- Business shows promising returns and increasing profits
Types of SBA Loans and Interest Rates
There are three kinds of SBA loans to consider and each one has differing interest rates available. The most common being the 7(a) Small Business loan, then there are also SBA Express loans and CDC / 504 loans. Unlike the other loan types, the CDC / 504 loan is only applicable to the purchase of fixed assets, like real estate or heavy machinery. SBA 7(a) and Express loans can be applied to a wide variety of needs to further the business and they also have extremely similar interest rates. Although, Express loans do have slightly higher interest rates for the same amount that could have been an SBA 7(a) loan. Some lenders are able to provide a 7(a) in the turnaround time as little as a week, making an Express loan unnecessary. The current 2018 interest rates for 7(a) loans are at a relative low, considering the base percentage is 4.50% and has reached amounts as great as 8.30% within the last ten years. Lenders can provide fixed or variable interest rates on 7(a) loans either at or below the maximum interest rate allowed by the SBA. There are no minimum rates set, but the maximum rates allowed are all the SBA regulates, meaning that interest rates may differ slightly depending on the lender you choose to borrow from.
Maximum Current Interest Rates
For loan amounts that are under $25,000 with a duration that is less than 7 years have a maximum interest rate of 8.75% while, loans under $25,000 with a duration of more than 7 years have a maximum interest rate of 9.25%. For amounts between $25,000 and $50,000, the maximum interest rate is 7.75% for a loan duration of less than 7 years and 8.25% for a loan with a duration of over 7 years. Finally, for loan amounts above $50,000 with a repayment period of less than 7 years the maximum interest rate is 6.75% and with a term more than 7 years the maximum interest rate is 7.25%. Regardless whether the loan is variable or fixed, it may not exceed the maximum interest rate per its measurements set by the SBA.
The lender may choose to only offer variable SBA 7(a) loans, especially common for loans of smaller amounts. The difference is that within a variable loan, the interest rate changes slightly to account for changes in the publicly available market interest rate, usually the prime rate. The variable interest rate is then set up to be reset at regular intervals of the lender’s choosing, usually monthly or quarterly. While in a fixed rate loan, the interest rate will remain the same throughout the life of the loan.
SBA loans should be able to provide the lowest business loan interest rates available and be flexible in terms of what kinds of capital it can be applied to, but also has a somewhat complicated application process and difficult qualifications to meet compared to other loans. If you qualify for an SBA 7(a) loan, however, you can expect to receive one of the lowest interest rates possible that can be applied to your individual needs. When deciding to apply for a specific SBA loan, it is important to find out what you qualify for and where meaning it is also important to consider different lenders because what each one can offer you may differ even though the loans are being regulated through the SBA