SBA Loans Texas
If you’re a small business owner, chances are you’ve explored the financing options available through the Small Business Administration (SBA). SBA 504 and 7(a) loans are two of the most common loan programs. We will discuss the similarities and differences between the two and discuss how to decide which one is right for your business.
What is the difference between SBA 504 and 7(a) loans?
Here are some key differences between 504 and 7(a) loans, including their uses, how to get them, maximum loan amounts, and more.
| SBA 504 Loans | SBA 7(a) Loans | |
| Loan use | -Purchase or construction of buildings or land, new facilities, long-term machinery and equipment.
-Guidance for the improvement of land, streets, parking lots, landscaping, existing facilities, etc. |
-Buying a property.
-Construction and repair of buildings. -Working capital (both short-term and long-term). -Refinancing current business debt. -Purchase of equipment, machinery, furniture, plumbing, etc. -Opening, acquisition, management or expansion of the company. -Updating of funds depending on the cost of inventory and receivables. |
| Qualifications | – Be located in the United States or its territory and conduct commercial activities.
-No for less than $15 million. -Average net income below $5 million after federal income tax in the two years prior to application. – Must meet SBA size guidelines, have managerial experience, have a good business plan, be in good standing, and be able to repay the loan. |
– Be a business and located in or within the United States.
– Meets the SBA definition of a small business. – Invest capital. -Used other financial resources, such as personal property, prior to applying for assistance. -You can show the need for a loan. -Finance should be for the rational use of business. – Absence of delinquency of existing debt obligations to the US government. |
| Maximum loan amount | Up to $5 million | Up to $5 million depending on the type of loan. |
| Interest rate | Attached to an increase above the current market rate on 5- and 10-year US Treasury issues. The rates are about 3% of the debt. | Negotiated between lenders and borrowers, but subject to SBA limits (no SBA maximum for Working Capital Export Loan) |
| Turnover time | Unspecified work completion time | 5-10 working days (Response time for an application for SBA express loans is 36 hours, for export express loans – 24 hours) |
| Repayment term | Loans have maturities of 10, 20 and 25 years. | -Loans are usually repaid monthly, repayments include principal and interest.
-Fixed rate loans have a constant interest rate, so payments do not change. -Amounts on floating rate loans may fluctuate as the interest rate changes. |
What is right for your business?
Loan Basics 504
If you want to apply for a 504 loan, the first thing you should do is visit your local Certified Development Company (CDC). Loan 504 is available exclusively through CDCs, who are SBA’s community partners.
Loan 504 is a long-term, fixed rate financing that can, for example, be used to finance the purchase of fixed assets such as building structures, land, machinery, or equipment. The finance cannot be used for working capital or stocks, debt consolidation, repayment or refinancing, or real estate investment or rental speculation.
The SBA provides an online application list for its 7(a) loan program, as well as a library of authorization files for required documentation for 504 loan applications.
7(a) Loan basics
According to the SBA, 7(a) is the agency’s most common loan program. Loan conditions differ depending on the loan program – it offers several different types of loans under 7 (a):
- Standard 7(a): Maximum loan amount US$5 million;
- 7(a) Small Loan: The maximum loan amount is $350,000;
- SBA Express: Fast execution of work, response to the application within 36 hours;
- Export Express: Provides an easier way for exporters and lenders to obtain SBA-backed financing for loans and lines of credit;
- Export Working Capital: Designed to support businesses with export sales by providing working capital;
- International Trade: Long-term finance for companies that are expanding due to increased export sales or that need to upgrade to compete with foreign business;
- Preferred Lenders: Some lenders may process, close, service, and repay SBA-guaranteed loans;
- Veteran’s Benefit: Loans for small businesses owned by veterans have reduced fees;
- CAPLines: Designed to help businesses meet short-term and cyclical working capital needs.
The SBA does not lend itself but instead works to connect borrowers with lenders. The SBA works with various lenders to set loan guidelines and reduce their risk, making it easier for small businesses to find financing.
Tips to help you make a choice
When deciding whether a 504 or 7(a) loan is the best choice for your business, ask yourself how much financial support you need, what you plan to use the funds for, what is the financial position of your business, and what is your time frame for funding.
If you are looking for long-term, fixed rate financing to help create jobs and grow your business, then a 504 loan is likely to be your best bet. These loans are for use by businesses that buy, build or improve structures, land, streets, utilities, parking lots, landscaping or facilities, or invest in significant machinery and equipment. However, Loan 504 has restrictions on the use of funds. You should not apply for a 504 loan if you want any of the following:
- A loan for replenishment of working capital or inventory items;
- Funds to consolidate, repay or refinance debt;
- Finance for speculation with rental property or investment.
And a loan calculator can help you estimate your payments and figure out which loan is best for your business.
Meanwhile, the SBA 7(a) loan program may be a good option for small businesses looking for shorter terms for funding. For example, the SBA Express Loan offers an application response time of 36 hours. Program 7(a) also offers a variety of options to meet specific business needs. For example, if you are a veteran or involved in international trade, you can take advantage of specific loans that are suitable for your business.
The 7(a) loan is best for businesses looking to build working capital, looking for working capital, or looking to refinance commercial debt. Loans can also be a good option for starting, acquiring, maintaining or expanding a business. Companies that want to build or renovate buildings or buy real estate, land, buildings, equipment, machinery, supplies, and more can also take advantage of the 7(a) loan program.
Frequently Asked Questions (FAQ)
How much capital do you need for an SBA loan?
The SBA states that businesses must have reasonable capital investment to be eligible for loans. The business owner had to invest his own resources in the business using means such as time or money.
How do you refinance an SBA 7(a) loan?
To refinance an SBA 7(a) loan, businesses must meet requirements such as:
- The initial use of the loan must meet SBA requirements;
- The loan offer must provide the borrower with significant benefits, including a payment that is at least 10% lower than the current loan;
- A written explanation of the loan and an explanation of why the current loan does not meet reasonable terms.
What are the maximum terms for SBA 504 and 7(a) loans?
SBA 504 loans have maturities of 10, 20 and 25 years. SBA 7(a) loans have a maximum maturity of 25 years for real estate and 10 years for equipment, working capital or inventory loans.
What is the minimum credit score you need to get an SBA loan?
While the SBA uses credit history to determine the eligibility of companies seeking loans, even companies with bad credit may qualify for startup funding.
SBA’s District Offices in Texas
Dallas / Fort Worth District
150 Westpark Way Suite 130
Euless, TX
Phone: 817-684-5500
Fax: 817-684-5516
El Paso District
211 N. Florence Street 2nd Floor, Suite 201
El Paso, TX
Phone: 915-834-4600
Fax: 915-834-4689
Lower Rio Grande Valley District
2422 E Tyler Ave Suite E
Harlingen, TX
Phone: 956-427-8533
Fax: 956-427-8537
Houston District
8701 S. Gessner Drive Suite 1200
Houston, TX
Phone: 713-773-6500
Fax: 713-773-6550
Lubbock – West Texas District
1205 Texas Avenue Room 408
Lubbock, TX
Phone: 806-472-7462
Fax: 806-472-7487
San Antonio District
615 E Houston St. Suite 298
San Antonio, TX
Phone: 210-403-5900
Fax: 210-403-5936