**SBA 7(a) Loan Program** (most popular, 60% of SBA loans): **Max loan**: **$5 million**. **Use**: Working capital, equipment, real estate, refinancing, acquisitions. **Term**: Up to **25 years** (real estate), **10 years** (equipment/working capital). **Interest rate (2025)**: Prime Rate (8.5%) + **2.25-2.75%** = **10.75-11.25%** (varies by loan size/term). **Down payment**: **10%** minimum (vs 25% conventional). **SBA guarantee**: **75-85%** of loan (protects lender). **Guarantee fee**: **0-3.75%** of guaranteed portion ($100k loan with 75% guarantee = $2,813 upfront fee). **Monthly payment example**: $500k at 11% for 10 years = **$6,881/month**, total interest $325,720. **SBA 504 Loan Program** (real estate/fixed assets): **Max loan**: **$5.5M** (up to $5M for standard projects). **Structure**: **50% bank loan** (floating rate) + **40% CDC loan** (fixed-rate SBA portion) + **10% borrower equity**. **Use**: Purchase land/buildings, construction, major equipment (10+ year useful life). **Term**: **10 or 20 years** (20 for real estate, 10 for equipment). **Interest rate (2025 CDC portion)**: **5-6%** fixed (lower than 7(a), updated quarterly). **Monthly payment example**: $1M project → $500k bank + $400k CDC + $100k equity.

Bank loan @ 10% for 20y = $4,823/mo.

CDC loan @ 5.5% for 20y = $2,749/mo. **Total**: $7,572/mo. **SBA Microloan Program** (small businesses/startups): **Max loan**: **$50,000** (average $14,000). **Use**: Working capital, inventory, supplies, equipment. **Term**: Up to **6 years**. **Interest rate**: **8-13%** (set by intermediary lender). **No SBA guarantee fee** (funded through intermediaries). **Monthly payment example**: $25k at 10% for 5 years = **$531/month**, total interest $6,860. **Technical assistance**: Free business counseling included.

**Total cost breakdown** (example: $500,000 SBA 7(a) loan at 10.75% for 10 years): **1.

Monthly payment**: **$6,832** × 120 months = **$819,840** total paid. **Interest**: $819,840 - $500,000 = **$319,840** (64% of principal). **2.

SBA guarantee fee** (one-time upfront): Loan amount: $500,000.

SBA guarantees **75%** = $375,000. **Fee tiers (2025)**: $0-$150k guaranteed portion: **0%** = $0. $150k-$700k portion: **3.50%** = ($375k - $150k) × 0.035 = **$7,875**. **Total guarantee fee**: **$7,875** (1.58% of loan amount). **3.

Lender packaging fee**: **$2,500-$5,000** (negotiable, covers application/underwriting). **4.

Other closing costs**: Appraisal: $2,000-$5,000.

Environmental assessment: $1,500-$3,000.

Title insurance/legal: $2,000-$4,000.

Recording fees: $500-$1,000. **Total closing costs**: $8,500-$18,000 (1.7-3.6% of loan). **Grand total cost**: Principal: $500,000.

Interest: $319,840.

SBA fee: $7,875.

Closing: $13,250 (midpoint). **Total**: **$840,965** over 10 years (**68% more than borrowed**). **Effective APR**: ~11.5% (vs 10.75% note rate, due to fees). **Comparison to conventional business loan** ($500k at 12% for 7 years, 25% down = $375k borrowed): Monthly: $6,040 × 84 = $507,360.

Interest: $132,360.

Down payment: $125,000 (opportunity cost).

Closing: $7,500. **Total cost**: $639,860. **SBA advantage**: $840,965 SBA vs $764,860 conventional ($125k down + $639,860) = **SBA costs $76,105 more** BUT **preserves $125k cash** for operations (crucial for new businesses). **Break-even**: If that $125k cash earns >7.6% annual return in business, SBA wins.

**Business eligibility criteria**: **1.

Small business size standards** (SBA definition varies by industry): **Manufacturing**: <500 employees OR <$8M revenue. **Retail/Service**: <$8M-$41.5M revenue (depends on NAICS code). **Wholesale**: <100 employees. **Example**: Restaurant with 45 employees and $3M revenue = ✅ Qualifies (small by both metrics). **2.

For-profit business**: Must operate for profit (nonprofits ineligible, except 501(c)(3) childcare/cooperative). **3.

Operating in US**: Business must be located and operate in US or its territories. **4.

Owner equity investment**: **New businesses**: Typically **20-30%** equity from owners (cash, not sweat equity). **Existing businesses**: **10%** minimum for strong financials. **Example**: $300k 7(a) loan requires $30k-$90k owner injection (cannot be 100% borrowed). **5.

Use of proceeds**: ✅ **Allowed**: Working capital, equipment, real estate, refinancing (if benefit shown), acquisitions, construction. ❌ **Prohibited**: Passive investments (rental property without active management), lending/speculation, pyramid schemes, gambling, loan packaging fees. **Owner/borrower requirements**: **1.

Personal credit score**: **Minimum 680** (most lenders, SBA guideline is 650). **700+**: Better rates/terms. <650: Likely denial or require co-signer. **2.

Time in business**: **7(a) General**: 2+ years operating history preferred (startups eligible but harder). **7(a) Express**: 2+ years required. **504 Loan**: 2+ years preferred. **Microloans**: Startups accepted (0 years OK). **3.

Debt-Service Coverage Ratio (DSCR)**: **Formula**: (Net Operating Income + Owner Salary) ÷ Total Annual Debt Payments. **Minimum**: **1.15-1.25** (business generates 15-25% more cash than debt obligations). **Example**: $150k NOI + $60k salary = $210k.

Annual debt payments: $180k.

DSCR = 210 ÷ 180 = **1.17** ✅ (marginally acceptable). **4.

Collateral**: **Required for loans >$25k**. **Order**: Business assets (equipment, inventory, real estate) first.

Personal assets (home, investment accounts) if business assets insufficient. **90% collateral rule**: If collateral covers <90% of loan, lender cannot require additional (SBA guideline, though lenders may decline loan). **5.

Personal guarantee**: All owners with **≥20% equity** must personally guarantee loan (unlimited personal liability if business defaults). **Industry restrictions**: ❌ **Ineligible industries**: Lending/investment companies, multi-level marketing, speculative businesses, businesses deriving >33% revenue from legal gambling, charitable/religious organizations (primary activity).

**SBA 504 loan 3-part structure**: **Typical $1 million commercial real estate purchase**: **Part 1: Bank loan (50%)**: **Amount**: **$500,000** (senior lien, first priority). **Interest rate**: **Prime + 2-3%** = ~**10-11%** (floating, adjusts quarterly). **Term**: **10 or 20 years** (amortization matches CDC loan). **Part 2: CDC loan (40%)**: **Amount**: **$400,000** (subordinate lien, SBA-guaranteed portion). **Lender**: Certified Development Company (CDC, nonprofit SBA intermediary). **Interest rate**: **5-6% fixed** (below-market, set every quarter based on 5/10-year Treasury + ~2.5%). **Term**: **10 years** (equipment) or **20 years** (real estate). **Payment**: Fixed monthly $2,749 (20y @ 5.5%). **Part 3: Borrower equity (10%)**: **Amount**: **$100,000** (cash injection from owner). **Can include**: Cash, land value, equipment equity. **Cannot include**: Borrowed funds, seller financing. **Total project cost**: $1,000,000 (50% + 40% + 10%). **Monthly payment breakdown**: Bank loan: $500k @ 10.5% for 20y = **$4,988/month**.

CDC loan: $400k @ 5.5% for 20y = **$2,749/month**. **Total monthly**: **$7,737** (vs $9,650 for conventional 25% down loan @ 11%). **Annual savings**: $22,956 (29% lower payments). **When to choose SBA 504 over 7(a)**: ✅ **Choose 504 if**: **1.

Purchasing real estate or major equipment**: 504 requires **fixed asset** use (buildings, land, machinery >10-year life). 7(a) allows working capital/inventory. **2.

Want lower rates**: CDC portion @ 5-6% fixed << 7(a) @ 10-11%. **3.

Want fixed-rate stability**: 50% of loan (CDC portion) is fixed for 10-20 years. 7(a) often variable (Prime + spread). **4.

Large loan ($1M+)**: 504 max is $5.5M vs 7(a) max $5M.

For $3M+ loans, 504's lower CDC rate saves $50k-$150k interest. **5.

Minimal cash available**: 10% down vs 7(a) often requiring 10-20% (though similar range). ✅ **Choose 7(a) if**: **1.

Need working capital**: 504 cannot fund payroll, inventory, marketing. **2.

Faster closing**: 7(a) typical 45-60 days. 504 typical 90-120 days (CDC approval process). **3.

Equipment <10 year life**: 504 requires assets with 10+ year useful life. 7(a) allows shorter-life equipment, vehicles. **4.

Refinancing existing debt**: 7(a) allows refinancing. 504 only for new purchases/construction. **5.

Smaller loan (<$500k)**: 504 setup costs ($10k-$20k CDC fees) make it less attractive for small loans. **Example comparison** ($500k equipment purchase): **7(a)**: $500k @ 10.75% for 10y = $6,832/mo, total interest $319,840. **504**: $250k bank @ 10.5% 10y + $200k CDC @ 5.5% 10y + $50k equity = $6,080/mo total, interest $229,600. **Savings**: $90,240 (28% less interest). **Trade-off**: 504 requires $50k cash upfront + longer approval.

**SBA 7(a) interest rates (2025)**: **Base rate**: **Prime Rate** (currently **8.50%** as of January 2025, per Federal Reserve). **SBA spread limits** (maximum allowed markups): **Loans <$50k**: Prime + **4.25%** = **12.75%** max. **Loans $50k-$25k**: Prime + **3.25%** = **11.75%** max. **Loans $25k-$50k**: Prime + **2.75%** = **11.25%** max. **Loans ≥$50k**: Prime + **2.25%** = **10.75%** max (most common for substantial loans). **Actual lender rates** (competitive market rates below SBA caps): **Strong credit (720+, 3+ years, DSCR 1.5+)**: Prime + **2.00-2.25%** = **10.50-10.75%**. **Average credit (680-720, 2+ years, DSCR 1.25)**: Prime + **2.50-2.75%** = **11.00-11.25%**. **Weaker credit (650-680, startup, DSCR 1.15)**: Prime + **3.00-3.50%** = **11.50-12.00%**. **Variable vs fixed**: **7(a) loans**: Mostly **variable-rate** (Prime-based, adjusts quarterly). **Optional fixed-rate**: Some lenders offer fixed at +0.5-1% higher (e.g., 11.5% fixed vs 10.75% variable). **7(a) Express**: Higher rates (Prime + 4.5-6.5% = 13-15%) for expedited approval. **SBA 504 interest rates (2025)**: **CDC portion** (40% of project): **Fixed-rate** based on **5-year or 10-year Treasury** + ~2.5% spread. **Current rates** (Q1 2025): **20-year term**: **5.25-5.75%** (5-year Treasury ~2.75% + 2.5%). **10-year term**: **5.50-6.00%** (10-year Treasury ~3.0% + 2.5%). **Rate lock**: Locked at time of CDC approval (not origination), updated quarterly. **Bank portion** (50% of project): **Variable-rate**: Prime + **2-3%** = **10.5-11.5%**. **Weighted average example**: $1M 504 project: 50% bank @ 10.5% + 40% CDC @ 5.5% + 10% equity @ 0% = **(0.5 × 10.5) + (0.4 × 5.5) + 0 = 7.45% blended rate** (much lower than 7(a)). **SBA Microloan rates**: **8-13%** (set by intermediary lender, not Prime-based).

Higher than 7(a)/504 due to higher risk (startups, smaller amounts). **How Prime Rate changes affect payments**: **Example**: $500k 7(a) loan at Prime + 2.25%. **Scenario 1 (current)**: Prime 8.5% → Rate 10.75% → Payment $6,832/month. **Scenario 2 (recession, Prime drops to 5%)**: Rate 7.25% → Payment $5,945/month (**$887/month savings**, -13%). **Scenario 3 (inflation, Prime rises to 11%)**: Rate 13.25% → Payment $7,894/month (**$1,062/month increase**, +16%). **Risk management**: For variable-rate loans, maintain **15-20% cash buffer** to handle rate increases.

Consider fixed-rate conversion if Prime expected to rise >2% (Fed policy shift).

**Yes, SBA 7(a) refinancing is allowed** under specific conditions (SBA SOP 50 10 7 guidelines): **Eligible refinancing scenarios**: **1.

Refinance conventional business debt** (most common): **Requirements**: (a) Debt must be **business debt** (not personal credit cards/home equity). (b) Lender must show **"substantial benefit"** to borrower: Lower interest rate (≥2% reduction preferred, though 1% may qualify).

Improved cash flow (lower monthly payment ≥10%).

Longer term (e.g., 5-year loan extended to 10 years).

Convert variable to fixed rate. (c) **No cash-out** (refinance exact payoff amount + SBA fees only, no extra working capital). **2.

Refinance SBA debt under special programs**: **SBA Debt Relief Refinance**: Allows refinancing of existing 7(a)/504 loans during economic hardship (COVID-era program, check current availability). **3.

Refinance interim construction loan**: Convert short-term construction financing to permanent SBA 7(a) (common for business buildouts). **Ineligible refinancing**: ❌ **Cannot refinance**: Delinquent government debt (IRS, student loans, previous defaulted SBA loan).

Debt to pay federal taxes owed.

Debt where lender can sustain loss (SBA won't bail out lenders' bad loans).

Existing debt with 90+ days delinquency. **Refinancing savings example**: **Before**: Conventional business loan.

Principal: $300,000 remaining.

Rate: **14%** (merchant cash advance or alternative lender).

Term: **3 years remaining**.

Monthly payment: **$10,282**.

Total remaining payments: $370,152. **After**: SBA 7(a) refinance.

Principal: $300,000 (same).

Rate: **10.75%** (Prime + 2.25%).

Term: **10 years** (extended).

SBA fee: $7,875 (rolled into loan = $307,875 new loan).

Monthly payment: **$4,219** (59% reduction).

Total cost over 10 years: $506,280 (interest $198,405). **Analysis**: **Monthly savings**: $10,282 - $4,219 = **$6,063/month** (59% lower payment). **Short-term cash flow win**: Frees $6,063/month for 36 months = $218,268 improved liquidity. **Long-term cost comparison**: Original loan total: $370,152 (if paid off in 3 years).

New SBA total: $506,280 (if held for 10 years). **Extra cost**: $136,128 ($506k - $370k) due to extended term. **Optimal strategy**: Refinance to SBA 7(a) for cash flow relief, but **pay extra principal** to match original 3-year payoff → Save interest AND maintain low payments.

If paid off in 3 years: New payment $4,219 + extra $6,063 = $10,282 (same), but total interest only $119,640 (vs $198,405 full term) = **Save $78,765**. **Key factors for approval**: **1.

DSCR improvement**: Refinancing must improve DSCR to ≥1.25 (showing enhanced repayment ability). **2. 12+ months payment history**: Lender typically requires 12 months of on-time payments on existing debt. **3.

No recent defaults**: Clean credit for 2+ years (no bankruptcies, foreclosures, 90+ day delinquencies). **When refinancing makes sense**: ✅ High-rate debt (>12% APR). ✅ Cash flow constrained (struggling to meet current payments). ✅ Balloon payment due soon (need to extend term). ❌ **When to avoid**: Low current rate (<8%). <2 years remaining on existing loan (SBA fees outweigh savings).

Weak credit (SBA denial risk, wasted application time/fees).