SBA loans are U.S. government-backed loans that provide financial assistance to small businesses and entrepreneurs. SBA loan rates are generally lower than those of traditional bank loans, making them a good option for businesses with limited access to capital.
The Small Business Administration (SBA) is a federal agency that provides support and resources to small businesses in the United States. One way the SBA supports small businesses is by guaranteeing loans made by participating lenders, such as banks and credit unions.
When a business applies for an SBA-guaranteed loan, the lender must first determine whether the loan meets the SBA’s eligibility requirements. If the loan does not meet the requirements, the lender may still choose to make the loan, but it will not be guaranteed by the SBA.
Once the lender has determined that the loan meets the SBA’s requirements, the next step is to calculate the loan’s interest rate.
How Are SBA Loan Rates Determined?
The interest rate on an SBA loan is determined by a number of factors, including:
- The type of loan
- The size of the loan
- The term of the loan
- The creditworthiness of the borrower
- The prime interest rate
The type of SBA loan that a business applies for will affect the interest rate. For example, the rates on SBA Express loans are generally higher than those on SBA Standard loans.
The size of the loan also affects the interest rate. Generally, the larger the loan, the lower the interest rate. This is because lenders perceive large loans to be less risky than small loans.
How Can I Optimize My SBA Loan Rate?
There are a few things you can do to increase your chances of getting a lower interest rate on your SBA loan:
- Have a strong credit score. Lenders will often give lower rates to borrowers with high credit scores.
- Shop around. Compare rates from multiple lenders to find the best deal.
- Apply for a longer-term loan. Loans with longer terms tend to have lower interest rates than shorter-term loans.
The prime interest rate is one of the main factors that determine SBA loan rates. The prime rate is the interest rate that banks charge their most creditworthy customers. When the Federal Reserve raises or lowers the federal funds rate, it typically causes the prime rate to rise or fall as well.
What Should I Do Next?
If you’re interested in applying for an SBA loan, the first step is to find a participating lender. You can use the SBA’s Lender Match tool to connect with lenders that offer SBA-guaranteed loans.
You can also contact our law firm to learn more about SBA loans and get legal guidance during the application process. Our attorneys have extensive experience working with small businesses and can help you navigate the complexities of SBA loans. Call 248-572-1050 to get started.