An SBA small business loan, like any loan, has monthly principal and interest payments. We have created a handy SBA loan calculator for you to utilize to know what your SBA loan payments (aka “debt service”) would be.
Here are a few key points to consider with SBA loans:
SBA Loan Amount – Our SBA lenders start at $50,000. The maximum SBA loan is $5,000,000.
Down Payment – The SBA requires the borrower to put 10% down in a transaction. Some SBA lenders will require 15% to 20% depending on a variety of factors, the most important of which is the owner(s) industry experience. A borrower with an existing business may be able to use equity for the business’s balance sheet in order to reduce required down payment, but this does not apply to business acquisitions (since the borrower does not yet own the business).
SBA Interest Rates – SBA interests range from 7% up the current statutory maximum of 9.25% (prime rate plus 2.75%). Currently, the national average is ~ 10%.
Loan Term – SBA loans are either 10 years or 25 years if real estate is included. If the loan includes just a portion for real estate, that portion would be for 25 years and the remaining portion of the loan would be amortized over 10 years.
Loan Payment (aka Debt Service) – Bankers want to make sure there is adequate cash flow to cover the debt service (interest and principal payments), so the monthly cash flow (revenues less all expenses including owners’ salaries) from the business will need to be 10% up to 25% higher than the debt service. For example, if your SBA loan payments are $10,000 per month, the bank will want to see historical monthly cash flow of $11,000 – $12,500 per month. SBA bankers will not lend to a borrower if they believe that every available dollar of cash will be need to cover the loan payments. Bankers want to make sure you have some margin of error in case cash flows dip slightly from historical levels.