SBA 7(a) loans are the gold standard for small business loans. But the terms you get improve pretty dramatically as loan sizes increase.
We analyzed all 62,430 SBA 7(a) loans approved in the fiscal year ending September 30, 2017. Here, we break it down by size of the total loan – that is, the full loan made by the bank, not just the piece of the loan guaranteed by the SBA.
|SBA Loan Size||# Loans||# Loan %||$ Loan %|
|$1K to $25K||10,898||17%||1%|
|$25K+ to $50K||8,486||14%||1%|
|$50K+ to $100K||8,800||14%||3%|
|$100K+ to $250K||12,668||20%||8%|
|$250K+ to $500K||8,737||14%||12%|
|$500K+ to $1M||5,903||9%||17%|
|$1M+ to $5M||6,938||11%||58%|
As you can see, the smallest of SBA 7(a) loans – those $25,000 or less – count for about 17% of all 62,430 loans but only about 1% of the dollars.
By contrast the very largest SBA 7(a) loans of more than $1 million up to $5 million constitute about 11% of the loans by count, but almost 60% of the dollars.
SBA 7(a) Loan Terms
Here’s where the data by loan size starts to show the impact on businesses.
|SBA Loan Size||Guarantee %||Average Interest Rate||Average Term (Months)|
|$1K to $25K||52%||8.19%||78|
|$25K+ to $50K||54%||7.26%||76|
|$50K+ to $100K||60%||6.48%||85|
|$100K+ to $250K||70%||6.26%||115|
|$250K+ to $500K||72%||6.01%||150|
|$500K+ to $1M||75%||5.83%||200|
|$1M+ to $5M||75%||5.67%||234|
There are three key components of the SBA 7(a) loan terms that change pretty dramatically the larger the loan gets.
First is the size guarantee from the SBA. As you may know, an SBA loan is actually provided by a bank. The SBA provides loan insurance – a guarantee to the bank that if you don’t pay it all back – you default on your loan – the SBA will pay the bank some percentage of the loan.
As it turns out the smallest of SBA 7(a) loans only carry a guarantee by the SBA on average of just over 50%. In fact 50% is the lowest guarantee the SBA provides.
Most likely the right way to interpret this is that if you are “very risky” on the bank and SBA scale, but not too risky to get a “no,” the SBA only wants to pay for half of the cost of default. That means banks are much more “on the hook” for small SBA loans.
Better SBA 7(a) Loan Interest Rates
Those smaller SBA loans also come with a higher interest rate. That means your business pays more for the money you’re borrowing. But banks need to get paid for taking on the higher risk, which is why you’ll see the higher rates.
It’s important to put this in perspective. An interest rate of 8.19% is much lower than what you’ll see from business credit cards, or pretty much all of the online lending options. Those can go up to 40% annualized!
As your company grows and you qualify for more money from banks providing SBA loans, you will see your interest rate gradually go down. That’s not surprising, but here are the numbers in black and white of what you can expect – at least in the current interest rate environment. Since US interest rates in general are trending upwards, you can expect higher rates in the future.
The table above shows average rates. The minimum rate offered is maybe 0%, or maybe 1.25%. The maximum interest was 10.75% except for one outlier at 11.04%.
Longer SBA 7(a) Loan Terms
Finally, you can see that the larger the SBA loan, the longer banks will tend to give you to pay it back. In general longer repayment is good because it means you have lower monthly payments.
Again, to put this in perspective, that average for the smallest loans under $50,000 of 76 – 78 months is still extremely attractive! That’s over 6 years on average. It translates into an extremely low monthly payment, especially compared to some online loans that need to be repaid in 90 days.
Monthly Payments on Average SBA 7(a) Loans
Putting all of this together, here’s what monthly payments would look like for different size ranges, based on the changes in terms.
|SBA Loan Size||Average Loan||Monthly Payment|
|$1K to $25K||$16,699||$276.82|
|$25K+ to $50K||$42,662||$701.92|
|$50K+ to $100K||$83,627||$1,229.46|
|$100K+ to $250K||$169,420||$1,962.77|
|$250K+ to $500K||$360,395||$3,422.81|
|$500K+ to $1M||$718,861||$5,627.05|
|$1M+ to $5M||$2,126,664||$12,382.46|
We hope this helps inspire you to think big, and to work towards being one of those 60,000+ small business loan recipients this year!