A Complete Guide to SBA Express Loans – The Motley Fool | Region & Cash

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SBA Express Loans are the fastest and easiest way to increase your liquidity. Learn how they work and if you should apply for one.

As an entrepreneur, you have many opportunities to get money quickly. You can open credit cards in the name of the company. You can call your father-in-law with a request. You can sell a kidney.

Unfortunately, each of these options has its drawbacks. The SBA Express Loan may be a better option. It was created by the US Small Business Administration specifically for its quick turnaround.

Overview: What is an SBA Express Loan?

The SBA Express product is the Swiss army knife of the SBA loan world. Express loans are designed to be processed in 36 hours or less and can be used for myriad lending purposes including working capital, business acquisitions, equipment purchases and refinancing.

However, do not confuse the credits for a Swiss Army Sword with the SBA world. SBA Express Loans may not exceed $350,000 and may not have a term greater than 10 years.

Also, the SBA only guarantees 50% of the loan amount on their express loans. However, it guarantees 75% to 85% of typical SBA 7(a) loans, depending on loan size.

Who Qualifies for an SBA Express Loan?

Anyone who would qualify for a regular SBA loan would qualify for an express loan. Excluded business types are:

  • nonprofit
  • cool
  • Speculative
  • Real estate not used by the owner
  • Discriminatory
  • loan
  • Religious
  • marijuana
  • gambling

Types of SBA Express Loans

Here are the three most common applications for SBA Express loans.

1. To increase your liquidity

Working capital is the most common use. I spent a few years underwriting SBA loans at a large bank that was expanding their SBA working capital program as quickly as possible. All store employees were trained on the program and referred anyone who needed a few hundred thousand dollars for additions or minor improvements to our department.

The loans are very attractive to lenders because they make many of them at the maximum SBA interest rate (Wall Street Journal Prime + 2.75%) and can sell the guaranteed portion on a secondary market for a premium.

This could work out well for you. If you need liquidity and it is worth paying that interest rate (as I write this in January 2021, the target rate is 6%), you can get the money fast.

You can also get working capital with an SBA line of credit. However, this is a revolving product that requires monthly and yearly maintenance. Quick loans are easier to handle.

2. To refinance existing debt

Another common use is to consolidate existing debt. Many companies have several random notes from individual investors and a large pile of credit card debt. As long as you can show that they were used for a business purpose, you can refinance them into an SBA small business loan.

3. To export to other countries

Without an Export Express loan or an Export-Import Bank of the United States (EXIM Bank) loan, it is nearly impossible to get credit to export. Export credits are notoriously risky, but the SBA guarantees them to reduce the national trade deficit.

The bank lends money to a US company to buy goods in the US to ship overseas. The inventory has to get to its destination either by ship or plane, and then the foreign buyer has to wire the money back to the US through intermediaries

I took out an Export Express Line of Credit which was enough. We have required that every customer of the borrower is insured with EXIM Bank and that every shipment is insured. The wire went to a major bank in the US and was then transferred to a bank controlled account at our bank where I paid directly with it and then transferred the difference to the borrower’s account.

Export express lines are a lot of work and not many banks will do it. Focus on community banks trying to carve out a niche.

3 Benefits of SBA Express Loans

Here are three reasons why you should consider an SBA Express loan.

1. Fast processing

The SBA guarantees the loan if it passes the SBA scoring model. The model takes about 15 minutes to fill out and run, so you can start making money in as little as a week. You do not need to provide the traditional documentation such as annual accounts, company documents, CV and business plan.

The turnaround likely won’t be quite as quick as some banks did for the SBA’s Paycheck Protection Program earlier this year. However, you still need to allow time for loan document preparation and possibly further underwriting beyond the SBA scoring model.

2. Collateral Flexibility

SBA Express lenders do not require collateral for loans less than $25,000 (if you only need that amount or less, you should probably opt for a microloan), and they can set their own collateral policy for amounts between $25,000 and $350,000 -Use dollars.

Typically, lenders use this flexibility when the borrower wants to use trading assets such as accounts receivable and inventory as collateral. Normal SBA loan requirements for commercial assets must discount them by 90%. Many lenders only conventionally discount receivables by 20%.

3. SBA Guarantee

The SBA guarantee will allow you to get any type of loan when your business is going through tough times. Banks like it for two reasons: the aforementioned premium in the secondary market and the protection it provides if you default on the loan.

Use the SBA when you need it, then refinance it into a traditional loan at a lower interest rate if you qualify.

3 Disadvantages of SBA Express Loans

Here’s when not to use an SBA Express loan.

1. Loan Amount Cap

The maximum amount you can get on an express loan is $350,000. This is sufficient for many loan purposes, but may not be sufficient if you are purchasing large equipment or acquiring a business.

If you need to borrow more than $350,000, you can still use the SBA 7(a) program, which requires a full underwrite but otherwise works the same way.

2. High interest rate

Lenders have to offset the increased risk of only guaranteeing half of the loan amount, as opposed to typically up to 85%. Therefore, they will usually price the express loan at the maximum rate. They will also make the rate variable on a quarterly basis. Although the prime rate is currently just 3.25%, it could be double that or higher by the time you’re done paying.

Remember to use the SBA loan when you need it, but pay it off as soon as you can.

3. Short term

It wouldn’t make sense to use an express loan to buy something like real estate. The term is so short that the payment would be three or four times what it would be to rent a similar location.

The term is kept short because the SBA wants it to be used for business expansion or turnaround purposes that are profitable enough to make larger payments.

frequently asked Questions

  • Any lender that offers SBA loans can issue SBA Express loans. Look for SBA Preferred Lending Partners, which means the bank can do the SBA approval in-house and doesn’t have to send the loan to the SBA’s national hub.

  • Possible, but it will be more difficult than making an SBA 7(a) loan. The SBA scoring model weighs heavily on personal and business loans. It’s worth a try and then you can do what you have to do if you fail.

  • You can make unsecured business loans with the Express program if your lender does it the traditional way. The SBA allows lenders to use their own collateral policy for express loans.

Climb aboard the SBA Express

One thing all business owners eventually learn is that most things they had a smattering of knowledge about have far more layers (like an onion) than they could have imagined. Finding a small business loan is no different. There are loans for every type of business, credit profile and purpose of the loan. As long as you stay current, you’ll stay ahead of the competition when it comes to financing your business.

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