SBA Term Loan Questions

Getting started

What is an SBA loan?

The U.S. Small Business Administration (SBA) provides a number of loan programs designed for creditworthy small business owners who may not be able to obtain a conventional loan or loan terms that meet their business needs. The U.S. SBA does not directly make loans, yet provides a guarantee for SBA loans made to small businesses by lending institutions. Wells Fargo offers three types of SBA loans:

  • SBA 7(a)
  • SBA 504
  • SBA Express loans

What's the difference between an SBA 7(a) Term Loan and SBA 504 Term Loan?

There are important differences to understand between an SBA 7(a) and SBA 504 loan. If you are seeking flexible financing that will allow you to finance many different business projects including purchasing a building, financing leasehold improvements for your business, obtain working capital, or a combination of all, then the 7(a) loan program may be best for you. If the financing you are seeking includes building, ground up construction, building renovation, or the purchase of heavy machinery and equipment, consider the SBA 504 loan.

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How do I apply for an SBA loan?

A Wells Fargo Banker will discuss your financing needs and the lending program that is right for you. 

Apply in person

Do I need to be a Wells Fargo customer to apply for an SBA loan?

No, you do not need to be a Wells Fargo customer to apply.

How do I know if my business is eligible for an SBA loan?

Once you've talked with one of our bankers, if an SBA loan is right for you, one of our SBA team specialists will review SBA eligibility.  Generally, to be eligible for an SBA loan, your business:

  • Must be an existing and on-going for-profit business
  • Cannot have a tangible net worth that exceeds $15 million and have an average net income greater than $5 million over the past two years.

There are other eligibility requirements and restrictions. Your SBA team specialist will review requirements with you at the appropriate time.

How does the financing work?

For the SBA 7(a)

Generally speaking, SBA loans are like other bank loans.  You apply for the loan directly with a bank.  Wells Fargo is an SBA Preferred Lender, meaning that the SBA has deemed us to have the experience and expertise to have delegated approval authority.  In most cases, we make the credit approval directly rather than waiting for the SBA to make the decision. This makes for a more streamlined and predictable process.  Wells Fargo will then provide the loan funds, with a loan guaranty from the SBA.

For the SBA 504

The SBA 504 program is two loans:

  • Wells Fargo will provide 50% of the financing – a first trust deed on the subject property.
  • The SBA will provide 40% of the financing, administered through a Certified Development Company (CDC) that will work with you and Wells Fargo.
  • The customer is responsible for a 10% injection of funds.

Both Wells Fargo and the CDC will work together to coordinate smooth and timely loan approval and funding.

Is collateral required for an SBA loan?

For the SBA 7(a)

Yes, Wells Fargo will take a security interest in business assets and/or a mortgage on real estate.

For the SBA 504

Yes, Wells Fargo will hold the first mortgage on real estate and/or security interest in equipment and machinery. The SBA will hold a second mortgage on real estate, or secured interest in equipment and machinery.

What happens after I apply?

The loan application will go to a specialized credit team to determine if you qualify under Wells Fargo credit standards, as well as SBA eligibility guidelines.

How quickly can I get my SBA account?

It depends on your planned use of loan proceeds and the program used. Wells Fargo will process your application as quickly as possible.

Pricing and fees

What are the fees associated with an SBA loan?

See the fees associated with the SBA loans:

SBA Loan 7(a)

An SBA guaranty fee is required on all loans:  

  • Loans up to $150,000. No fees.
  • Loans from $150,001 to $750,000. 3% of the guaranteed portion of the loan.
  • Loans from $750,001 to $5 million. 3.5% of the guaranteed portion up to $1 million and then 3.75% for above $1 million.

There may be other related fees for third party costs, including but not limited to an appraisal, business valuation (for business acquisitions), environmental reviews, and filing fees.

SBA Loan 504

  • The bank loan will include an origination fee.
  • For real estate loans, there may be fees for an appraisal, environmental reviews, and filing fees.
  • Fees generally include 3.5% of the SBA debenture amount. This fee may be financed in the SBA/CDC loan.

All fees are as of <date> and are subject to change/revision by the SBA

What will the interest rate (APR) be on my account?

For SBA Loan 7(a)

Your rate can be either fixed or variable and will be determined based on a business and personal credit evaluation. For terms less than 7 years, the rate can be up to Wall Street Journal Prime + 2.25% and for terms greater than 7 years, the rate can be up to Wall Street Journal Prime + 2.75%.

For SBA Loan 504

You can choose between a fixed and variable rate on the Wells Fargo portion of the loan. For the SBA portion of the loan, you will have a below market fixed interest payment. The actual loan rate will be set when the debenture is sold.

Using your account

How can I use the funds from my SBA loan?

You can use an SBA loan to cover many business projects and needs. Potential uses include:

  • Business real estate. A term loan to purchase or refinance owner/user commercial real estate.
  • Construction loans. Loans for ground up construction and/or leasehold improvements of commercial real estate.
  • Business acquisition or partner buy-outs. A term loan for the purpose of purchasing an existing business or buying out a principal owner (must result in 100% ownership)
  • Expansion loans. Loans to expand to another location.
  • Equipment loans. Term loans to purchase new or used equipment.
  • New business development loans. Term loan for the purpose of starting a new business.
  • Working capital. Through a line of credit or a term loan.

The proceeds of an SBA loan cannot be used to:

  • Buy real estate if you have issued a forward commitment to the builder/developer, or where the real estate will be held primarily for investment purposes.
  • Make payments to other owners or pay delinquent withholding taxes. 

Speak to a Business Banker about your specific business need and find out how you can take advantage of SBA funding to maximize your business opportunities.