Thinking about getting an SBA loan? Find out if you can qualify, and use our handy calculator to estimate your interest rate and monthly payments.
Can I Qualify for An SBA Loan?
Our calculator is specially designed for 7(a) loans, the Small Business Administration’s (SBA) most popular loan program. Most SBA 7(a) loans go to established businesses that meet the following requirements:
- 2 or more years in business
- Owner’s personal credit score is above 680 (check your score for free here)
- Sufficient business income to make loan payments
Owners of newer businesses as well as people who want to buy a business may also qualify for a 7(a) loan if they have the following:
- A personal credit score above 680 (check your score for free here)
- A down payment of 20 % or more
- Industry relevant or business management experience
- Sufficient business income or projected income to make loan payments
In addition to the above, you will have to personally guarantee an SBA loan, which means that the lender can come after your personal assets if you can’t pay back the loan. The lender will also consider any collateral that you can bring to the table.
What is an SBA Loan?
Small Business Administration (SBA) loans are US government-backed loans that are available to entrepreneurs who are starting a new business, buying a business, or running an established business.
Our calculator is designed for SBA 7(a) loans. The SBA itself does not give these loans. A bank or direct lender issues the loan, and the SBA guarantees up to 85 % of it. This gives financial institutions more incentive to lend money to small businesses.
The government guarantee allows small businesses to receive SBA loans at low interest rates and spread out monthly payments over long loan terms.
SBA Loan Calculator Summary
Our SBA loan calculator estimates your interest rate and monthly payments for a 7(a) loan. It also approximates your Debt Service Coverage Ratio, which is used by lenders to determine your eligibility for an SBA loan.
Loan Amount: What size of loan do you need? We can help you get SBA 7(a) loans from $30K to $5 million.
Loan Term: The length of an SBA 7(a) loan usually spans between 7-10 years, but it can vary depending on the lender.
Annual Business Income Including Owner’s Salary: How much income did your business generate in the most recent year? Alternatively, if a new business, how much income do you project the business will generate next year? If you’re taking a salary, include that in the calculation.
Effective Interest Rate: The calculator will tell you how much interest you are paying over the course of the loan. The interest rate on an SBA 7(a) loan ranges from 5.5 to 6 %, depending on the term and size of the loan. This rate does not take into account other fees that may be charged, such as the SBA guarantee fee (3-3.5 % of the loan amount for loans above $150K), referral/packaging fees, and closing costs.
Monthly Loan Payments: What will the monthly payment be? Before getting an SBA loan, most business owners want to know the monthly payment. Our calculator will tell you the monthly payment, assuming that all payments are equal and made once monthly.
Debt Service Coverage Ratio: In order to determine if you have sufficient income to meet the loan payments, lenders will look at your Debt Service Coverage Ratio (DSCR). The DSCR compares your business’ net operating income to the total loan payments. Ideally, your DSCR should be above 1.25 for the best chance of being approved for a loan.
How the SBA Loan Calculator Works in Detail
Interest Rate and Monthly Payments
Our SBA loan calculator tells you what the maximum interest rates and monthly payments will be on your 7(a) loan. The SBA sets the maximum interest rates that lenders can charge on 7(a) loans, based on the length of the loan term and the amount being borrowed. For most loans, the maximum interest rate ranges between 5.5 to 6 percent.
Based on the loan amount and loan term that you input, our calculator figures out and displays the maximum interest rate. Your interest rate may be lower than the maximum displayed. In general, interest rates are lower for larger loan amounts and shorter time periods.
Note that this interest rate does not take fees into account. SBA loans have a guarantee fee, referral/packaging fee, closing costs, and may have other fees like application fees. Currently, there is no guarantee fee on 7(a) loans under $150K. For loans over $150K, the guarantee fee starts at 3 percent of the SBA-guaranteed portion of the loan and increases incrementally based on the size of the loan. The referral/packaging fee is approximately 4 % of the loan, and closing costs are around $100-200.
In order to estimate the monthly payment, the calculator assumes that the loan will be paid off in equal monthly payments throughout the term of the loan.
Keep in mind that interest rates on most SBA 7(a) loans are variable. This means that the rate and your monthly payments can change based on market conditions (most 7(a) loans are pegged to the Prime Rate). If market rates rise, the interest rate and payments on the loan will rise as well. Though difficult to predict, there is usually a small increase in market rates over the course of several years.
Debt Service Coverage Ratio
The calculator also displays your Debt Service Coverage Ratio (DSCR). The DSCR is a financial ratio used by lenders to determine if you can afford an SBA loan. It’s calculated by dividing your business’ net operating income (actual or projected) by your total loan payments. Ideally, your DSCR should be 1.25 or higher.
For example, let’s say your annual business income is $100,000, and you want to take out a 10-year $250,000 SBA loan. Your loan payments for one year will be approximately $33,312 (the loan calculator shows a monthly payment of $2,776 – multiply this by 12 to get the annual loan payment). Dividing $100,000 by this number gives you a DSCR of 3. This shows lenders that your business’ income is more than enough to cover your loan payments and will help you get approved for SBA financing.
An SBA loan is often the least expensive source of capital for a small business. Use our calculator to estimate the cost. If you’ve been in business for 2+ years, have a credit score of 680+, and your business is profitable, you may qualify for a fast-tracked SBA loan with SmartBiz. Get prequalified in minutes. Apply for up to $350k here.