What You Need to Know About SBA Express Loans

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

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You have a lot of options for getting quick cash as a business owner. You can open credit cards in the business’s name. You can call up your father-in-law with a request. You can sell a kidney.

Unfortunately, each of those options has its drawbacks. The SBA Express loan may be a better option. It was created by the U.S. 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 were designed to be turned around in 36 hours or less and can be used for myriad loan purposes, including working capital, business acquisition, equipment purchases, and refinances.

That said, don’t confuse the loans for a Swiss Army sword of the SBA world. SBA Express loans can’t exceed $350,000 and can’t have a term of more than 10 years.

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


Who qualifies for an SBA Express loan?

Anyone who would qualify for a normal SBA loan would qualify for an Express loan. Excluded business types include:

  • Nonprofit
  • Prurient
  • Speculative
  • Non-owner-occupied real estate
  • Discriminatory
  • Lending
  • Religious
  • Marijuana
  • Gambling

Types of SBA Express loans

Here are the three most frequent uses 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 biggish bank that was expanding its SBA working capital program as fast as it could. All branch employees were trained on the program and would refer anyone to our department who needed a few hundred thousand dollars for expansion or minor improvements.

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

That could work out well for you. If you’re in need of liquidity, and it’s worth it to pay that rate (as I write this in January 2021, the indicative rate is 6%), you can get the cash fast.

You can also get working capital with an SBA line of credit. However, that’s a revolving product that requires monthly and annual maintenance. Express term loans are easier to deal with.

2. To refinance existing debt

Another common use is to consolidate existing debt. Many businesses have several random notes from personal investors and a big pile of credit card debt. As long as you can prove those were for business uses, you can refinance them into one SBA small business loan.

3. To export to other countries

It’s close to impossible to get a loan for export without an Export Express loan or a loan from the Export-Import Bank of the United States (EXIM Bank). Export loans are notoriously risky, but the SBA guarantees them in an attempt to cut the national trade deficit.

The bank lends money to a U.S. business to purchase goods in the U.S. to be shipped overseas. The inventory has to make it to its destination either by ship or plane, and then the foreign buyer has to wire the money through intermediaries back to the U.S.

I did one Export Express line of credit, which was enough. We required every one of the borrower’s clients to be insured by the EXIM Bank and for every shipment to be insured. The wire went to a big bank in the U.S. and was then transferred to a bank-controlled account at our bank, where I used it to pay off the line and then transferred the difference into the borrower’s account.

Export Express lines are a lot of work, and not many banks will do them. Focus on community banks trying to gain a niche.


3 benefits of SBA Express loans

Here are three reasons to consider getting an SBA Express loan.

1. Quick turnaround

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 could see cash in as little as a week. You won’t have to provide the traditional documentation, such as financial statements, entity documents, resume, and business plan.

The turnaround probably won’t be quite as fast as some banks were doing for the SBA’s Paycheck Protection Program earlier this year. But you still need to allow time for loan document preparation and potentially further underwriting beyond the SBA scoring model.

2. Collateral flexibility

SBA Express lenders don’t have to require collateral for loans of less than $25,000 (if you only need that amount or less, you should probably go with a microloan), and they can use their own collateral policy for amounts between $25,000 and $350,000.

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

3. SBA guaranty

The SBA guaranty will make it so you can get any kind of loan if your business is going through hard enough times. Banks like it for two reasons: the aforementioned premium on the secondary market and the protection it grants if you were to default on the loan.

Use the SBA while you need to, and then refinance out of it into a conventional loan with a lower interest rate when you qualify.


3 disadvantages of SBA Express loans

Here’s when you shouldn’t use an SBA Express loan.

1. Loan amount ceiling

The highest you can go with an Express loan is $350,000. This is plenty for a lot of loan purposes, but it may not be quite enough if you’re making a big equipment purchase 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 in much the same way.

2. High interest rate

Lenders need to make up for the increased risk of only having half the loan amount guaranteed, as opposed to up to 85% being guaranteed normally. Therefore, they will usually price the Express loan at the maximum rate. They will also make the rate quarterly variable. So, even though the prime rate is only 3.25% right now, it could be double that or more by the time you’re done making payments.

Remember to use the SBA loan when you need it but pay it off once you can.

3. Short term

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

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


Frequently Asked Questions for the SBA Express Loan

Where do I get an SBA Express loan?

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

Can I get an SBA Express loan with bad credit?

Possibly, but it will be harder than doing an SBA 7(a) loan. The SBA scoring model heavily weighs personal and business credit. It’s worth trying, and then you can do what you need to do if you don’t pass.

Can SBA Express loans be unsecured?

You can do unsecured business loans with the Express program if your lender does them conventionally. The SBA allows lenders to use their own collateral policy for Express loans.


Hop aboard the SBA Express

One thing all business owners eventually learn is that most things they had surface-level knowledge of 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 flavor of business, credit profile, and loan purpose. As long as you can keep up with what’s out there, you’ll be ahead of the competition when it comes to financing your business.

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