Understanding Collateral Requirements: SBA Express Loans vs. Other SBA Loans

Jul 02, 2024

#### Introduction

Collateral requirements are a crucial aspect of securing a loan, as they provide lenders with security. The SBA Express Loan program, known for its streamlined application process and quick turnaround, has different collateral requirements compared to other SBA loans. This blog highlights these differences and what they mean for borrowers.

#### SBA Express Loans Collateral Requirements

1. **Loan Amounts Up to $25,000**
   - **No Collateral Required**: For loans up to $25,000, SBA Express Loans do not require collateral, making it easier for small businesses to access smaller amounts of capital without pledging assets.

2. **Loan Amounts Over $25,000**
   - **Lender's Discretion**: For loans exceeding $25,000, lenders have the discretion to require collateral. The SBA does not mandate specific collateral requirements but encourages lenders to secure loans to the maximum extent possible.

3. **Types of Collateral**
   - **Flexible Options**: Lenders can accept various forms of collateral, including business assets such as equipment, inventory, accounts receivable, and in some cases, personal assets like real estate.

#### Other SBA Loans Collateral Requirements

1. **Standard 7(a) Loans**
   - **Collateral for Loans Over $350,000**: For standard 7(a) loans, the SBA requires lenders to secure collateral for loans exceeding $350,000. If business assets do not fully secure the loan, personal real estate may be required.
   - **Full Collateralization**: While the SBA does not reject a loan solely because of inadequate collateral, they require that all available business and personal assets be pledged.

2. **SBA 504 Loans**
   - **Real Estate and Equipment**: SBA 504 loans are typically used for purchasing real estate or equipment. The asset being financed serves as collateral for the loan.
   - **Additional Collateral**: If the primary collateral (real estate or equipment) does not fully secure the loan, additional collateral may be required.

3. **Microloans**
   - **Varied Requirements**: Collateral requirements for microloans (loans up to $50,000) vary by lender but include business assets and, in some cases, personal guarantees.

#### Key Differences

- **Flexibility**: SBA Express Loans offer more flexibility in collateral requirements, particularly for smaller loan amounts (up to $25,000), where no collateral is required. This contrasts with standard 7(a) loans, which have more stringent collateral requirements for larger loan amounts.
- **Lender Discretion**: For SBA Express Loans over $25,000, lenders have significant discretion in determining collateral requirements. This flexibility allows lenders to tailor requirements to the borrower’s specific situation.
- **Streamlined Process**: The streamlined nature of SBA Express Loans extends to collateral requirements, making it easier and faster for businesses to access funds compared to other SBA loan programs with more comprehensive collateral assessments.

#### Conclusion

The collateral requirements for SBA Express Loans are more flexible and less stringent than those for other SBA loans, particularly for smaller loan amounts. This flexibility makes SBA Express Loans an attractive option for small businesses needing quick and easy access to capital.

At Atlantic Commercial Lending, a Licensed Commercial Mortgage Brokerage with an NMLS ID #2429887, we can help you navigate the collateral requirements for SBA Express Loans and other SBA loan programs. Contact us today for personalized advice and to explore the best financing options for your business.