Celtic bank vs. Smartbiz: What to consider when deciding on an SBA loan

The SBA lends billion through its 7(a) program every year — all through preferred lenders across the U.S., all to small business owners, and all at a very reasonable interest rates.

So how can you get your hands on some of that low-cost cash for your business?

There are a number of factors to consider before applying for an SBA loan, including whether or not your business can qualify and with which providers. Here are some things to take into consideration.

Where can I get a loan?

The SBA has a number of preferred lenders, most of which are regional who will only lend to certain area codes.

Celtic Bank and SmartBiz are two SBA preferred lenders that offer SBA 7(a) loans nationwide with a relatively smooth application process.

Here’s a side-by-side comparison of these two SBA lenders.  

Do I meet the basic requirements?

Each lending institution has the authority to create their own requirements for the 7(a) loans they provide. The SBA does have basic requirements all 7(a) lenders must follow:

• Meet business credit requirements. To pre-qualify, you’ll need a FICO SBSS score of 140 or above
• Operate for profit
• Be a small business. The definition of “small business” will vary based on your industry.
• Business location must be in the U.S., and some business must be done in the U.S.
• Have reasonable invested equity. This means the applicant must own a significant portion of the business (>20%).
• Be able to demonstrate a need for the loan, and that the loan will be used for a reasonable purpose
• Not be delinquent on any existing debt obligations to the U.S. government

If you dig past the basic requirements, you’ll find that the 7(a) program can have some pretty strict standards.

For example, Celtic Bank raised their minimum FICO SBSS score to 165. SmartBiz requires a FICO score of 160 along with 2+ years in business with 2 years of tax returns filed for the business. Celtic Bank has no official requirements for years in business, but you’ll need to build some business credit to reach a FICO SBSS score of 165, and representative told me that if your business has been in business less than 2 years, you will have trouble showing you have enough cash flow to pay back the loan.

What does the price tag look like?

Both SmartBiz and Celtic Bank offer 7(a) loans with starting interest rates you can calculate with this formula:

Prime Rate + 2.75% – 4.75%

To decipher what the total cost of the loan will be, you’ll need to calculate the Annual Percentage Rate (APR), which will include the fees associated with the loan. SmartBiz fees include referral fees, packaging and guarantee fees, and estimated closing costs.

Celtic bank’s main fees are packaging and guarantee fees. The typical fee is $2,500 but can increase depending on the work involved in the underwriting process. This is very reasonable.

How much can I get?

Through the SBA 7(a) program, business owners can borrow up to $5M for their business. Celtic Bank offers SBA 7(a) loans from $350,001 to $5M, while SmartBiz offers smaller loan amounts from $5,000 to $350,000. This is the biggest difference between these two SBA lenders — be sure to seriously evaluate how much money you need before deciding which SBA provider to move forward with.

One great aspect of SmartBiz’s loans is that they are one of few SBA lenders that will lend out $100,000 or less to small businesses — banks earn less on smaller loans, thus small loans are usually not their primary interest.

Are the repayment terms flexible?

Celtic Bank and SmartBiz both offer flexible 10-year repayment terms with no prepayment penalty.

How long does the application process take and how easy is it?

An SBA loan will take one to four months from start to finish. I spoke with a representative from Celtic Bank who said that the time to approval depends on how the loan will be used. Most of the time, they close their loans one month after the credit approval has completed.

SmartBiz loans take about one month from start to finish. The advantage that SmartBiz has on other SBA preferred lenders, including Celtic Bank, is that their application process is automated and can be completed entirely online.

Although SmartBiz’s automated process is easier than that of Celtic Bank, the application process through both these lenders is much more tedious than that of an alternative lender. If you’re in a cash flow emergency, SmartBiz and Celtic Bank are not for you — you’ll need to look into a faster, albeit more expensive option such as a cash flow loan or merchant cash advance.

Final take: Celtic Bank vs. SmartBiz

As a business owner, you’re probably busy juggling five hats at once, and adding a sixth to complete a loan approval process could push you over the edge. That’s why it’s extremely important to evaluate the amount of cash you’re looking for, how soon you need it, and what you can afford to spend to get it. This, along with the above list of considerations will help you determine whether or not a SBA loan from Celtic Bank or SmartBiz is right for you.