The Small Business Administration – SBA 7a loan program is one of the most popular loan programs for small businesses in the United States. This program is designed to provide financial assistance to small businesses that might not otherwise qualify for traditional bank loans. Here are key points about SBA 7(a) loans:
As a small business owner, running your business could be a lot more difficult if you lack the financing required to carry out several business activities. These business operations could range from purchasing relevant equipment or machinery, buying over a business, increasing the working capital, acquiring real estate, etc.
How Does The SBA 7a Loan Work?
As a business owner applying for this loan, you’ll work with the SBA and the lender. The SBA will have to guarantee a part of the loan for you to receive the funds. On finding an SBA-approved lender, a business owner can start the loan application process.
Though the SBA guarantees a portion of the loan, the difference will be based on the loan amount. The SBA will guarantee 85% for loans that are up to $150,000 and 75% for loans that are greater than $150,000. If a borrower defaults on the loan, this guarantee will reduce some of the risks to the lender.
Most times, a 7(a) loan could be the best option for small businesses that are not eligible to receive bigger loan amounts. The 7(a) loan is primarily valuable for purchasing equipment, debt payment, real estate, employing and maintaining new employees, business expansion, etc.
Which businesses are eligible for this program?
The primary sba 7a loan requirements for this loan state that the business must be for-profit within the US and must not be less than two years. Also, what the business does for profit, and its financial history are other factors for consideration. More factors include:
- It must be a small business according to the SBA qualifications of a small business.
- The business should possess the ability to provide at least a 10% down payment.
- It must not have defaulted on any government loan.
- It should have tried to use an alternative of its financial resources.
- It must be willing to expand in business or buy a business.
Ineligible businesses include:
- Businesses carrying out illegal activities.
- Investment.
- Loan agencies.
- Businesses that promote religious objectives.
Types of Loans Under The SBA 7a Loan Program
Standard 7(a) Loan
SBA guarantees up to 85% for loans under $150,000 and 75% for loans over $150,000. Interest rates are negotiable within SBA’s maximum limits.
Small Loan
Similar to Standard 7(a) but with a maximum loan amount of $350,000.
Export Working Capital Loan
Offers $500,000 to $5 million, with a 90% SBA guarantee, to support businesses needing additional capital for sales generation.
SBA Express Loan
Provides a fast 36-hour turnaround, 50% SBA guarantee, up to $350,000 loan amount, with a 7-year credit line. Lenders make eligibility decisions.
International Trade Loan
Offers long-term financing for businesses impacted by export sales and import competition, with loan maturity of 10-25 years.
Export Express Loan
Offers up to $500,000 with a 24-hour response time. SBA guarantees 90% for loans under $350,000 and 75% for larger loans.
Veterans Advantage Loan
Targets veteran-owned businesses (at least 51% veteran-owned) as a key economic segment.
CAPlines Loan
Aids small businesses needing short-term working capital up to $5 million. SBA guarantees 85% for loans up to $150,000 and 75% for larger loans, with a 5-10 day SBA turnaround time.
If you have decided on the type of 7a loan you need, you can apply for sba 7a loan online to get a quote
Terms and Interest Rates on SBA 7a Loan
The SBA sets a general guide for each type of loan under the 7(a) loan, and each business owner must ensure to abide by these guidelines. They include the terms for each loan, interest rates, the maximum and minimum amount.
You could receive other requirements from your lender, and you have the privilege to negotiate the interest rate within what the SBA sets.
Loan maturity could depend on the use of the loan, ability to repay the loan or the lifeline of the equipment to purchase. Working capital could take 10years, equipment 10years, and real estate 25 years.
Do you know the exact amount you need, but you are wondering about the monthly payments you have to make? You can use this sba 7a loan calculator to get the exact payment of both principal and interest as well as the amortization schedule.
How To Get an SBA 7(a) loan
You’ll need to look for an SBA licensed lender as a business owner. Then you’ll need to provide the necessary documents for application and work with the lender in any paperwork the SBA requires.
While you’re in the application process, you’ll be required to present some current personal and business statements.
To increase your chances of securing the SBA 7(a) loan as a business owner, you need to have a business plan, financial projections, and expense report for the next five years.
How Long Does it Take To Get an SBA 7a Loan?
Every loan under the 7(a) has a turnaround time that’s peculiar to the loan, depending on the purpose of the loan.
Most times, the turnaround time falls between 5-10 days, except for those that require an immediate turnaround.
Borrowers Application Checklists
When you’re applying for a loan from the SBA, there are some documents your local lender will require to enhance the application process.
- SBA Application form
- Personal history statement and financial statement.
- Business statement of the borrower
- Résumé
- Personal and business income tax
- Business profit and loss history
- History of all applied loans
- Business property lease
- Business license or certificate
- Other affiliations or ownership
For business owners who need to purchase an existing business, they need to provide the following documents in addition:
- The selling price of business equipment, machinery, fixtures, and furniture
- Federal income tax of the business for two years before application,
- Proof of purchase
- Terms of sale
- Business current balance sheet.
Advantages & Disadvantages of SBA 7a Loans
Benefits of the SBA 7(a) Loan
7(a) loan program offers a wide range of benefits to a business owner. Some of the benefits include:
- The SBA 7(a) offers low-interest rates.
- Loan terms could last up to 25years.
- There’s a variety of options to choose from as a borrower.
- Most small businesses are eligible for this loan.
- It encourages imports and export-related businesses.
- The 7(a) loan offers fixed and variable rates options.
- Low down payment between 10-20%.
Disadvantages of the SBA 7(a)
As a business owner, you could take advantage of all the benefits the SBA 7(a) offers to apply for this loan. Still, it’s important you also look into the downside of this loan before taking the first step.
- It requires a high credit score( typically 680+)
- The loan application requires a lot of documentation.
- It could have restrictions on additional or supplemental financing.
- Collateral is frequently required.
- Not all businesses can apply for this loan
- Approval time for this loan could be lengthy.
Bottom-Line
Are you thinking of getting an SBA 7(a) loan? You could go through the requirements and documents to process the loan you require.
If you want to know other SBA loan types, you can check out the sba 504 loan ➔ to see if it suits your business needs. But if you already know about the 504 loan, you could check out the differences between the 504 and 7a loans ➔ to help you decide on which one to go for.
