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SBA 7(a) Loans- a complete guide on the SBA 7(a) Loans

  SBA 7(a) Loans

A real challenge faced by most small businesses is the lack of capital to fuel their growth ambitions. The growth of small businesses is a key driver for the growth of any economy. In order to address this key segment, the US government has established Small Business Administration (SBA) to assist small businesses to get loans that are partially guaranteed by the SBA. SBA loans are simply small business loans that are partially guaranteed by the US government’s SBA. The SBA loan eliminates some of the risks for the financial institution that is issuing the loan. SBA 7(a) loans are one among the several loan programs by the SBA.

TABLE OF CONTENTS

What is an SBA 7(a) loan? Am I eligible for an SBA 7(a) loan?
Types of SBA 7(a) Loans SBA 7(a) loan maturity terms
How do I use the SBA 7(a) loan? SBA 7(a) loan interest rates
How to apply for SBA 7(a) loan?  

What is an SBA 7(a) loan?

SBA 7(a) loans are the most popular and common loan program by the US government’s Small Business Administration (SBA). Its name is derived from section 7(a) of the Small Business Act, which authorizes the SBA to provide business loans to American small businesses. SBA 7(a) loans are a great choice for small businesses in the US. These loans are an effective source of finance for small businesses in the US to grow your business.

SBA 7(a) loans have tight lending standards, but their flexible terms and low-interest rates can make them one of the best ways to fund a business. SBA 7(a) loans can be used for a variety of purposes, it is the best option when real estate is part of a business purchase. It can also be used for:

  • Short- and long-term working capital
  • Refinance current business debt
  • Purchase furniture, fixtures, and supplies

Use our SBA 7(a) loan calculator to calculate your monthly loan payments.

Am I eligible for an SBA 7(a) Loan?

SBA 7(a) loans have tight lending standards. Every borrower must satisfy the following conditions:

  1. The business must be a small business within the SBA’s definition of a small business.
  2. 2+ years of operating business history under your belt.
  3. The business must be physically located and operating in the U.S. or its territories.
  4. It must be an officially registered for-profit business.
  5. A 690+ personal credit score for all the business owners.
  6. Must be able to demonstrate the need for a loan and show the business purpose for which you’ll use the funds.
  7. The business owner must have invested their own equity (time or money) in the enterprise.
  8. $100,000+ in annual revenue for your business.
  9. To have tried and failed to find financing elsewhere.
  10. Not be delinquent on any existing debt obligations to the U.S. government
  11. Be able to provide collateral for loans larger than $25,000.
  12. Owners of 20% or more of the business must provide a personal guarantee.

The above are the key criteria to be ensured by every borrower before you apply for an SBA 7(a) loan.

Types of SBA 7(a) Loans

SBA 7(a) loan program is the combination of different types of loans to cater to the diversified needs of small businesses in the US. Each type of loan has its specific features including the loan purpose, speed in processing, rate of interest etc. There is no minimum loan amount for any type of 7(a) loan, but commonly no less than $30,000.

Program Max Loan size Maximum Loan Guarantee Eligibility Decision
Standard 7(a) $5 million 85% for loans up to $150,000 and 75% for loans greater than $150,000 By the SBA. Qualified lenders may be granted authorization to make eligibility decisions.
7(a) Small Loan $350,000 85% for loans up to $150,000 and 75% for loans greater than $150,000 By the SBA. Qualified lenders may be granted authorization to make eligibility decisions.
SBA Express $500,000 50% Made by the lender
Export Express $500,000 90% for loans of $350,000 or less, 75% for loans more than $350,000 Made by the lender
Export Working Capital $5 million 90% By the SBA. Qualified lenders may be granted authorization to make eligibility decisions.
International Trade $5 million 90% Made by the SBA

 

Read more: SBA Express Loans

See how much will be your monthly SBA 7(a) loan payments

Use our SBA 7(a) loan calculator to find out how much money your business may qualify to get.

SBA 7(a) Loan Calculator

SBA 7(a) Loan Maturity Terms (repayment tenure)

The 7(a) loan maturities are based on so many factors. It includes the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed.

The maximum term lengths for SBA 7(a) loans are as follows:

  • 25 years for real estate.
  • 10 years for equipment.
  • 10 years for working capital or inventory loans.

The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic useful life of those assets, subject to maximum 25 years. The 25-year maximum will generally apply to the acquisition and/or improvements of real estate assets and their refinancing.

How do I use the 7(a) loan?

The proceeds from SBA 7(a) loan can be used for the following purposes

  • Long- and short-term working capital
  • Revolving funds based on the value of existing inventory and receivables
  • The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
  • The purchase of the real estate, including land and buildings
  • The construction of a new building or renovation of an existing building
  • Establishing a new business or assisting in the acquisition, operation or expansion of an existing business
  • Refinancing existing business debt, under certain conditions

SBA 7(a) Loan Interest Rates

In the case of SBA 7(a) loans, lenders and borrowers can negotiate the interest rate, but it must not exceed the cap put by the SBA.

The SBA 7(a) loan interest rates are divided into two rate systems. They are variable or fixed

1. Variable Rate Interest

The SBA fixed rate of interest is derived based on the following:

Variable Rate = SBA base rate + additional spread

What is the SBA base rate? How the SBA base rate is calculated?

SBA base rate is the rate pegged to the following:

  1. Prime rate
  2. LIBOR Rate
  3. SBA Optional peg rate

Currently, as of August 28, 2022, the prime rate is 5.50% which is the base rate as per the above criteria.

The interest rate for variable SBA 7(a) loans are given below:

Loan amount Loans with maturity below 7 years Loans with a maturity of 7 years and above
Rate standard Maximum Rate* Rate standard Maximum Rate*
$25,000 or less Base Rate + 4.25% 9.75% Base Rate + 4.75% 10.25%
$25,001 to $50,000 Base Rate + 3.25% 8.75% Base Rate + 3.75% 9.25%
More than $50,000 Base Rate + 2.25% 7.75% Base Rate + 2.75% 8.25%
* Rates calculated including the prime rate of 5.5%, updated August 2022
  • The maximum rate for SBA Express and Export Express loans is Prime + 6.5 for loans of $50,000 or less. For loans of over $50,000, it is Prime + 4.5.
2. Fixed Rate of Interest

The fixed rate of interest is directly linked to the US Prime Rate.

Fixed Rate = Prime rate + additional spread

The currently applicable fixed rate of interest for SBA 7(a) loans is as follows:

Loan Amount Rate Standard Maximum fixed rate*
$0 – $25,000 Prime rate + 8% 13.5%
$25,001 – $50,000 Prime rate + 7% 12.5%
$50,001 – $250,000 Prime rate + 6% 11.5%
Above $250,000 Prime rate + 5% 10.5%

* Rates calculated including the prime rate of 5.5%, updated August 2022

SBA 7(a) loan percentage of guarantee

The maximum guarantee that SBA provides on various 7(a) loans are given below:

Program Maximum Loan Guarantee
Standard 7(a) 85% for loans up to $150,000 and 75% for loans greater than $150,000
7(a) Small Loan 85% for loans up to $150,000 and 75% for loans greater than $150,000
SBA Express 50%
Export Express 90% for loans of $350,000 or less, 75% for loans more than $350,000
Export Working Capital 90%
International Trade 90%

Fees applicable to SBA 7(a) loans

Loan amount Fees Maturity period
SBA Express Loans to qualified Veterans & Spouses up to $350,000 Zero Above 12 months
Loans of $150,000 or less 2% of the guaranteed portion
Lenders are authorized to retain 25% of the fee.
Above 12 months
$150,001 to $700,000 3% of the guaranteed portion Above 12 months
$700,001 to $5,000,000 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000 Above 12 months
Short term loans 0.25% of the guaranteed portion. Above 12 months
SBA On-Going Guaranty Fee Decided at the time of approval. Paid by the lender and cannot pass on to the borrower.

How to apply for SBA 7(a) Loans?

You need to work with an SBA-approved lender to start with your SBA 7(a) loan application. There are hundreds of such approved lenders available, including banks, credit unions, online lenders etc. You can find the list of approved lenders here. To start the process of lender search, SBA has provided a Lender Match tool that will help you find a lender.

Before you start with the lender match, you must gather the appropriate documents to start the process by working with your local lender.

a) Ensure to have the complete loan package

Below given is the list of docs required for a 7(a) loan.

  • SBA application form (Form 1919)
  • SBA Form 912– statement of personal history
  • A personal financial statement- SBA Form 413
  • Certificate or license for the business
  • Proof of business ownership
  • A list of names and addresses of any subsidiaries and affiliates, including concerns, in which you hold a controlling interest or that are otherwise connected to you.
  • Business financial statements, such as current profit and loss statements and a one-year financial projection statement
  • 2 years of business tax returns
  • 2 years of personal tax returns
  • History of any past loan applications and decisions
  • Personal resumes for each principal of the business
  • An overview and history of your business
  • A copy of your business lease

Lenders may require more information depending on the type of loan you apply for. If you are purchasing an existing business, you generally need to provide additional documentation for an SBA 7(a) loan.

b) Choose your lender

As the key step towards applying for an SBA 7(a) loan, you need to start with a Lender Match. SBA website provides a convenient Lender Match tool to match potential borrowers with lenders within two days. The lender Match page will help you with the following:

Describe your needs: Answer a few questions about your business in as little as five minutes. These are the basic details that help the lender to take a decision.

Get matched in two days: Receive an email with the contact information of lenders who express interest in your loan.

Talk to lenders: Compare rates, terms, fees, and more.

When looking for where to apply for an SBA loan, you can contact a financial institution or use the SBA 100 most active lenders list.

c) Submit the loan application

Submit loan applications and paperwork using SBA Form 1919- Borrower Information form. You’re well on your way to securing a business loan!

d) Wait for the approval

The SBA 7(a) loan program is designed for fast approvals. Once the lender submits your SBA 7(a) loan application and supporting documentation, the SBA will respond to your application within 36 hours. They may follow up with questions or requests for additional documents as they process your loan application. They then begin the initial underwriting process to review your application and decide whether to proceed.

The SBA doesn’t enforce strict guidelines on how quickly your lender needs to return a decision on a loan application or disburse funds. So depending on your lender, you may need to factor a longer waiting period into your timeline.

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