SBA7(a) Loans: Types and Requirements. How to Apply

The United States Small Business Administration offers many loans to small businesses. These loans are guaranteed by the government and come with flexible terms and competitive interest rates.

The 7(a) Program of the Small Business Administration (SBA) is a loan facility that offers financial assistance to entrepreneurs who want to start or grow small businesses. These loans are used to finance equipment purchases, inventory, and improvements. Get Started

All SBA loans processed since 2001 have been through either the United States Department of Veterans Affairs or the SBA Express secure online loan application system. This system is used for loans below $150,000. The VA processes loans larger than $150,000 and requires collateral and paperwork.

Today, we will be looking at 7(a), one of many SBA loan programs that helps small businesses get the money they need to fund a wide range of business-specific goals. Let’s first look at the 7(a) loan limits. These limits will vary depending on the type of company you have and where it is located.

  • $4,000,000 – Loans are only available to businesses with a net worth of less than 50%
  • $5 Million – Loans are only available to businesses with a net worth of less than 60%
  • $6.5 Million – An SBA 7(a loan can be used to borrow up to 80% from your company’s net worth. However, you must have at most 10 employees at the time you apply and receive the loan.

More information on 7(a), loans, and other SBA programs can be found at the SBA website.

Types 7(a) Loans

The 7(a Loan Program was created to help borrowers who cannot obtain financing elsewhere. There are many types and uses of this program for business loans, but the most popular ones include:

  • Manufacturers
  • Wholesalers
  • Retailers
  • Distributors
  • Service businesses (such a health care provider)
  • Professional firms (such law offices or medical practices).

Certain small construction companies are also eligible for the SBA 7(a), loan.

What’s an SBA 7(a), Loan?

Let’s take a look at the unique 7(a) loan program.

First, unlike conventional bank loans, money from the SBA 7(a), can be used for many business purposes. These loans have been used by borrowers to finance working capital, equipment purchases, and small construction projects.

Second, unlike conventional bank loans, SBA 7(a), loans do not require personal guarantees from the business owner or key employees. As with many SBA-backed loans only one individual must sign as a personal guarantee: the owner of that company applying for the loan.

A third advantage is that an SBA 7(a), loan can be used to pay up to 85% of your company’s expected cash flow, and 75% of its receivables. You don’t have to create complicated financial statements in order to prove your eligibility for the loan.

An SBA 7(a), loan can be used for almost any purpose, unlike conventional bank loans. The money you receive is equity and not debt. Therefore, it does not count towards your gross income for purposes of determining whether your compliance with federal regulations like the Community Reinvestment Act (CRA).

How to Apply For an SBA 7(a), Loan

Although you can complete your application in person, many applicants prefer to submit their applications online. After you submit all necessary materials, you will receive a decision within 30 days. You will need to sign all documents, including security agreements, if your application is approved.

SBA 7(a), Loan Fees

It is important to remember that fees are not included when calculating the total cost for a 7(a loan.

Common SBA 7(a), loan fees include:

Guarantee fee

Charges for credit checks

Packaging fees

Closing costs

Appraisal fees (if loan is for purchase of real estate)

Late payment fees

Prepayment fees (also known as prepayment penalties) are charged on loans of at least 15 years if they are not paid within three years.

While fees may vary depending on the lender, it is likely that you will have to pay an SBA guarantee fee. The SBA will charge your lender a fee to guarantee the loan. This fee is usually passed onto the borrower.

Depending on the size of the loan and the term, the guaranteed fee can range from 0.25% up to 3.75%. It is important to note that the guaranteed loan amount is not the total amount of the loan. The fee is only calculated on that amount. The COVID-19 pandemic has caused the SBA to waive all guaranteed fees until September 30, 2021.

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SBA 7 (a) Loan Terms and Repayment

The purpose of the loan and the term length you will receive for it are dependent on your plans. The SBA has similar terms to 7(a), but lenders must adhere to the following maximum terms:

Real estate can be held for up to 25 years

Equipment can last up to 10 years

For working capital and inventory loans, you can get up to 10 years

SBA CAP Credit Lines have different terms. These lines of credit can be extended for a maximum of 10 years, while the Builders credit has a maximum of five years.

Your SBA 7(a lender will decide your repayment schedule. However, in most cases you’ll repay your loan with an amortized monthly payment.

Fixed interest rates will ensure that the monthly payments for your loan will not change over the course of its life. Variable interest rates will mean that your monthly payments may change depending on market rates.

Progressive Business Capital can be reached by phone at 800 508-4532 or email [email protected] if you have any questions about the SBA 7(a), loan, or other small business funding options.

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