SBA 7(a) Loan

​The Small Business Administration’s most popular loan program for small businesses is called the SBA 7(a)A. This is issued by banks, but up to 85% of the loan is insured by the government.Interest rates for SBA 7(a) loans are based on the prime rate plus a lender spread, with terms ranging from 10 to 25 years, depending on the use of capital. 6.5% 10-25 year term  (depending on use of capital)

SBA 7(a) loans offer low-interest rates and long terms, making them an ideal form of financing for those who can qualify.

The maximum loan amount for 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. Your lender will help you figure out which type of loan is best suited for your needs.

The 7(a) is a conservative product and is not easy to obtain. The SBA 7(a) loan application process involves several steps, including preparing financial documents, meeting with a lender, and awaiting SBA approval. This process can take approximately 6 to 8 weeks from application to funding, depending on the complexity of your application and responsiveness to information requests. It can take 6-8 weeks to receive funds. SBA 7(a)A is a final goal that we are always looking for our clients to receive. It’s the next step to help generate more revenue for our clients.

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Who Qualifies for SBA7(a)? Basic Requirements 

• You must be officially registered as a for-profit business, and you must be operating legally. 

• As the business owner, you can’t be on parole

• Your business must meet the SBA's size standards, which vary by industry. Generally, this means having fewer than 500 employees and less than $7.5 million in average annual revenue, but it's essential to check the specific standards for your industry. Your business must have fewer than 500 employees , and less than $7.5 million in revenue on average each year for the past three years

• Your net income must be under $5 million and your tangible net worth must be less than $15 million

• You must show you’re investing your own time and money into the business, having “invested equity”

• Your business must be physically based in the United States, and you must be doing business with the U.S. and it territories

• Your small business must operate in an SBA-eligible industry. Generally, businesses engaged in speculative activities, illegal operations, or non-profit organizations are ineligible. For a comprehensive list of eligible and ineligible industries, please refer to the SBA's guidelines. Your small business must be in an SBA-eligible industry (speculative, illegal and non-profit businesses don’t get to play). Learn more about Eligible and Ineligible industries for SBA 7(a) Loans

• You’ll need to show that you’ve got a sound business purpose for the loan you’re requesting, and that your intended funds usage is approved by the SBA

• You’ll need to prove you’re not delinquent on any existing debts to the U.S. government 

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Criteria merchants are graded on to determine their SBA 7(a) Eligibility 

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Cash Flow
Established Businesses - derived by the historical performance of your company using the last 2+ years of your business tax returns, and/or projections. Your projections must be validated and believable. It’s best if your business is profitable on your tax returns and if your business has few debts.

Credit
Each owner with 20% or more equity in the business must personally guarantee the loan. This means your personal assets may be required for collateral. Credit score requirements vary by lender. Generally, each owner with 20% or more equity in the business should have a credit score of at least 640, though many lenders prefer a minimum of 680. Startups may require higher scores, often around 700 or above. It's advisable to check your credit reports and consult with potential lenders to understand their specific requirements. Each owner must have a 640+ credit score with most banks requiring a minimum of 680. Startups usually require 700+.

Character
A personal background check will be performed on every owner with 20% or more equity in the business. Certain criminal records will get you automatically denied. Other questions will be asked to gauge how much experience you have in your industry.

Typically, at least 75% of the SBA 7A loan is guaranteed by the SBA which means you don’t have to bring as much collateral to the table as a conventional loan. However, depending on the strength of your finances, you may be asked to secure the loan with 100% of your collateral. Examples of collateral include real estate with equity, equipment, inventory, A/R, and life insurance policies.

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FAQs 

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Are there any industries that are ineligible for SBA 7(a) loans?

Yes, certain industries are ineligible for SBA 7(a) loans, including businesses engaged in illegal activities, speculative ventures, and non-profit organizations. It's important to consult the SBA's guidelines or speak with a loan specialist to determine your business's eligibility.

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What documentation is required to apply for an SBA 7(a) loan?

Typically, you'll need to provide a completed loan application, personal and business financial statements, income tax returns, a business plan, and details of your collateral. Additional documents may be requested based on your specific situation.

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Can I use an SBA 7(a) loan to purchase an existing business?

Yes, SBA 7(a) loans can be used to finance the purchase of an existing business, provided the business meets SBA eligibility criteria and the transaction benefits the business's continued operation.

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How does the SBA 7(a) loan guarantee benefit my business?

The SBA's guarantee reduces the lender's risk, which can make it easier for small businesses to obtain financing with favorable terms, such as lower down payments and longer repayment periods.

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Are there any fees associated with SBA 7(a) loans?

Yes, SBA 7(a) loans may include fees such as a guaranty fee, servicing fees, and possible prepayment penalties. It's advisable to discuss the fee structure with your lender to understand the total cost of the loan.

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