What Is an SBA 7(a) Loan?

Get a Coronavirus SBA 7(a) Paycheck Protection Plan Loan

A barista working at a small coffee shop, started using an SBA 7(a) loan.

 Brooke Cagle/Unsplash

Being in a small business is tough, especially in times of uncertainty and loss of revenue. One port in the storm could be an SBA loan. The SBA's "do everything" 7(a) loan could help you get back on your feet.

What is an SBA 7(a) Loan?

The Small Business Administration (SBA) 7(a) Loan Guarantee program is one of the most popular loan programs offered by the agency and is the basic SBA loan program.

When you apply for an SBA 7(a) loan, you work with a lender and the SBA participates by giving a guarantee and requiring additional application documents.

New 7(a) Loan – the Coronavirus Paycheck Protection Program

To help companies and employees during the Coronavirus epidemic, the SBA has a new 7(a) loan called the Paycheck Protection Program. The loan is designed to give an incentive to small businesses with under 50 employees to keep workers on the payroll. Businesses with more than 500 employees may also be eligible if they are in certain industries, including food and accommodations.

There are no fees on the loan and you don't need to have collateral or give a personal guarantee, Your loan can be fully refundable if you use at least 75% of the loan amount for keeping or quickly rehiring employees and you keep their salary levels the same. The loan can also be used to pay interest on mortgages, rent, and utilities.

You can apply through any 7(a) lender, or check with your current lender to see if they participate. Paycheck Protection Program loans are available beginning April 3, 2020, through June 30, 2020.

Some of the details of the standard SBA 7(a) loan (described below) have been changed or waived for Paycheck Protection Plan loans. See this SBA article on Paycheck Protection loans for more details on this loan and an online application form.

How Much Can You Get in an SBA 7(a) Loan?

Standard SBA 7(a) loans are for a maximum of $5 million, with an SBA loan guarantee of 85% for loans up to $150,000 and 75% for loans greater than $150,000. The terms of SBA 7(a) loans are 25 years for real estate and 10 years for equipment, working capital, or inventory.

The SBA sets a maximum interest rate, but you and your lender can negotiate within that limit. Interest rates are based on the prime rate, the size of the loan, and the maturity of the loan. 

Eligibility Requirements for a 7(a) Loan

For your business to be eligible for a 7(a) loan:

  • You must be defined as a small business by the SBA (depending on your industry) to be eligible for the 7(a) loan program.
  • In addition, your business must be operating for profit within the U.S. or its territories.
  • You must have the resources to invest your assets in your business, and you must show that the loan is for a sound business purpose.
  • You must not be delinquent on any existing debt obligations to the U.S. government (such as student loans)
  • You must have used other financial resources before applying for this loan.

Most types of businesses are eligible, except for real estate investment firms and other speculative businesses, dealers in rain coins and stamps, lending companies, pyramid sales companies, companies that engage in illegal activities or gambling, and non-profit organizations. (Faith-based organizations may receive Paycheck Protection Program loans.)

The 7(a) loans may be used for such business purposes as purchasing land or buildings, equipment, machinery or supplies; for long-term or short-term working capital; for refinancing; or for the purchase of an existing business.

In addition to completing a borrower information form and an SBA loan application, you will also need the typical documents for a business loan, including your personal financial statement and financial information about your business.

How to Get an SBA 7(a) Loan

The SBA does not directly lend money to small businesses. You must first find an SBA-approved lender and work through this lender. The lender will ask you to complete an application for a 7(a) loan, and you will work with the lender on the paperwork required by the SBA. 

How Long Does It Take to Get an SBA 7(a) Loan? 

The SBA says 7(a) loan turnaround time is 5 to10 business days, but every case is unique and there may be times when many businesses are applying for loans. The SBA Express loan described below has an accelerated turnaround time for SBA review. 

Types of SBA 7(a) Loans

In addition to the standard 7(a) general and PPP loans described above, other 7(a) loans are available for specific funding needs.

7(a) Small loans have a maximum of $350,000.

SBA Express loans have a short turnaround, and the SBA says it will respond to your application within 36 hours. The maximum loan is $350,000. It can be used for a revolving line of credit for up to 7 years.

Check out the SBA's Express Bridge Loan Pilot Program, designed to supplement the SBA's direct disaster loan program and give quick funding to small businesses that apply for disaster loans. It gives an expedited SBA-guaranteed bridge loan of up to $25,000 to small businesses in Presidentially-declared disaster areas.

The Export Express loan program is for exporters who need loans and lines of credit up to $500,000. The maximum loan amount is $500,000.

The Export Working Capital loan is for businesses that need additional working capital to support their export sales. Loans are available through the U.S. Export Assistance Center for up to $5 million.

International Trade loans are long-term loans to business expending because of export sales or adversely affected by imports and need to modernize to meet foreign competition.

Veterans Advantage loans are available to businesses that are at least 51% veteran owned and controlled.

CAPLines is an umbrella program that helps small businesses meet short-term and cyclical working capital needs. It includes four lines: Seasonal, Contract, Builders, and Working. 

Article Sources

  1. Small Business Administration. "Types of 7(a) Loans." Accessed Apr. 7, 2020.

  2. Small Business Administration. "Paycheck Protection Program." Accessed Apr. 7, 2020.

  3. Small Business Administration. "Terms, Conditions, and Eligibility." Accessed Apr. 7, 2020.

  4. Small Business Administration. "Terms, Conditions, and Eligibility." Accessed Apr. 7, 2020.