What Is an SBA 7(a) Loan?
Running a small business can be 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.
The SBA has several loan programs to help small businesses affected by the coronavirus emergency. See this article on Small Business Relief Options During COVID-19 for more details.
How Much Can You Get With 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.
The 7(a) loans may be used for such business purposes as purchasing land or buildings, equipment, machinery, and/or supplies; long-term or short-term working capital; refinancing, or the purchase of an existing 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 5-10 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, these 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.
- Export Express loan: This program is for exporters who need loans and lines of credit up to $500,000, which is the maximum loan amount.
- Export Working Capital: This 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: These loans are long-term loans to businesses that are expanding because of export sales or adversely affected by imports and need to modernize to meet foreign competition.
- Veterans Advantage Loans: These loans are available to businesses that are at least 51% veteran-owned and controlled.
- CAPLines: This 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.