Beginner’s Guide to SBA 7(a) Loans | SMB Compass
Ezra Cabrera | March 4, 2019
Lower interest rates, longer repayment terms, and a high loan ceiling – it’s no wonder SBA 7(a) loans are the most popular type of SBA loan in the market. Despite its perks, qualifying for an SBA 7(a) loan is not that easy.
Business financing, in general, can be confusing. However, most small business owners do not qualify for traditional bank loans. The Small Business Administration (SBA) is aware of these concerns, which is why they created a variety of loan programs that enable small businesses to secure funding.
The Definition of SBA 7(a) Loans
The Small Business Administration created the 7(a) loan guarantee to help business owners qualify for bank-rate financing. It’s the most popular loan program offered by the SBA because you can use it for just about anything, such as start-up costs, working capital, equipment, land and real estate, refinancing debt, and more.
Benefits of SBA 7(a) Loans
Most people think that the SBA is the agency that lends money to aspiring entrepreneurs. This is a common misconception because the SBA is not responsible for lending you the money. The SBA merely guarantees up to 85% of the loan amount provided by SBA-approved lenders. This encourages lenders to approve small business owners for lower-rate financing because there’s a lesser risk on their part.
The perks of SBA loans don’t end there. You can use an SBA 7(a) loan for just about any business-related purpose, including:
- Debt refinancing
- Equipment purchases
- Real estate purchases
- Business expansion
- Additional working capital
- Unforeseen business expenses
Types of SBA 7(a) Loans
There are different types of 7(a) loans for specific purposes. Here are the following:
- Standard 7(a) Loans: The standard 7(a) loans have a maximum loan amount of $5 million.
- 7(a) Small Loans: This loan has a maximum of $350,000.
- Express Loans: This type of loan has a faster turnaround compared to other SBA loans. The SBA says that they will get back to you within 36 hours. This loan can be structured as a revolving credit line and has a maximum limit of $350,000 for up to seven years.
- International Trade Loans: These are long-term loans for companies that are expanding due to export sales. Companies that need to modernize to keep up with foreign competitors can use this loan as well.
- Export Working Capital: This is for companies that need additional working capital to export their products. These loans are available through the U.S. Export Assistance Center and you can borrow up to $5 million.
- CAPLines: This type of loan helps small business owners meet short-term expenses and working capital needs.
- Export Express Loans: This is for businesses that need loans or revolving lines of credit for up to $500,000.
- Veterans Advantage Loans: These loans are available for companies that are at least 50% veteran-owned and controlled.
Interest Rates and Repayment Terms
As mentioned, the SBA 7(a) loans offer flexibility, longer repayment terms, and lower down payments compared to other small business loans in the market. The interest rates set by lenders depend on the size of the loan, the repayment terms, the daily prime rate as well as the fixed base rate.
The maximum interest rate currently ranges from 7.5% to 10%, depending on the amount of your loan. If you have an excellent credit rating, you might be able to secure a lower rate of interest. Some lenders charge an origination fee or a loan packaging fee, so best to ask potential lenders regarding their fees (if any) before finalizing your transactions.
SBA 7(a) loans offer one of the longest repayment terms in the market. The terms can be up to seven years for working capital, ten years for equipment and machinery, and up to 25 years for properties.
Down Payment
SBA 7(a) loans require borrowers to pay a 10% down payment before they are granted a loan. If you plan to borrow $350,000 or more, you may also be asked to provide collateral to secure the loan. However, if your business doesn’t have the necessary assets to secure the loan, personal collateral may be acceptable.
How to Qualify for a 7(a) Loan
It’s a common misconception that the SBA directly lends the money to small businesses. Business owners looking to apply for SBA loans should work through SBA-approved lenders. The lending company you choose will walk you through the entire process of the 7(a) loan application.
Apply for SBA Loans Today!
Each type of SBA loan comes with its own individual list of requirements. In regards to qualifying for a loan, no two are alike. Lenders consider multiple factors before approving your application, so be sure to do your part and assess your business to see if you can qualify for 7(a) loans. Better yet, you can work with a financial expert. They will evaluate your business and look for reputable lending companies suitable for you.
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