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SBA 7(a) loan program explained
Explore rates, fees, collateral requirements and more for the SBA's most popular loan program.
SBA Loan Guides
This article was reviewed by Brad Stevens, a member of the Finder Editorial Review Board and 30-year veteran of the credit industry who specializes in rehabilitating struggling banks.
How the second stimulus affects 7(a) loans
The second coronavirus stimulus bill makes a few temporary adjustments to new loans through the 7(a) program.
- SBA guarantee. The SBA will guarantee 90% of the loan amount, regardless of how much you borrow.
- Guarantee fee. The SBA will eliminate or reduce guarantee fees as much as possible until funds run out.
These changes will affect all new loans issued before October 1, 2021. Read our guide to the second stimulus package and small businesses to learn about other resources available during COVID-19.
Loans backed by the Small Business Administration (SBA) come with some of the best deals around — the government sets limits on how much lenders can charge in interest and fees. Of its many offerings, the 7(a) program is by far the most popular: More lenders offer it than any other type of SBA loan, and more businesses apply for it. But these general-purpose loans might not be the best deal for businesses with unique needs.
SBA 7(a) loans in a nutshell
- Maximum loan amount: $5 million
- Maximum rate: Prime + 4.75%
- Maximum term: 10 years for most loans, 25 years for real estate
- SBA guarantee: 75% to 85%
What is an SBA 7(a) loan?
An SBA 7(a) loan is a general-purpose business loan backed by the Small Business Administration. Small businesses can use it for a wide range of projects, from working capital to buying equipment and real estate to refinancing business debt. While the SBA has a hand in the application process, it doesn’t actually fund the loan — it leaves that to banks and online lenders.
Several types of SBA loans technically fall under the umbrella of the 7(a) program, but the standard 7(a) loan is the most common. With this loan, small businesses can borrow up to $5 million. Technically there’s no minimum loan amount, though you might have trouble getting a loan for less than $30,000. The SBA offers an 85% guarantee to lenders for loans under $150,000 and 75% for loans between $150,001 and $5 million.
How much does an SBA 7(a) loan cost?
The SBA sets limits on how much lenders can charge in rates and fees. However, it’s ultimately up to your lender to decide which rates and fees you’re eligible for. Here’s a quick rundown of the maximum you can expect to pay on an SBA loan:
SBA guarantee fee | 0.25% to 3.75% of guaranteed portion |
Packaging fee | 2% to 3% of loan amount |
Servicing fee | 2% of loan amount |
Prepayment penalty | 1% to 5% of amount prepaid |
Late fee | 5% of repayment due |
SBA 7(a) rates
The SBA actually has several maximum interest rates, depending on how much you borrow and how long you take to repay your loan. The less you borrow and longer your term, the higher your rate will be. For example, a loan under $25,000 with a seven-year term comes with the highest maximum interest rate of prime plus 4.75%. Meanwhile, a loan over $50,000 with a term less than seven years comes with the lowest maximum rate of prime plus 2.25%.
Its maximum rates are based on the Wall Street Journal prime rate, which fluctuates depending on the lending market. However, lenders can offer fixed or variable rates as long as they fall within the SBA’s guidelines at the time you take out your loan.
How SBA rates work and what to expect
SBA 7(a) fees
The SBA charges a fee for guaranteeing its portion of the loan, which lenders typically pass on to the borrower. Like with SBA 7(a) rates, how much you can expect to pay depends on how much you borrow and your loan term. Any loan with a term under 12 months comes with a guarantee fee of 0.25% of the guaranteed amount. Otherwise, the SBA charges between 2% and 3.75% on the guaranteed portion depending on how much you borrow.
On top of this, lenders can request to be reimbursed for any expenses associated with your application, including:
- UCC filing fees
- Environmental impact reports
- Collateral appraisal
- Photocopying
- Delivery fees
This does not include the cost of any software your lender used to prepare your application — or that of going to an outside loan packager, if needed.
How SBA personal guarantee fee works
SBA 7(a) loan terms
Since one of the main expenses of an SBA loan is interest, how long you take to repay your loan also affects its total cost. The maximum loan term depends on how your business plans on using the funds.
Inventory and working capital | 10 years |
Equipment, fixtures and furniture | 10 years or the life of the asset, whichever is longer |
Commercial real estate | 25 years |
Want to use your SBA loan for more than one of these categories? The SBA allows your lender to either have multiple terms depending how much each project costs or take on the maximum term for the type of cost that makes up the largest percentage of the loan. But projects over $500,000 may be better served by an SBA 504 loan.
For example, let’s say you want funds mostly to buy commercial real estate but also need financing for equipment and inventory. Your loan term could be either 25 years for everything or 10 years on the portion of the loan devoted to equipment and inventory and 25 years for the portion you intend to spend on real estate.
Compare SBA lenders
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Can I qualify for an SBA 7(a) loan?
Unlike some other types of SBA loans, the SBA decides if your business qualifies for a 7(a) loan — not the lender. To qualify, you must meet the SBA’s minimum requirements:
- Be an operating, for-profit business in an eligible industry
- Meet the SBA’s size requirements
- Demonstrate a need for an SBA loan
- Be located in the US or its territories
Do I also need to back an SBA 7(a) loan?
The short answer is yes. Since the SBA only backs between 75% and 85% of a 7(a) loan, it’s up to you to further secure the loan with collateral, a personal guarantee or an equity injection.
Collateral
How much collateral you need to provide depends on your loan amount:
$25,000 or less | No collateral required |
$25,001 to $350,000 | Lender must follow its own collateral policies for loans of a similar amount |
$350,001 and up | Borrower must back the loan with as much collateral as possible, up to the full value of the loan |
If you can’t meet these requirements with your business assets alone, you can also use publicly traded assets or your personal real estate as collateral.
Personal guarantee
On top of collateral, the SBA requires a personal guarantee from the following people and entities:
- All owners with more than a 20% stake in the company
- All spouses of owners with more than a 5% stake in the company
- All corporations and other entities with more than a 20% in the company
This applies to everyone who’s had more than a 20% ownership stake in the past six months. The personal guarantee also often includes an additional mortgage on the guarantor's primary residence.
Equity injection
Your lender might also require you to cover part of the cost of the project you’re funding with an equity injection — similar to a down payment.
How much you have to inject can vary depending on your business type, management experience and competition in your business’s market. If you have a startup, you’re required to make an equity injection of at least 10%.
Your business generally needs to have this money up front — you can’t take out another loan to cover the down payment.
Where can I find an SBA 7(a) loan?
You can get an SBA 7(a) loan from almost any type of business lender, including:
- Banks. These are by far the most popular SBA lenders. In fact, the SBA’s list of the top 100 most active 7(a) lenders is mostly banks.
- Online lenders. Even online lenders are breaking into the SBA game, though some might be new to the program and not as well versed as banks.
- Online connection services.Referral services like SmartBiz sometimes go above and beyond by helping you package your loan and speed up the application process.
- Community development financial institutions (CDFIs). While these nonprofit lenders often specialize in the SBA’s Community Advantage program, many also offer standard 7(a) loans.
- Credit unions. Not all credit unions have business financing programs, but those that do typically work with the 7(a) program.
For the best borrowing experience, try looking for a lender that’s part of the SBA’s Preferred Lender Program (PLP). These lenders have lots of experience navigating the tangle of SBA rules and regulations, so you’ll likely have a smoother and quicker application process. Some PLPs also provide packaging services to help you complete forms and paperwork.
How to get an SBA 7(a) loan
Getting an SBA loan is time-consuming — it can take several months from start to finish. Before you even start looking into lenders, make sure you meet the SBA’s general eligibility requirements. Keep in mind that your lender might have additional criteria you need to meet, like credit score and revenue minimums.
Figure out how much money you want to borrow and get a solid grasp of your business’s assets before you start comparing lenders. Also, consider your priorities: Would you be willing to pay a little extra to get help with your application? Or do you want the cheapest SBA loan possible?
Once you find the right lender for your business, you’ll need to complete the application as well as the following forms — if not others:
- SBA Form 1919: Borrower information
- SBA Form 159: Fee disclosure
- SBA Form 413: Personal financial statement
- SBA Form 912: Statement of personal history
After you’ve submitted all required forms and documents, your lender either sends your application to the SBA for a decision or underwrites it itself if it’s a PLP lender. Typically, it takes the SBA between five and 10 business days to come to a decision. PLP lenders often have a shorter turnaround time. Once you accept and sign your loan documents, your lender disburses your funds.
How to apply for an SBA loan in 6 steps
Bottom line
The SBA 7(a) program is the most popular and open-ended option for government-backed business loans. This can be great for some small businesses, but others might benefit more from the SBA’s more specialized programs.
Check out your other government-backed options with our guide to SBA loans, or learn about how business financing works in general with our comprehensive guide to business loans.
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