SBA 7(a) loan program explained

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.

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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 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 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.

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.

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.

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.

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Lendio			$500 – $5,000,000	6%	Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.	Submit one simple application to potentially get offers from a network of over 75 legit business lenders.	Check eligibility More Info		loading Fetching your data...
SmartBiz			$30,000 – $5,000,000	4.75%	650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years	Get funding for your small business with a government-backed loan and extended repayment terms.	Check eligibility More Info		loading Fetching your data...
Fundera			$2,500 – $5,000,000	7%	$300,000+ of annual revenue, 680+ personal credit score, in business for 3+ years	Get connected with short-term funding, SBA loans, lines of credit and more.	Check eligibility More Info		loading Fetching your data...
Become business loan marketplace			$5,000 – $500,000	7.5%	At least 3 months in business with $10,000 in monthly revenue or at least 6 months in business with $3,000 in monthly revenue.	Compare loan offers from top lenders using this marketplace. It’s free & won’t affect your credit.	Check eligibility More Info		loading Fetching your data...

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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:

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.

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.

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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.

Frequently asked questions

• Can I get another SBA 7(a) loan before paying back my first?

  You can, as long as you meet your lender’s and the SBA’s requirements. However, the SBA has a 90-day rule where the maximum amount you can borrow applies to all 7(a) loans within that time frame.

• Is it easy to get an SBA loan?

  It’s not. While SBA loans might be presented as an alternative to standard business loans, their low rates mean everyone wants a piece of the pie. In fact, SBA loans had one of the lowest acceptance rates compared to other types of financing in 2017, according to a survey by the Federal Reserve.

• Is the SBA 7(a) loan the same as the Community Advantage loan?

  Not exactly. While the Community Advantage loan is a part of the SBA 7(a) program, there are some differences, including how much your business can borrow. Check out our guide to the Community Advantage program for more details on how it works.