SBA 7(a) loan program: What you need to know | finder.com
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SBA 7(a) loan program explained

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Explore rates, fees, collateral requirements and more for the SBA’s most popular loan program.

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%
SmartBiz SBA Loans

SmartBiz SBA Loans

Get funding for your small business with low monthly payments, extended repayment terms and competitive rates.

  • Min. Loan Amount: $30,000
  • Max. Loan Amount: $5,000,000
  • Low starting APR: 6.75%
  • Min. Loan Term: 10 years
  • Max Loan Term: 25 years
  • Must have been in business 2+ yrs w/ annual revenue of $50,000+ and personal credit score of 600+

    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:

    Maximum interest ratesPrime + 2.25% to prime + 4.75%
    SBA guarantee fee0.25% to 3.75% of guaranteed portion
    Packaging fee2% to 3% of loan amount
    Servicing fee2% of loan amount
    Prepayment penalty1% to 5% of amount prepaid
    Late fee5% 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.

    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.

    Intended useMaximum loan term
    Inventory and working capital10 years
    Equipment, fixtures and furniture10 years or the life of the asset, whichever is longer
    Commercial real estate25 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.

    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

    Rates last updated December 14th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    SmartBiz SBA Loans
    Get funding for your small business with a government-backed loan and extended repayment terms.
    $30,000
    $5,000,000
    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
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
    Excel Capital Management Small Business Loans
    Get personalized financing options that suit your unique business needs in just a few simple steps.
    Varies by loan type
    Varies by loan type
    Your business must operate in the US, be at least 1 year old and have monthly revenue of $15,000+.
    National Business Capital Business Loans
    Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
    $10,000
    $5,000,000
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.

    Compare up to 4 providers

    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:

    Loan amountCollateral
    $25,000 or lessNo collateral required
    $25,001 to $350,000Lender must follow its own collateral policies for loans of a similar amount
    $350,001 and upBorrower 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.

    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.

    Best SBA lenders

    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:

    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

    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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