SBA 7(a) Loan

Business Banking · SBA Loans · 7(a) Loan Program

What is an SBA 7(a) Loan?

Getting financing for your business can be challenging, especially for startups and entrepreneurs. The SBA 7(a) Loan is the SBA’s primary and most popular program that lets you get loan amounts up to $5 million to fund startup costs, purchase equipment, and more. Learn more at SBA.gov.

SBA 7(a) loans can be used for any type of small business. Funds can be used to finance a start-up or existing business. Loan funds can have a variety of uses including:

  • Purchase land/buildings (including construction costs) up to 25-year maturity
  • Increase working capital
  • Purchase or expand an existing business
  • Refinance existing debt
  • Purchase equipment such as machinery, furniture, fixtures, supplies, or materials

What are the differences between SBA 7(a) Loans and other types of business loans?

One of the main differences between SBA 7(a) Loans and conventional business loans are the loan-to-value requirements. SBA 7(a) loans can allow small business owners to obtain funds at a higher advance rate than their bank or lender would typically lend on a conventional business loan. In other words, SBA loans typically require a lower down payment than you would need on a conventional business loan.

SBA 7(a) loans are fully amortizing, there are no balloon payments. Your interest rate may adjust periodically, but your loan is fully amortizing. SBA 7(a) Loans also require owners of the business to personally guarantee the SBA loan. Some conventional loans do not have that requirement.

What are some important requirements for an SBA 7(a) Loan?

Industry Experience

Requirements for an SBA 7(a) Loan vary depending on the loan request, specifically what the use of the loan will be. If you are requesting funds to start a business, then the length of time in business is not relevant. The owner’s experience in the industry for the business they would like to start is relevant, however. For example, let’s say you have a borrower who would like to open a restaurant. That borrower should be able to demonstrate having experience in that industry. Maybe they have managed a restaurant and were responsible for many of the day-to-day aspects of running the restaurant (ordering and managing inventory, scheduling, hiring employees, etc.).

Collateral

Collateral is always important for loans. If you are purchasing real estate or equipment then you have existing collateral for the loan. If the loan request is for working capital then the lender would need to secure the loan with assets, whether they be business or personal.

Credit and Financial History

Good personal credit is always a good thing when applying for any type of loan and will increase the likelihood of being approved. If a borrower does have some slow payments on their credit report, it doesn’t automatically disqualify them from being approved for a loan, but good credit helps demonstrate a history of repaying loans. Having good business financial history for existing companies or having a well thought out business plan and projections for start-up businesses is also beneficial.

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