The SBA 7(a) loans are a flagship program of the Small Business Administration (SBA) that aims to assist entrepreneurs and startup owners with their finances. It’s a government-backed funding tool that allows small business owners to secure cash for their expenses, renovation, or expansion.

SBA 7(a) Loans—Everything You Should Know

This loan product is worth considering for proprietors who need business financing for a variety of purposes. If you’re looking to borrow money with agreeable terms, it could be the best solution for you.
What is an SBA 7a loan and how can you avail yourself of one? Our experts at Booster Financial want you to learn about this financing option that’s available on our roster. Read this guide to know more about this loan option.

SBA 7(a) loan: what is it?

The 7a loan program is SBA’s most popular offering that includes funding assistance for small businesses in the US. A private lender like Booster Financial issues this loan product since the SBA does not lend it directly to borrowing businesses.
The federal government backs SBA loans, which then decreases the risk for the lender. For this reason, most of these loan products have better terms and lower interest rates.
Partner lending institutions such as banks and credit unions allow you to access these loan products, even when the SBA doesn’t do the lending itself. SBA 7(a) loans are do-everything funding that lets you acquire essentials like commercial real estate, working capital, equipment, and inventory.
This product refers to over half a dozen different types of loans. Each one meets a specific purpose and requirement, and therefore varies in amounts and guarantees.

SBA loans summary

Attribute Description
Loan amount Up to $5 million
Interest rate 2.25-4.75% plus prime rate (5.5-8% as of January 2022)
Repayment terms
  • Up to 25 years for real estate loans
  • Up to 10 years for additional working capital
Minimum requirements
  • Credit score: 680
  • Downpayment: 10-20%, higher if for startups
  • Personal guarantee
  • Some collateral
Purpose
  • Working capital
  • Debt refinancing
  • Equipment purchases
  • Commercial real estate purchases
  • Franchising
  • Leasehold improvements

How does it work?

The SBA plays a big role in any SBA 7a loan since they place a guarantee on a slice of the total loan amount. If you struggle to qualify for traditional business loans, this option might be a good choice for you.
These loans exist to encourage private lending firms to offer competitive loans for borrowing businesses that are otherwise unable to find favorable financing options. A total of over $22 billion loans were financed in the fiscal year of 2020—that’s roughly 42,000 7(a) loans issued for small businesses in the US.
When you choose Booster Financial as your SBA-approved lender, we can start the loan process right away. You can borrow as much as $5 million depending on the purpose and type of loan. The SBA’s guarantee can cover up to 85% of a loan worth $150,000 and below. If the loan is higher than $150,000, you can avail yourself of a 75% guarantee from the SBA.
While we can negotiate the interest rate, the SBA sets a maximum per product. The interest rate depends on the size of the loan, the prime rate, and the loan maturity terms.
SBA loans protect borrowers from certain fees. However, you could shoulder prepayment penalties in the first three years of the loan.

Types of SBA 7a loans

The SBA has several types of 7(a) loans posted on the website. Each kind corresponds to a certain purpose, which means that you could find the most suitable loan product for your specific needs.

Standard 7(a)

The SBA 7a loan is the most popular type in the selection. With a maximum amount of $5 million, it’s a general-purpose loan. You can use it to purchase commercial real estate for your office or retail space.
Collateral is not required for loans less than $25,000. If your loan is more than $350,000, you need to collateralize it up to the loan amount. If the borrowing business’ fixed assets can’t fully secure the amount in excess, the lender may use 10% of the current book value of trading assets.
Principals may also pledge available equity in the form of real estate as collateral.
Maximum loan amount: up to $5M
Maximum guarantee: 85% for loans $150,000 or below, 75% for loans over $150,000
Interest rate: borrower and lender can negotiate the rate, but subject to the SBA maximum
Turnaround time: 5-10 business days
Forms: SBA Form 1919, SBA Form 1920, and other forms stipulated by the lender

7(a) Small Loan

The small loan option has almost the same features as the standard 7(a) loan. However, the maximum amount is only $350,000.
Maximum loan amount: $350,000
Maximum guarantee: 85% for loans $150,000 or below, 75% for loans over $150,000
Interest rate: borrower and lender can negotiate the rate, but subject to the SBA maximum
Turnaround time: 5-10 business days
Forms: SBA Form 1919, SBA Form 1920, and other forms stipulated by the lender

SBA Express

The Export Express program is designed specifically for exporters needing a loan or line of credit for as much as $500,000. It’s a streamlined method that lasts for as long as 7 years. The SBA-backed guarantee for amounts under $350,000 for this loan is 90%, while loans with higher amounts are guaranteed at 75%.
This loan is called as such because the SBA responds within 24 hours of application.
Maximum loan amount: $500,000
Maximum guarantee: 90% for loans $350,000 or below, 75% for loans over $350,000
Interest rate: borrower and lender can negotiate the rate, but subject to the SBA maximum
Turnaround time: 24 hours
Forms: Lender may use their own form and procedure, along with SBA Form 1919 and Borrower Information

Export Working Capital

The Export Working Capital is one of the SBA 7(a) loans designed for businesses needing extra funding of up to $5 million for their export sales. You can avail yourself of this loan through the Export Assistance Center.
Regardless of the loan amount, the SBA can back up to 90%. This line of credit lasts for up to a year.
Maximum loan amount: up to $5 million
Maximum guarantee: 90%
Interest rate: borrower and lender can negotiate the rate. No SBA maximum interest limit
Turnaround time: 5-10 business days
Forms: SBA Form 1920

International Trade

The SBA offers International Trade as a long-term solution for businesses that bank on export sales or require modernization due to foreign competition. You may also use it as protection against the adverse effects of imports.
You can utilize this type of loan for fixed assets like real estate, building, equipment, or working capital for exports. The loan matures for up to 10 years (working capital, machinery, or equipment) or up to 25 years (real estate).
Maximum loan amount: up to $5 million
Maximum guarantee: 90%
Interest rate: borrower and lender can negotiate the rate, but subject to the SBA maximum
Turnaround time: 5-10 business days
Forms: Lender may use their own form and procedure, along with SBA Form 1919 and Borrower Information

Veterans Advantage

The Veteran’s Advantage is suitable for businesses with minimum veteran ownership and control of 51%. It’s a great benefit for veterans since they can apply for other SBA programs, then incorporate this Advantage into their existing loans.
If you are veteran thinking of getting this loan, you must be:

  • Honorably discharged
  • Active-Duty Military service member with eligibility to the Transition Assistance Program or TAP
  • Service-disabled veteran
  • Active National Guard members or Reservists
  • Spouse or widow of veteran

SBA CAPLines

CAPLines has similar features as that of the Standard SBA 7a loan. However, it takes the form of an ongoing line of credit instead of a lump-sum loan. The design allows borrowers to fund their short-term or cyclical working capital requirements.
Under CAPLines, there are four types of loans that last up to 10 years except for the Builders category. All these loans require the holder with at least 20% ownership to guarantee it.
Seasonal
The Seasonal CAPLine is suitable for enterprises with cyclical needs. For example, a retail store may need additional workers during the holidays.
Contract
This line of credit finances the material costs and direct labor linked to assignable contract jobs.
Builders
Designed for builders and general contractors, the Builders CAPLine assists in meeting labor and material requirements. This loan has a maximum maturity of up to 5 years only.
Working
The Working CAPLine matches businesses that have recurring short-term needs or cyclical growth. It’s an asset-based line of credit that cannot meet long-term credit standards. You can use this loan to acquire short-term assets. Repayment happens when these assets are converted into cash. A great example is a business that provides credit to another business.

Frequently Asked Questions

Am I eligible?

The SBA 7(a) loans have different eligibility requirements, but there are common guidelines you should look out for when trying to obtain any of these loans:

  • Operating for profit within the United States or its possession
  • Belong to the category Small Business as defined by the SBA
  • Own reasonable invested equity
  • Able to use alternative financing resources such as personal assets
  • Demonstrate the need for an SBA loan
  • Utilize the loan for a sensible purpose
  • No delinquency on any existing debts to the government

What should I prepare for the application?

Once you decide to apply, you must prepare the necessary documents that the SBA may ask for before you can get approval for a loan.
Here’s a general checklist you can use as a reference.

Requirements Description
Borrower Information Form Fill out SBA Form 1919 and submit it to your chosen lender
Background and financial statement Fill up the Statement of Personal History (SBA Form 912) and Personal Financial Statement (SBA Form 413)
Business Financial Statements Submit your profit and loss (P&L) statement within 180 days of application, and your one year’s worth of projected financial statements
Ownership and Affiliations Provide a complete list of names and addresses of affiliates and subsidiaries connected to you
Business License or Certificate Submit a copy of your certificate or license for doing business. If you own a corporation, place your corporate seal on the application form
Loan Application History List and include records of any loan you applied for prior to your current application
Income Tax Return Provide a signed business and personal federal income tax returns for the previous 3 years
Resumes Submit a resume for every principal
Resumes Submit a resume for every principal
Business Overview and History Explain the history of your businesses and the challenges you met, and the purpose of the SBA loan and how it can help you
Business Lease Submit a copy of the business lease or your landlord’s note mentioning the terms of the lease

Do I need to pay back my loan?

It’s the financial obligation of the borrowing business to pay back their SBA loan. Once you default on this debt, the federal government will pay the guaranteed portion to the lender. Most of these loans are repaid monthly, which include the principal plus interest.

How can I use my SBA loan?

You can use SBA 7(a) loans for a variety of purposes, which may include:

  • Short-term and long-term additional working capital
  • Revolving funds depending on the value of current inventories and receivables
  • Purchase of real estates such as land or buildings
  • Construction or renovation of buildings
  • Purchase of equipment, machinery, fixtures, supplies, furniture, or other materials
  • Putting up a new business
  • Expanding, operating, or acquiring an existing business
  • Refinancing business debt (subject to certain conditions)

Should you get an SBA 7a loan?

Small businesses can grow and thrive in the market thanks to government-backed SBA 7(a) loans. These programs offer favorable terms and low-interest rates that allow owners to borrow cash without the worry of ballooning fees and charges.
Are you interested in applying for this loan? Booster Financial is a partner lending agency that provides SBA loans for small businesses and startups. You can talk to our experts if you want to learn about the eligibility requirements. We can help you find the right type of loan that meets your needs today!

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