A Guide to SBA 7(a) Loans for Small Businesses

As a small business owner, you’re likely familiar with or have already applied to these two SBA relief programs: the Paycheck Protection Program and Economic Injury Disaster Loan program.

However, these programs make up a small portion of the SBA’s larger 7(a) Loan Program. While the loan terms aren’t as lenient as the disaster relief funds, the 7(a) eligibility requirements make them strong alternatives if you cannot obtain a PPP or EIDL.

What is the 7(a) loan program?

7(a) loans are part of a program that’s backed and partially guaranteed by the SBA. Since these loans are partially guaranteed, lenders will have less funds at risk if a business defaults. The result is lenders are able to provide higher loan amounts and more favourable terms compared to a traditional loan. Different loans are offered to cater to a business’s specific need.

Standard 7(a) Loans

The Standard SBA 7(a) Loan has a maximum amount of $5 million, with favorable interest rates (2.25% - 4.75%), over a 5-25 year term. Use of proceeds for this loan are broad: it can be used for expansion and renovation, purchasing equipment, working capital, refinancing debt, and inventory.

This is a great loan for those looking for a long-term loan that can be used broadly to support their business.

7(a) Small Loans

The Small Loan has similar terms to the Standard 7(a) Loan (interest rates of 2.25% - 4.75%; 5-25 year term) with the exception that the maximum loan amount is decreased to $350,000.

Applications for this loan can be pre-screened and fast-tracked if your business FICO credit score is higher than 640. Otherwise, your application will be submitted through the Standard 7(a) Loan process.

The faster application process makes this loan more appealing if your business requires less funding and can benefit from having your application reviewed sooner.

SBA Express

True to its name, Express loans are Notable for their expedited processing time—the SBA has stated they will respond to SBA Express Loan applications within 36 hours.

The maximum loan amount is $350,000, and the eligible use of funds are the same as the Standard and Small 7(a) Loans. The main difference is that this loan can be used as a revolving line of credit for 5 years and comes with a higher interest rate of 4.5% - 6.5%.

If your business is in immediate need of funds, applying for the SBA Express is the quickest way to access capital via an SBA program.

Export Working Capital and Export Express

The Export Working Capital loan is specifically for exporter businesses.

The maximum amount offered is $5 million over a 1-3 year term with negotiable interest rates, and the SBA will still guarantee 90% of the loan. Loan uses must cover short-term, working capital expenses to businesses that generate revenue from export sales.

Businesses must have been in operation for at least 12 months prior to applying and must prove that this loan will assist them in entering a new export market, or further expand into an existing export market.

Additionally, an Export Express version of this loan exists and comes with a quicker turnaround time (24 hours) and same fund uses as the Working Capital loan, but comes at the expense of lower loan amounts—with a maximum of $500,000 at similar terms.

While these are both more niche options, exporter businesses expanding into global markets will benefit from some of the best terms for loans of these amounts.

SBA 7(a) Loan eligibility requirements

While most small businesses are eligible to apply for loans in the 7(a) Loan Program, there are some general eligibility requirements to know before getting started.

Qualifying businesses must:

  • Operate as a for-profit business

  • Operate in (or plan on operating) in the United States

  • Be able to inject personal capital if they are a start up

  • Be able to show that alternative financial resources were used (ex: personal assets) before applying

Where to apply

The SBA has provided a list of the 100 most active lenders that can work with you to process and issue the loan. Look for lenders with a higher approval count as they have more experience and better support.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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