SBA 7 (a) Loan: What It Is and How to Apply

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Like many SBA creditsSBA 7 (a) loans are partially guaranteed by the US Small Business Administration and issued by participating lenders such as banks and credit unions. SBA 7 (a) loans are the most common type of SBA loans and therefore the 7 (a) loan program is one of the main ways to support SBA small businesses – more than 42,000 7 (a) loans are guaranteed in 2020 alone.

While SBA 7 (a) loans can be difficult to obtain, they are ideal for business financing due to long maturities and low interest rates. In addition, loans 7 (a) can be used for a variety of purposes, including working capital, business expansion, or the acquisition of equipment and materials.

Here’s what you need to know about an SBA 7 (a) loan and how to get one for your small business.

What is an SBA 7 (a) loan?

SBA Loan 7 (a) is small business loan issued by a private lender and backed by the SBA. Although “Loan 7 (a)” is sometimes used as a catch-all term, the SBA 7 (a) loan program consists of several different types of loans (more on these below).

To apply for a 7 (a) loan, you will work with an SBA loan partner such as a bank or credit union to complete the application. The lender will send your application package to the SBA for a loan guarantee; Here, if you are not on creditThe SBA will pay the guaranteed amount to the lender.

The SBA sets out general guidelines for a loan program 7 (a) that lenders must follow when setting maximum loan amounts, maturities and interest rates; however, you will receive details of the SBA 7 (a) loan from a participating lender.

SBA 7 (a) Loan Rates and Conditions

The maximum term for SBA 7 (a) loans depends on the use of the proceeds from the loan:

  • 25 years on real estate.

  • 10 years for working capital loan or inventory.

However, the term of the CAPLine credit line is no more than 10 years, and the term of the Builders credit line cannot exceed five years.

SBA 7 (a) loan interest rates, on the other hand, are set based on the base rate – the benchmark used by banks to determine rates on consumer lending products that change based on the actions of the Federal Reserve Board – plus a spread that is negotiated between by you and your lender.

The spread can be fixed or variable, but depends on the maximum SBA values, which are determined by the duration or maturity, and the size of your loan.

Here’s how SBA 7 (a) maximum lending rates are broken down:

Maturity less than seven years

Maturity over seven years

As of April 2021, the base rate is 3.25%.

It is important to remember that the interest rate is only a fraction of the total cost of the loan 7 (a). Although the SBA limits the fees that lenders can charge, most SBA 7 (a) loans will have a guarantee fee that ranges from 0.25% to 3.75% depending on the size of the loan.

Currently, due to the adoption of the Economic Assistance Act, the SBA has waived guarantee fees for lenders and borrowers (subject to availability) until September 30, 2021.

There are six main types of SBA loans in the 7 (a) program, as well as the CAPLines program, which offers four different SBA Credit Lines but generally meets the same requirements as standard loan 7 (a).

The best SBA 7 (a) loan for your business will depend on the amount of funding you need, how you are going to use that funding and how quickly you need it.

SBA Application Processing Time

Financing of working capital, procurement of equipment and materials, real estate and business expansion

Financing small financial needs

75% for loans under USD 350,000 and 50% for loans over USD 350,000 *

Accelerated financing for small loan amounts

90% for loans of USD 350,000 or less and 75% for loans of more than USD 350,000.

Accelerated financing to accelerate business export development

Export working capital loan

Working capital financing to support export sales

Long-term financing to expand export sales or modernize to fight foreign competitors

Financing short-term and seasonal working capital requirements

  • The SBA’s maximum guarantee for standard loans 7 (a) and small 7 (a) will return to 85% for loans up to $ 150,000 and 75% for loans over $ 150,000.

  • Maximum loan amount for SBA Express loans will be $ 500,000 and all loans will be repaid under the SBA’s maximum guarantee of 50%.

  • The maximum SBA guarantee for CAPLine lines of credit will return to 85% for lines up to $ 150,000 and 75% for lines over $ 150,000.

While these criteria — maximum loan amount, SBA guarantee, application timing, and intended use — differentiate the SBA 7 (a) loan types, some loans may also have different collateral policies and specific application requirements.

Pilot loan programs

SBA Pilot Loan Programs also fall under the broader coverage of Program 7 (a). The SBA tests these programs for a limited time before deciding whether to renew, permanent, or expire.

The SBA Community Advantage Loan Program is currently valid until September 30, 2022. This program aims to provide finance to small businesses in underserved markets.

Previously, the SBA Express Bridge loan program offered businesses post-disaster financing to help them cover costs while they awaited longer-term funding. This program expired on March 13, 2021.

SBA 7 (a) Loan Requirements

Regardless of the type of loan 7 (a), you will need to get standard set of requirements as set forth by the SBA, as well as any requirements from your lender, to qualify for funding. The general credit criteria of SBA 7 (a) include:

  • There must be a commercial business operating in the United States.

  • Must be a small business as defined by the SBA.

  • Should be, as a business owner, put his own time and money into it.

  • Should have looked for other forms of funding before applying for an SBA loan.

  • Must be able to demonstrate the need for a loan and show the business purpose for which you will be using the funds.

  • Cannot be overdue on existing government loans.

Certain businesses, such as real estate investment firms, faith-based organizations and gambling, are not eligible for SBA 7 (a) loans.

In addition, although the SBA does not set quantitative minimums for assessing a borrower’s creditworthiness and ability to repay a loan, lenders generally want to see a good personal credit rating (690 or higher), stable annual income, and at least two years of doing business. …

How to Apply for an SBA 7 (a) Loan

If you think you can qualify for an SBA 7 (a) loan, you can complete the application process by following these three steps:

1. Find an SBA 7 (a) lender.

Hundreds of financial institutions offer SBA 7 (a) loans, including national banks such as Chase, Wells Fargo and Bank of America. You can start by contacting a bank you have a relationship with to see if it offers SBA 7 (a) loans.

The SBA also offers a lender matching tool through its website that allows you to provide information about your business and contact a lender in your area.

In general, you will want to search SBA Lenders who are experienced in disbursing 7 (a) loans as these institutions will be able to expedite the application process, answer questions you may have, and hopefully increase your chances of getting approved.

To this end, you can view the SBA 7 (a) 100 Most Active Lenders List, which is updated quarterly on the SBA website. Alternatively, you can search for banks or credit unions that are members of the SBA Preferred Lenders program; this program gives lenders more authority to process and close SBA loans.

2. Collect the documents and submit your application.

Your SBA lender will be able to help you get the paperwork you need to prepare and submit your completed SBA 7 (a) loan application. Although the requirements will differ depending on the specific lender and the type of SBA 7 (a) loan, here are some documents you may need:

  • SBA Form 1919, Borrower Information Form.

  • Personal data and financial statement (SBA Forms 912 and 413).

  • The financial statements of an enterprise, such as balance sheets, income statements, and projected financial statements.

  • Business certificate or license.

  • Loan application history.

  • A resume for every business owner.

  • Business overview and history.

3. Wait for approval and close your loan.

Once you have applied for an SBA 7 (a) loan, you will need to wait for approval – whether directly from your lender or the SBA. SBA Preferred Lenders can approve loans without reviewing the SBA’s application, thereby shortening the time frame.

Once your loan is approved, your lender will begin the closing process, which includes collateral security, preparation of loan documents and the fulfillment of any other permissive requirements. Then your lender will pay off your funds, and you will pay off the loan in monthly installments over the term.

Although the processing time for a standard SBA 7 (a) loan application must be five to 10 business days, the entire application process can take 60 to 90 days.

Find & Compare Small Business Loans

If an SBA 7 (a) loan is not right for your business or you want to compare loan options, NerdWallet has a list of small business loans that are best for business owners. All of our recommendations are based on market size and the lender’s track record, as well as the needs of the business owners, as well as rates and other factors, so you can make the right financing decision.

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