7 a Small Business Loan Program Benefits 2024

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Small Business Loan Program
Small Business Loan Program

Benefits of SBA-guaranteed loans Counseling and education: Some loans come with continued support to help you start and run your business. Unique benefits: Lower down payments, flexible overhead requirements, and no collateral needed for some loans.

What is 7(a) Small Business Loan?

The 7(a) loan program is SBA’s primary program for providing financial assistance to small businesses and is the most widely used loan program of the Small Business Administration’s (SBA) business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the agency to provide loan guarantees to participating SBA lenders that work directly with American small businesses. Small business applicants work directly with a participating SBA lender and not with SBA. The loan program is designed to assist for-profit businesses that are not able to get other financing from other resources.

Who is eligible for 7(a) Small Business Loan?

SBA provides loan guarantees to lenders that in turn make loans to businesses, including sole proprietorships.

To be eligible for financing under SBA’s 7(a) loan program, the applicant business must meet all of the following:

  • Meet SBA size standards
  • Be for-profit
  • Not already have the internal resources (business or personal) to provide the financing, and
  • Be able to demonstrate repayment.

Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Percentage of guaranty

For most 7(a) loan programs, SBA guarantees up to 85 percent of loans of $150,000 or less, and up to 75 percent of loans above $150,000. However, SBA provides a 50% guaranty on SBA Express loans. SBA provides a 90% guaranty for Export Express, Export Working Capital Program (EWCP), and International Trade loans.

What is a 7(a) loan? 

The 7(a) Loan Program, SBA’s primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for: 

  • Acquiring, refinancing, or improving real estate and buildings
  • Short- and long-term working capital 
  • Refinancing current business debt 
  • Purchasing and installation of machinery and equipment
  • Purchasing furniture, fixtures, and supplies 
  • Changes of ownership (complete or partial)
  • Multiple purpose loans, including any of the above

The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. Your lender will help you figure out which type of loan is best suited for your needs.

Am I eligible?

To be eligible for 7(a) loan assistance, businesses must:

  • Be an operating business.
  • Operate for profit.
  • Be located in the U.S.
  • Be small under SBA Size Requirements
  • Not be a type of ineligible business
  • Not be able to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources.
  • Be creditworthy and demonstrate a reasonable ability to repay the loan.

Read more about Terms, conditions, and eligibility.

How do I apply?

You can use SBA’s Lender Match tool to connect with a participating SBA lender.  You will apply for your loan directly through your lender. 

The contents of the loan application vary depending on the size of the loan and the lender’s processing method. Your lender will help you determine which documents you’ll need based on your individual circumstances. 

You will always work directly with your lender and not with SBA.

How do I pay back my 7(a) loan?

Loan repayment terms vary according to several factors.

  • Most 7(a) term loans are repaid with monthly payments of principal and interest from the cash flow of the business
  • Payments stay the same for fixed-rate loans because the interest rate is constant 
  • For variable rate loans, the lender may require a different payment amount when the interest rate changes 

Existing borrowers

Existing borrowers can create an account in the MySBA Loan Portal (lending.sba.gov) to monitor their loan status, view statements, payment history and more. 

Payments can only be made using the My SBA Loan Portal for SBA-purchased 7(a) loans.  All others can continue to set up and manage online payments at Pay.gov. 

Interest rates

Interest rates for 7(a) loans are negotiated between the borrower and the lender, but are subject to SBA maximums, which are pegged to the prime rate or an optional peg rate. Interest rates may be fixed or variable. SBA publishes the maximum fixed interest rates on SBA’s FTA wiki. The maximum interest rates for variable 7(a) loans are as follows:

Loan amountMax rate
$50,000 or lessBase rate plus 6.5%
$50,001 to $250,000Base rate plus 6.0%
$250,001 to $350,000Base rate plus 4.5%
Greater than $350,000Base rate plus 3.0%

7 a Small Business Loan Fees

Fees the lender pays SBA

Lenders must pay an Upfront Fee (also known as an SBA Guaranty Fee) for each loan guaranteed under the 7(a) program but are permitted to pass the cost of the fee on to the borrower. Lenders must pay the Lender’s Annual Service Fee (also known as the SBA On-Going Guaranty Fee) based on the outstanding principal balance of the guaranteed portion of a loan at the time of SBA loan approval. 

This fee cannot be charged to the borrower. SBA publishes the amount of the Upfront Fee and the Lender’s Annual Service Fee each fiscal year for all loans approved during that year through an Information Notice. 

Fees lenders and agents may charge the borrower

SOP 50 10 and the regulation at 13 CFR § 120.221 contain information on fees lenders and agents may charge the borrower.

Prepayment penalties

For loans with a maturity of 15 years or longer, prepayment penalties apply when:

  • The borrower voluntarily prepays 25 percent or more of the outstanding balance of the loan.
  • The prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.

The prepayment fee is:

  • During the first year after disbursement, 5% of the amount of the prepayment.
  • During the second year after disbursement, 3% of the amount of the prepayment.
  • During the third year after disbursement, 1% of the amount of the prepayment.

What are the loan terms for 7(a) Small Business Loan?

The maximum length of the loan is 25 years for real estate and up to 10 years for working capital, inventory, equipment, or other business assets. The maximum loan amount is $5 million.

For more information, please visit SBA’s 7(a) Loan Program Quick Overview page.

Max Loan Length25 years for real estate, 7 years for working capital
Interest RateSubject to SBA maximums, tied to the Prime Rate
Max Loan Amount$5 million
Payment FrequencyVaries, but typically monthly
Prepayment PenaltiesVaries
Max Loan LengthYes

Maturity terms

The term of a 7(a) loan will be: 

  • The shortest appropriate term, depending upon the borrower’s ability to repay; 
  • Ten years or less, unless it finances or refinances real estate or equipment with a useful life exceeding ten years. The term for a loan to finance equipment and/or leasehold improvements may include an additional reasonable period, not to exceed 12 months, when necessary to complete the installation of the equipment and/or complete the leasehold improvements. 
  • A maximum of 25 years, including extensions. (A portion of a loan used to acquire or improve real property may have a term of 25 years plus an additional period needed to complete the construction or improvements.).

Loan amounts

Most 7(a) loans have a maximum loan amount of $5 million. However, 7(a) loans made under the SBA Express and Export Express delivery methods have maximum loan amounts of $500,000. SBA’s maximum exposure (i.e., dollars guaranteed) is $3.75 million. However, 7(a) International Trade loans may receive a maximum guaranty of 90% or $4.5 million. The amount guaranteed for working capital for the International Trade loan combined with any other outstanding 7(a) loan for working capital cannot exceed $4 million.

What are the benefits of a 7(a) loan?

There are multiple potential benefits of using the SBA 7(a) loan program.

1. Partial guarantee

While banks are still held accountable for making prudent credit decisions, 7(a) loans provide them with a 50% to 85% guarantee. This can help mitigate a portion of the credit risk, lower bank capital reserve requirements and offer new possibilities for clients to access capital.

2. Reduced down payment options

Traditional financing may require a down payment that can range between 15% and 30% of the purchase price or project cost. SBA financing has historically required a lower down payment, and in some circumstances SBA lenders can finance up to 100% of the transaction. These lower down payment requirements are key in allowing small business owners to preserve much-needed working capital.

3. Multiple allowable uses

With loan amounts of $50,000 to $5 million available, small business owners can wrap multiple aspects of a project’s funding needs—from real estate and equipment to working capital and closing costs—into one loan. The SBA allows all eligible uses of proceeds to be rolled into a single loan at one term and at one rate, rather than have several conventional loans pieced together at different terms and rates.

4. Longer repayment terms

Another advantage of the SBA 7(a) loan program is that business owners can repay it over a longer time period than conventional financing. They can simply calculate how long it’ll take to repay a loan for a better understanding of the timeframe. An SBA 7(a) loan also offers up to 10-year amortizations for equipment, startup working capital, leasehold improvement and business acquisition financing. Loans used primarily for real estate can benefit from 25-year options.

5. More flexibility

Borrowers can also make additional principal payments to an SBA 7(a) loan, which can be re-amortized to reduce future monthly payment requirements. For loans with amortizations of less than 15 years, there are no repayment penalties. This gives small business owners more flexibility as their needs change.

Finding the right 7(a) option

To qualify for an SBA 7(a) loan, Opens in a new tab, a company must be for-profit and do business in the United States or its territories. Business owners must have already used alternative funding sources—including their own personal assets—before applying for the loan, and they can’t be delinquent on any US government loans. They also must have reasonable equity in the business and a strong personal credit score.

If you have good personal credit and a growing small business, an SBA 7(a) loan could be just what you need. If you’re still unsure, talk with a small business financial specialist to discuss your options.

How do I apply for 7(a) Small Business Loan?

To apply for a 7(a) Small Business Loan, which is a popular type of loan provided by the U.S. Small Business Administration (SBA), follow these general steps. Keep in mind that the process may vary depending on the lender and specific loan program details:

  • Determine Eligibility: Ensure that your business is eligible for an SBA 7(a) loan. Eligibility criteria typically include factors such as the size of your business, the nature of your business, and your ability to repay the loan.
  • Create a Business Plan: Develop a comprehensive business plan that outlines your business, its goals, financial projections, and how you intend to use the loan funds. A solid business plan is often a key component of the loan application.
  • Identify SBA-Approved Lenders: Find a lender that participates in the SBA 7(a) loan program. Many banks and financial institutions are approved SBA lenders. You can locate SBA-approved lenders on the SBA website or by contacting your local SBA office.
  • Contact the Lender: Reach out to the lender and express your interest in applying for an SBA 7(a) loan. The lender will provide information about their specific application process and requirements.
  • Gather Required Documents: Prepare the necessary documentation for your loan application. This typically includes:
    • Business financial statements (profit and loss, balance sheet).
    • Personal financial statements for business owners.
    • Business and personal tax returns.
    • Business legal documents (articles of incorporation, business licenses).
    • Resumes of key management personnel.
    • Collateral information.
  • Complete the Loan Application: Fill out the SBA loan application provided by the lender. Be thorough and accurate in providing the requested information.
  • Submit the Application: Submit the completed application along with all required documentation to the lender. Some lenders may have online application portals, while others may prefer hard copies.
  • Wait for Loan Processing: The lender will review your application and conduct a credit check. They may also request additional information during the processing period. The time it takes to process the loan can vary.
  • Loan Approval and Closing: If your application is approved, the lender will provide a commitment letter outlining the terms of the loan. Review the terms carefully, and if acceptable, proceed to the loan closing. At the closing, you’ll sign the necessary paperwork to finalize the loan.
  • Use of Loan Funds: Use the loan funds for the approved business purposes outlined in your application. Keep in mind that SBA loans have specific allowable uses, and you’ll need to adhere to the terms of the loan agreement.

It’s important to note that the SBA does not directly lend money to businesses; it guarantees a portion of the loan provided by approved lenders. Therefore, the specific application process and requirements may vary from one lender to another. Working closely with an SBA-approved lender and providing all required information in a timely manner will facilitate the loan application process.

How can I contact someone?

Find a local SBA District Office: SBA District Offices
Find a participating SBA Lender: SBA Lender Match 1-800-659-2955.

FAQs. Small Business Loan Program Benefits

1. What is a small business loan program?

A small business loan program is a financial assistance initiative designed to provide funding to small businesses for various purposes, such as starting a new business, expanding operations, purchasing equipment, or covering working capital needs.

2. What types of small business loan programs are available?

There are various types of small business loan programs, including term loans, lines of credit, equipment financing, microloans, and government-backed loans such as those offered by the Small Business Administration (SBA).

3. How do I know if I qualify for a small business loan?

Eligibility criteria for small business loans vary depending on the lender and the specific loan program. Generally, factors such as creditworthiness, business revenue, time in operation, and the purpose of the loan are considered.

4. What is the Small Business Administration (SBA) and its role in small business loans?

The Small Business Administration (SBA) is a U.S. government agency that supports small businesses. It guarantees a portion of loans made by approved lenders, providing an incentive for lenders to extend credit to small businesses that might not otherwise qualify for traditional loans.

5. How do I apply for an SBA loan?

To apply for an SBA loan, contact an SBA-approved lender. Complete the necessary application forms, provide required documentation, and work closely with the lender through the application and approval process.

6. What documentation is typically required for a small business loan application?

Required documentation may include business and personal financial statements, tax returns, business plans, proof of collateral, and other relevant information about the business and its owners.

7. Can startups qualify for small business loans?

Yes, some lenders and programs offer financing options specifically tailored for startups. However, startups may face stricter eligibility criteria and may need to provide a robust business plan and financial projections.

8. What is the difference between secured and unsecured small business loans?

Secured loans require collateral, such as business assets or personal assets, to secure the loan. Unsecured loans do not require collateral but may have higher interest rates due to the increased risk for the lender.

9. How long does it take to get approved for a small business loan?

The approval timeline varies depending on factors such as the complexity of the loan, the lender’s processes, and the completeness of the application. It may take anywhere from a few weeks to several months.

10. What can small business loans be used for?

Small business loans can be used for various purposes, including starting a business, expanding operations, purchasing equipment, covering working capital needs, refinancing debt, and other business-related expenses.

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