SBA 7(a) Loans  

The 7(a) loan is a type of loan serviced by the Small Business Administration, which provides accessible financing to small business owners, as well as other entrepreneur resources. The SBA provides a guaranty to lenders, which helps provide small businesses with funds at a lower interest rate and with longer terms. The 7(a) loan is the SBA’s most popular loan type for small businesses and like all SBA loan products, the 7(a) is a loan guaranteed by the SBA and offered through a traditional bank. Qualifying businesses can receive anywhere from $500K to $5 million in funds to use for almost any business purpose.

The 7(a) loan can be used for a variety of business needs including new construction, renovation, equipment purchases, working capital, debt refinancing, inventory, or even starting a business. This loan type is commonly used for business expansion.

Additional loan types like the SBA Express, Export Express, and CAPLines are offered under the 7(a) loan umbrella, but typically have different requirements and parameters. Most businesses simply apply for the 7(a) loan, which typically provides favorable terms for qualifying businesses.

Here are some common terms the 7(a) typically offers:

Loan amount	$500K-$1 million
Maximum SBA guarantee	75%
Interest rate	Negotiable, but may not exceed SBA maximum.
Loan term	6-25 years
Lines of credit	Only permitted under SBA Express, Export Express, or CAPLines
Collateral	Considered “fully secured” if the lender takes security interests in all assets being acquired. Other conditions apply.

SBA financing is highly sought after due to its low interest rate and favorable terms. The SBA provides longer term funds for businesses, making it ideally suited for businesses that are planning for long-term growth and have established cash flow. A loan serviced by the SBA makes it more likely a conventional bank will fund the loan – and applicants don’t interact with the SBA, just the lender directly. With high funding amounts, the 7(a) loan works great for high-price business goals like purchasing land or buildings, renovations, or startup costs.

Business owners seek SBA financing due to its favorable terms, which generally can include:

• Capped interest rates set by the SBA
• Larger loan amounts
• Flexibility on fund use
• Resource centers and continued entrepreneur support

To learn more about a side-by-side comparison between SBA loans and alternative loans, we break down the differences here.

The SBA considers businesses that are considered a small business, for-profit, and operate in the U.S. Additional qualifications may include:

• Minimum individual credit score of 600
• At least 2 years in business
• 15 debt service coverage ratio

A debt service coverage ratio measures a company’s available cash flow to current debt obligations. A score of 1 indicates a business has exactly enough operating funds to pay off any debts. To get a general idea of your ratio, you can simply divide your net operating income by your total debt service.

Typically, the SBA requires the lender to screen the application using a FICO SBSS score, which is a business credit score measured on a scale out of 300. The SBA generally requires a minimum score of 140 or 155. To get an idea of your business credit score, visit FICO SBSS. Business and personal credit scores are often the first line of consideration the SBA looks at on an application, as credit score helps lenders determine the overall creditworthiness of an applicant and how likely an applicant is to repay the loan in full.

Additionally, the SBA generally looks for businesses who have both exhausted all other financing options and have invested their own equity into the business. This is referred to as “equity injection” requirements, where the owner must prove they have invested their own money and time into the business. The SBA also must verify the applicant’s ability to repay the loan. The lender will work with you to understand your business’ future projections and cash flow, but this requires a lot of documentation and can take a long time to process.

The SBA loan application process is notoriously long and requires a lot of documentation. It’s a good idea to know what documents are needed, so here is a general idea of what you’ll need to apply:

• Business and personal credit score
• Bank and financial statements
• Personal financial statements
• Accounts receivables and accounts payable

 

The SBA has minimum requirements for a lender to meet in order for a loan to be serviced by the SBA and the lender may have its own requirements in addition. SBA financing is extremely competitive, but despite all this, you shouldn’t be discouraged from applying. SBA loans are just like conventional loans and aim to provide accessible financing to small business owners nationwide.

 

Even with the high demand for SBA loans, many small business owners find their company doesn’t qualify or they need access to capital on a much shorter timeline. Businesses with lower working capital that need funds quickly turn to SmallBusinessLoans partners to meet their needs. At SmallBusinessLoans, you’ll find lenders who can approve and deposit funds quickly. We match business owners with highly rated lenders who provide trusted and fast service. SmallBusinessLoans helps close the gap in accessible financing by making it easy to match with lenders who offer much more flexible requirements than the SBA. Learn more about the differences between SBA funds and alternative loans to see what works for your business.