7(a) loans: What Business Owners Should Know

If you’re ready for low-cost funds to help you strengthen and grow your small business, your best bet is an SBA 7(a) loan. These loans are an excellent option every business owner should consider if qualified.

SBA 7(a) loans are guaranteed by the Small Business Administration. Here’s what you need to know about this popular loan program known as the “gold standard” due to low rates, long terms and very low monthly payments.

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Types of 7(a) Loans

SBA 7(a) Loans
The 7(a) loan program is the primary program – and most popular - providing low-cost funds to small businesses across America. These loans go up to $5,000,000 and can be used for working capital, to refinance debt or to purchase commercial real estate. The SBA Express Loan and the SBA Advantage Loan are part of the 7(a) loan program.

Banks and other lending institutions are more likely to offer 7(a) loans due to decreased risk because of the government guarantee. SBA banks will offer much more favorable terms for an SBA loan than other types of loan products. Our friends at FitSmallBusiness keep the interest rates and other pricing details up-to-date here: Current Interest Rates and How They Work. Also included are comparison charts showing that SBA 7(a) loans are the best bet to strengthen and grow a small business.

To see a dive deeper into the SBA 7(a) program, read Why SBA Loans? The article provides more details to help you learn more about the easiest and fastest way to get pre-approved, apply and get funded quickly and easily.

  • SBA 7(a) Loan Qualifications
    To qualify for an SBA 7(a) loan, you’ll need to provide paperwork proving that your business fits the required parameters and can make the low monthly payments for the life of the loan. These include:

    • Personal & Business Tax Returns
    • Personal Financial Statements, required from each individual owning 20% or more of the company
    • Profit and Loss Statement
    • Balance Sheet
    • Collateral
    • Other documents, such as business licenses, Articles of Incorporation, commercial leases, or franchise agreements, may be requested depending on the particular loan application.

An accountant or tax preparer may be able to help you gather and file the relevant information.

SBA 7(a) Advantage Loans
SBA 7(a) Community Advantage Loans are designed to help businesses in underserved markets. Programs are for borrowers who meet the SBA eligibility criteria but are not able to qualify for a standard SBA 7(a) loan. Reasons business owners may not qualify include low revenues, low collateral or other reasons. Amount of $50,000 to $250,000 are available and it’s usually funded through community-based lenders.

Under the Community Advantage Program, the SBA offers the same expedited application and approval process that comes with an SBA Express loan, but they’ll guarantee 85% of loans up to $250,000. This further reduces the risk to lenders and gives them more motivation to lend these loans over the SBA Express program.

SBA 7(a) Express Loans
The SBA Express loan is part of the 7(a) loan program and has certain eligibility requirements. This loan has an expedited turnaround making the approval process swifter.

Here are details about this type of loan:

  • The maximum loan amount for borrowers is $350,000.
  • Revolving lines of credit are available for up to seven years.
  • Lenders and borrowers negotiate the interest rate, which can be fixed or variable.
  • For loans up to $25,000, lenders are not required to take collateral, but they may use their existing collateral policy for loans between $25,000 and $350,000.

Businesses can use the funds from an SBA Express loan for a variety of different business needs, including start-up and expansion costs. A unique benefit is a quicker application process. Other SBA loans may require more time before approval. The process can take up to three months.

 

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Benefits of 7(a) Loans

7(a) loans were created to help entrepreneurs and have many benefits for the entrepreneur.

  • Low Interest Rates: Interest rates for SBA loans very low depending on your credit scores and other application data. 7(a) loans don’t have double digit rates like other loan products. Low-cost funds are the best way to grow a business and avoid crunching cash flow.
  • Higher Loan Amounts: Banks have been reluctant to offer large amounts of capital to small businesses. However, the government guarantee of 7(a) loans has opened this up. Business owners can borrow up to $5.5 million through the 7(a) loan program.
  • Long Repayment Terms: A key advantage to SBA loans is the long terms. SBA 7(a) loans through SmartBiz Loans have a 10 year terms for working capital loans and debt refinance loans and 25 years for a low-cost commercial real estate loan. Long terms = low payments that won’t have a negative impact on valuable cash flow.
  • Flexibility of Use: SBA 7(a) loans can be used for a variety of purposes. Popular uses for low cost funds from an SBA 7(a) loans are for working capital, to refinance debt or to purchase commercial real estate. Working capital can be used for marketing, hiring, buying equipment, inventory purchases and more.

Who is Eligible?

The Small Business Administration website has the basic requirements including that your business must meet SBA’s size standards and be considered small within your particular industry.

You must operate for profit and you must have reasonable equity to invest. You’re also required to do, or propose to do business, in the United States or its possessions.

Another eligibility requirement is that you must have tried to use other financial resources, including personal assets, before applying for a loan. This article dives deeper into the requirements you should meet before you apply. 5 SBA Loan Requirements You Need to Know

Next Steps: Check Eligibility Before You Apply

Save valuable time and find out if you’re qualified for an SBA 7(a) loan before you apply. The new SmartBiz Advisor™ is an online, educational tool offered by SmartBiz Loans® to help you learn how you can get your business SBA or bank loan ready before you apply – no cost involved.  You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.

Once you’re ready to apply, SmartBiz Loans is here to help. We’ve streamlined the application process and match you with the bank most likely to fund your loan. Read what experts and top financial publications have to say about our fast and easy service: SmartBiz Loans Makes SBA Loans Easy

 

* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

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