SBA 7(a) Loan Program

SBA stands for the U.S. Small Business Administration, a government agency that is committed to promoting small business start-ups and helping them achieve financial stability. Small businesses were responsible for more than 65% of net new job creation in the United States between 2000 and 2017, so supporting small businesses is vital to the U.S. economy.

What is an SBA Loan?

An SBA loan is a long-term, low-interest small business loan partially guaranteed by the United States government. Under the SBA’s various “SBA loan” programs, you can borrow money for nearly any business purpose.

The SBA doesn’t give out loans directly, so there’s no need to go to one of their offices to apply. Instead, the SBA encourages lenders to fund small businesses by guaranteeing large portions of the loans they give. So, if a small business defaults on their SBA loan, the lender doesn’t lose all their money. This provides lenders with an incentive to take more risks when lending to businesses—making financing available to small business owners who otherwise wouldn’t be eligible.

What is the SBA 7(a) Loan Program?

The 7(a)-loan program is the SBA’s primary program for small businesses. If you want to start a new business or expand your existing small business, a 7(a) loan might be a great, flexible option for you. Several types of SBA loans technically fall under the umbrella of the 7(a) program, but the standard 7(a) loan which provides up to $5 million in funding is the most popular.

Who may qualify for the program?

To qualify for an SBA 7(a) loan, you must meet the SBA’s minimum requirements:

  • Be an operating, for-profit business in an eligible industry.
  • Meet  the SBA’s size requirements.
  • Demonstrate a need for an SBA loan.
  • Be located in the US or its territories

What can SBA 7(a) guaranteed loan funds be used for?

Some eligible uses of the funds are:

  • Purchase and development of commercial real estate
  • Construction or renovation projects
  • Purchase of equipment, machinery, supplies or inventory
  • Acquisition of an existing business
  • Establishment of a new business
  • Acquisition of a franchise
  • Debt refinancing (under special circumstances)
  • Funding of international trade.
  • Working capital

How much can your business borrow?

You can borrow up to $5 million in capital to use for eligible business purposes.
What is the maximum amount of an SBA 7(a) loan guarantee? The SBA offers an 85% guarantee for loans under $150,000 and 75% for loans between $150,001 and $5 million.

What are the fees and interest rates?

Government backed business loans tend to come with interest rates and fees that are much lower compared to other business financing options. The SBA sets the fees and maximum interest rates that lenders can charge and though these fees and rates change from time to time, they are kept at competitive market levels to encourage small business owners to borrow money and invest in their companies.

What are the terms of the loan?

The terms of the loan vary depending on the use of funds.

Intended Use of FundsMaximum Loan Term
Commercial real estate25 years
Equipment, furniture and fixtures10 years OR the useful life of the asset, whichever is less.
Working capital10 years

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

  • The loans are flexible and can be used for a wide variety of business purposes.
  • The loans have long terms and low interest rates so you can maximize your business capital while minimizing payments.
  • It is much easier for a small business to get approved than with a traditional bank loan, even when you don’t have a perfect credit score or lots of business assets to use as collateral
  • The SBA 7(a) loan can be used to start a new business.

Eligibility Checklist

1. Are you a citizen or lawful permanent resident of the United States?
2. Do you have a U.S.-based, officially registered and operating, for-profit business in an eligible industry? Nonprofit businesses are not eligible for SBA guaranteed loans.
3. Does your business Meet the SBA’s size requirements for small business? You can  check whether your business is small using the size standards interactive tool on the SBA website.
4. Can you demonstrate that you have a good background and personal character?
a. Do you have good credit (min FICO Score 680) and a strong credit history?
b. Are you willing to provide information about your personal background,
including previous addresses, your citizenship status and your criminal record, if any?
5. Does your existing business have a good business credit score? The FICO Small Business Scoring Service (SBSS) indicates how well your business has met financial obligations to vendors, lenders and suppliers and should be at least 160.
6. Can you show that other financing options are not available to you? The SBA will not guarantee your loan if you can get financing with reasonable terms from a lender without their help.
7. Can you provide evidence that you have invested or are willing to invest your own time and money in your business to make it successful?
8. Are you willing to provide personal guarantees from all owners, individuals or entities, with at least a 20% ownership stake in the business?
9. If you are seeking a Start-up loan do you have
a. A business plan with projections showing the ability of the business to repay the loan?
b. Resumes for all owners that show background and expertise in your business?

If you answered ‘Yes’ to all or most of the questions, please contact us to get the process started. The SBA lending process, as with other government-backed loans, comes with more documentation and research than most other business loans.

This is where we, LaGray Finance, come in. We work with you right from the start to make an otherwise stringent process look smooth and easy. LaGray Finance partners with you to put together an application package that ensures success in the end.