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. This is because small businesses are responsible for more than 65% of net new job creation in the United States, 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
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You can borrow up to $5 million in capital to use for eligible business purposes.
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The SBA offers an 85% guarantee for loans under $150,000 and 75% for loans between $150,001 and $5 million.
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Government backed business loans tend to come with interest rates and fees that are much lower compared to other business financing options. This is because SBA sets the fees and maximum interest rates that lenders can charge. Although 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.
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25 years
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10 years maximum OR the useful life of the asset
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10 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, while most lenders require a minimum of 3 years in business.
Eligibility Checklist
Are you a citizen or lawful permanent resident of the United States?
Do you have a U.S.-based, officially registered and operating, for-profit business in an eligible industry?
Does your business Meet the SBA’s size requirements for small business?
Do you have a good background and personal character?
a. Do you have a minimum FICO Score of 680 and a strong credit history?
b. Are you willing to provide information about your personal background?Does your existing business have a good credit score (SBSS)?
Can you show that other financing options are not available to you?
Are you willing to invest your own time and money in your business?
Are individuals or entities, with at least a 20% ownership stake in the business willing to provide personal guarantees?
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.