SBA 7(a) Loans: Your Complete Guide To Terms, Fees, & Eligibility

The Standard 7(a) SBA loan is the most common and straightforward of the available 7(a) options. This loan is a good choice for borrowers that want high borrowing limits, low rates, and good repayment terms. The turnaround for this loan can be as little as 5-10 business days.

Borrowers may receive as much as $5 million with the 7(a) Standard Loan. The SBA guarantees 85% of every loan up to $150,000. Beyond that amount, the SBA guarantees 75%. For smaller loan amounts, collateral may not be required.

The 7(a) Small Loan is similar to the Standard Loan but has lower borrowing limits. This is an option for borrowers that want low interest rates and long repayment terms but don’t need as much capital available through the 7(a) Standard Loan.

SBA 7(a) Small Loans are available in amounts up to $350,000. Turnaround times for this loan may be as little as 5-10 business days.

The SBA guarantees up to 85% of each loan up to $150,000. Beyond that, the SBA’s guarantee falls to 75%. Smaller loans of $25,000 or less may not require collateral.

If you want fast loan approval, consider applying for the SBA 7(a) Express Loan. When you apply for the Express Loan, you’ll receive a loan decision within 36 hours. This is ideal for borrowers that want to obtain approval before making plans for how to spend the extra capital.

The 7(a) Express Loan is available in amounts up to $500,000. The maximum SBA guarantee is 50%. Collateral is not required for loans up to $25,000.

7(a) CAPLines are SBA lines of credit designed for businesses with short-term and cyclical needs for capital. There are four lines available:  allow borrowers to procure funds for short-term loans or cyclical needs, including:

• Seasonal: Revolving or non-revolving line used to finance seasonal increases in accounts receivable, inventory, or labor costs
• Contract: Revolving or non-revolving line used to finance labor and material costs for assignable contracts
• Builder: Revolving or non-revolving line used by general contractors and builders for construction and renovation projects
• Working: Asset-based non-revolving line of credit for businesses that are unable to qualify for long-term credit

SBA 7(a) CAPLines are a more flexible option for borrowers. Maximum repayment terms for these lines of credit are ten years, although Builder CAPLines are capped at five years.

Borrowers may qualify for up to $5 million through this program. Turnaround times vary, although you can generally expect to receive approval within 21 days of applying for a line of credit.

SBA Export Working Capital Loans provide funding to businesses that need cash flow to support export sales.

Exporters may receive as much as $5 million through this program. Turnaround time for approvals may be as quick as  5-10 days. The SBA guarantees up to 90% of funds.

These loans require export-related inventory or receivables as collateral. A personal guarantee for each person that has at least a 20% stake in the business is also required.

SBA Export Express Loans are for exporters. While these loans have lower borrowing limits than the SBA Working Capital Loan, it offers faster turnaround times. For these loans, the SBA will respond to the application within 24 hours.

Up to $500,000 can be borrowed through this loan program. The maximum SBA guarantee is 90% for loans up to $350,000 and 75% for loans that exceed $350,000. Collateral may be required.

SBA International Trade Loans are designed for growing export businesses with long-term financing needs. This financing is for businesses that have foreign competition.  Funds can be used for fixed assets, construction, real estate equipment, and working capital for exports.

Borrowers may receive as much as $5 million, and repayment terms are up to 25 years for real estate and up to 10 years for all other purposes.

Approval turnaround times for SBA International Trade Loans may be as quick as 5-10 days. These loans are a bit different from other 7(a) loans in that approvals are made by the SBA.

SBA’s Preferred Lender program allows SBA lenders more autonomy to process and close loans. In other words, lenders can make approval decisions without waiting on the SBA.

While this isn’t a specific loan, borrowing from an SBA Preferred Lender could result in approval for SBA 7(a) loans in as little as 24 hours.

Interest rates for 7(a) loans vary based on the loan maturity and borrowed amount, but rates are usually much lower than their traditional commercial counterparts.

Repayment terms vary based on factors such as the type of 7(a) loan you receive and how funds will be spent. However, SBA 7(a) loan repayment terms may be up to 25 years, and you won’t find many other small business loans with such lengthy and favorable terms.

Down payment requirements differ, but borrowers could pay as little as a 10% down payment for SBA 7(a) loans. Smaller SBA 7(a) loans also may not require collateral, which can’t be said for many other business loans.

SBA 7(a) loans have few restrictions on how funds are used. In addition to loans, the SBA 7(a) program also offers lines of credit that provide a more flexible form of funding for businesses that need working capital.

The SBA prohibits financial institutions from adding certain fees, such as fees for services, add-on interest, fees for legal services, commissions, bonuses, and broker fees. Lenders also can’t charge origination fees but can charge “packaging fees” provided these fees are reasonable and are for services actually provided.

You must meet the SBA size guidelines to qualify for a loan. These guidelines vary depending on what type of business you own, but your business must qualify as “small.” There is no 7(a) funding available for mid-sized businesses that do not meet the size guidelines.

The application process can be long and detailed and generally requires extensive documentation.

Though the SBA may approve your application in as little as five days, the time it takes to fund your loan can be quite lengthy. In general, expect the process to take 30 to 90 days following approval of your application.

If you’re still interested in the process, it’s time to start working. Since the application can be time-consuming and response times from lenders can vary, the sooner you start, the better.

7(a) loans require personal guarantees from owners who have an interest of 20% or more in the business entity. A personal guarantee means that personal assets can be seized in the event of loan default.

To qualify for an SBA 7(a) loan, your company must be for-profit and engage in business or plan to engage in business in the United States or U.S. territories.

Your business must also be in an industry that isn’t disqualified by the SBA. Industries ineligible to receive SBA loans include businesses that engage in:

• Illegal activities
• Gambling
• Investing
• Lending
• Multi-level sales
• Loan packaging
• Speculation

Businesses that are owned by parolees are also ineligible.

Most lenders require a business plan to show that you have specific financial goals and are a reliable borrower. For this same reason, you will need to provide an exact plan of how you intend to use potential funds, as well as financial projections.

The lender and the SBA use your credit score and history to evaluate the risk of lending. In general, borrowers should have a credit score at least in the mid-600s to qualify for an SBA 7(a) loan. A score of 680 or higher further boosts your chance to receive a loan.

Before you apply, know where you stand by getting your free credit score. If your score isn’t where it needs to be to receive a loan, it’s time to start taking steps to improve your credit score for funding opportunities in the future.

Some SBA 7(a) loans may require you to put up collateral such as property, inventory, or even your personal home or car.

Industry experience is also preferred by many lenders. SBA lenders like to know that you have personal experience and knowledge in your industry. Often, lenders may request resumes and other documentation from owners that have at least a 20% stake in the business to prove industry experience.