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

The SBA 7(a) Loan Program provides some of the most popular and most elementary loans a small business owner can procure. 7(a) loans are backed by the Small Business Administration in amounts up to 85%, mitigating much of the risk a lender would typically take on and thereby giving many small businesses an opportunity to receive funds for which they would traditionally be ineligible. With nine types of 7(a) loans to choose from, many small businesses will qualify for at least one.

Businesses in need of long-term loans, favorable rates, and flexibility should consider applying for an SBA 7(a) loan. Here’s everything you need to know about the SBA 7(a) Loan Program.

What Is An SBA 7(a) Loan?

An SBA 7(a) Loan is a finance option offered to small businesses, backed (or guaranteed) by the Small Business Administration to reduce the risk involved on the part of the lender. 7(a) products are intended for businesses that may be unable to procure other, more traditional, loans. The loan guarantee provided by the SBA gives business owners a chance to fund their small business needs.

These small business loans can be used for business start-ups, cash flow for an existing business, and countless other purposes. So whether you’re just starting out or keeping your existing business running, there’s probably a 7(a) loan that can help.

How The SBA 7(a) Loan Program Works

The SBA guarantees 7(a) loans, but it doesn’t operate as the lender. Instead, the SBA has put forth guidelines that lenders follow when issuing these loans. To obtain an SBA 7(a) loan, you will need to visit an SBA lender. This could be a bank, credit union, or other financial institution. Some online lenders also offer SBA 7(a) loans.

It’s important to note that not every lender will have the same criteria for qualifying for SBA 7(a) loans. However, all lenders must abide by the SBA’s guidelines, which caps interest rates and prohibits lenders from charging excessive fees.

If you meet all criteria set forth by the lender, you can proceed with filling out an application and submitting the necessary documentation. If approved, you’ll sign your loan contract and receive funding.

Types Of SBA 7(a) Small Business Loans

As the SBA program’s primary form for providing funding for small businesses, there are many variations of the 7(a) loan. The following are the nine types of SBA 7(a) Loans, as well as their individual borrowing amounts, turnaround times, SBA guarantees, and term lengths:

7(a) Standard Loan

This is the most common and straightforward of the available 7(a) options. It’s the standard option for the majority of businesses. It’s 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 to 10 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.

7(a) Small Loan

The 7(a) Small Loan is similar to the Standard Loan but is used for smaller loan amounts. This is an option for borrowers that want low interest rates and long repayment terms but don’t need as much capital as offered by 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 to 10 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 do not require collateral.

7(a) Express Loan

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 loan approval 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 $350,000. This loan differs from the SBA 7(a) Small Loan in that the maximum SBA guarantee is only 50%. Collateral is not required for loans up to $25,000.

7(a) CAPLines Loan

SBA 7(a) CAPLines Loans allow borrowers to procure funds for short-term loans or cyclical needs, including:

• Seasonal: Intended for borrowers that need financing during a seasonal increase in accounts receivable, inventory, or labor costs.
• Contract: Intended for financing labor and material cost for assignable contracts.
• Builder: Intended for small general contractors and builders. Financing available for those working on a project, which serves as collateral.
• Working: Intended for businesses unable to qualify for long-term credit. (Asset-based financing.)

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.

Take a look at our guide to CAPLines to learn more about the SBA’s line of credit programs.

Export Working Capital

The SBA Export Working Capital Loans are suitable for 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 to 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.

Export Express

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.

Export Express Loans are available up to $500,000. Up to 90% of funds are backed by the SBA. Collateral may be required in order to receive an Export Express Loan.

International Trade

SBA International Trade Loans are designed for growing export businesses with long-term financing needs. This financing is intended 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 five to 10 days. These loans are a bit different in that credit decisions are made by the SBA.

Preferred Lender

SBA’s Preferred Lender program allows SBA lenders more autonomy to process, close, service, and liquidate loans. SBA Preferred Lenders may offer one or more of the different types of 7(a) loans to qualified borrowers.

Veterans Advantage

SBA Veterans Advantage Loans are specifically for establishments that are 51% owned by veterans, active service members, or reservists. Borrowers may receive up to $5 million through this program. Veterans Advantage Loans are similar to Standard 7(a) Loans but have lower fees. Head over to our guide to VA SBA loans to learn more.

SBA 7(a) Loan Program Advantages

SBA loans are a popular funding choice for small business owners. But why should you consider an SBA 7(a) loan over other SBA loans and other types of funding, such as traditional bank loans? There are a number of advantages to receiving a 7(a) loan.

Low-Interest Rates

Loan interest rates for 7(a) vary, depending on the loan maturity and amount loaned, but are usually much lower than their traditional commercial counterparts. 7(a) loan rates typically carry low-interest rates (you can check current rates for 7(a) loans in our SBA loan rates explainer).

Long Repayment Terms

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.

Lower Down Payments

Down payments requirements differ, but borrowers could pay as little as 10% as a 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.

Flexibility

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.

Fewer Fees

The SBA prohibits financial institutions from tacking on certain unnecessary 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.

SBA 7(a) Loan Program Disadvantages

Although the list of “pros” is quite long, there are a few disadvantages to receiving a 7(a) loan.

Small Business Qualification

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

Lengthy Application & Funding Process

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 funding 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.

Personal Guarantees

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.

SBA 504 Loans VS 7(a) Loans

Another popular SBA loan product is the SBA 504 Loan. On the surface, the 504 loan appears similar to the 7(a) loan, but there are a few distinct differences.

SBA 504 loans are better-suited for businesses that need capital to expand, renovate, or purchase commercial property. SBA 7(a) loans, on the other hand, are suitable for most business purposes, from working capital to equipment and inventory purchases.

Still on the fence of which loan is best for your needs? Learn more about SBA 504 and SBA 7(a) loans to best determine which is the better fit.

How To Qualify For The SBA 7(a) Loan Program

There are a few SBA 7(a) loan requirements that determine the suitability of a potential borrower. While not all of these qualifiers are necessary for all loans, they will instill confidence in potential lenders and increase your likelihood of receiving funds.

Business Plan

Most lenders will 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.

Good Credit Score & History

You will need also need a good credit history. The SBA will use your credit score to evaluate risk and determine interest rates. Don’t worry if your history isn’t outstanding; the SBA does help guarantee some loans that you may not qualify for otherwise. If you want to check your score, you can use one of Merchant Maverick’s preferred free credit score services to do so. In general, to obtain an SBA loan, you’ll need a credit score of 660 or higher.

Collateral

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.

While not all the above qualifications are necessary for every type of 7(a) loan, meeting these guidelines will increase your credibility as a borrower and increase the likelihood that you will receive a guaranteed loan.

SBA 7(a) Loan Terms: Rates, Fees, & Collateral Requirements

Rates, fees, and collateral for the 7(a) loan program vary depending on the lender and type of loan. You can check out our SBA loan calculator if you want to more fully understand the rates and fees of your specific loan. To gather specific information on collateral requirements, speak with any potential lenders.

Current SBA 7(a) Loan Rates

We keep track of current SBA loan rates here. This page is regularly updated with current interest rates for most SBA 7(a) business loans and other important information about SBA financing.

SBA 7(a) Loan Fees

The SBA prohibits partner lenders from charging fees for services, add-on interest, fees for legal services, commissions, bonuses, and broker fees. However, the SBA does allow lenders to charge reasonable and necessary fees that vary depending on the loan type, amount, etc.

The SBA also collects loan guarantee fees from borrowers. These fees are due within 90 days of loan approval and can be financed with the proceeds of the loan received. For example, the following are approximate SBA up-front guarantee fees for a 7(a) Standard Loan with loan terms less than twelve months:

• Up to $125,000: No fee
• $125,001 to $150,000: 2.0% of the guarantee amount
• $150,001 to $700,000: 3.0% of the guarantee amount

These fees, however, are much lower for a 7(a) Veterans Loan, also for terms of less than twelve months:

• Up to $125,000: No fee
• $125,001 to $350,000: 0.125% of the guarantee amount
• $350,001 to $5 M: 0.25% of the guarantee amount

These amounts are indicative of the vast differences in fees depending on the type of loan, amount, length, and lender. When matched with potential lenders, you can discuss rates and fees to find out which loan is best for your business.

SBA 7(a) Loan Collateral Requirements

Depending on your lender, you may be asked to provide collateral. This ensures that the lender has a second resource for repayment.

Collateral can include commercial real estate, inventory, machinery, equipment, accounts receivable, or personal assets of the business owner. When applying for an SBA 7(a) loan, everything your business owns will be considered collateral. Any assets purchased with financing will be considered “primary” collateral.

SBA Loan 7(a) Loan Program Application Checklist

So, how do SBA 7(a) loan applications work? The process can be lengthy but is mostly straightforward. First, you must fill out an online form describing your business’s needs. The SBA will then match you with lenders that can help. From there, you can speak with lenders to find the right fit and formally apply for their specific loan.

What Documents are Needed for an SBA Loan?

Necessary documents may vary depending on what your needs are. It’s a good idea to go through the SBA Lender Match site and follow their instructions to get matched.

Having these documents available when applying for a 7(a) loan will make you more credible in the eyes of potential lenders:

• Borrower information form
• Statement of personal history
• Personal financial statement
• Business financial statements:
  • Profit and loss statement: Current within 180 days of application
  • Projected financial statements: One-year projection of income and finances
• Ownership and affiliations
• Business certificate/license
• Loan application history
• Income tax returns
• Resume
• Business overview and history
• Business lease

FAQs About SBA 7(a) Loans

Learn More About SBA Loan Programs

7(a) loans can be great options for small businesses that need versatility and longevity, but they aren’t always the cure-all for every business’s capital needs. If you meet the qualifications outlined above, you can begin the application process on the SBA website. That said, we recommend applying to SmartBiz, an online lender that can expedite the SBA loan process, which is traditionally slow. Before you get started, make sure to check out the current SBA loan rates.

Still have questions about SBA loans? Check out our guide, SBA Loans Explained: Everything You Need To Know to learn more. If you don’t qualify for an SBA loan, or just want to compare business loans, visit this handy comparison chart to learn about more choices available to you. Receiving a small business loan is a tremendous responsibility, but can also be a necessary step toward success. Consider what’s right for your individual business and happy borrowing!