FAQs About SBA 7(a) Loans

With the introduction of many loan programs, because of the effects of the pandemic, it is easy for certain loan programs to fall through the cracks. You may be interested to learn that the SBA 7(a) loan may be one of them.

What is the SBA 7(a) loan? It is a loan directed towards small businesses handled by a private lender but insured by the SBA. The SBA 7(a) loan sounds like one singular loan, but it is actually multiple different types of loans. You can work with a lender to find out which type of loan works best for you and your situation. Once you apply, the lender will submit your loan application to the SBA for approval. Term lengths, interest rates, and maximum loan amounts are dependent on the use of loan. For example:

• 25 years for real estate

• 10 years for equipment

• 10 years for working capital or inventory loans

• Prime rate of 3.25%

• A possible guarantee fee (which is dependent upon the lender) of between .25% and 3.75% based on the loan amount

• A standard 7(a) loan, export working capital loan, international trade loan, and CAPLines of credit are capped at $5 million

• A 7(a) small loan is capped at $350,00

• An express loan is capped at $1 million

How do you know if you are eligible for the 7(a) loan? A few requirements include that you:

• Operate for profit

• Are small, as defined by SBA

• Are engaged in, or propose to do business in the United States or its possessions

• Have reasonable invested equity

• Use alternative financial resources, including personal assets, before seeking financial assistance

• Be able to demonstrate a need for the loan proceeds

• Use the funds for a sound business purpose

• Not be delinquent on any existing debt obligations to the U.S. government

Specific businesses — real estate investment firms, religious organizations, and gambling businesses — are not eligible for SBA 7(a) loans. Like most loans and programs, there are always special circumstances that they are willing to take into consideration

• Franchises are eligible except when a franchiser retains power to control operations to such an extent as to equate to an employment contract; the franchisee must have the right to profit from efforts commensurate with ownership

• Recreational facilities and clubs are eligible if the facilities are open to the general public, or in membership-only situations, membership is not selectively denied or restricted to any particular groups

• Farms and agricultural businesses are eligible

• Fishing vessels are eligible, but those seeking funds for the construction or reconditioning of vessels with a cargo capacity of five tons or more must first request financing from the National Marine Fisheries Service

• Privately owned medical facilities; recovery and nursing homes are also eligible, provided they are licensed by the appropriate government agency, and they provide more than room and board

• An Eligible Passive Company (EPC) must use loan proceeds to acquire or lease, and/or improve or renovate, real or personal property that it leases to one or more operating companies and must not make any profit from conducting its activities

• Legal aliens are eligible

Applications will not be accepted from firms in which a principal is currently incarcerated, on parole, on probation or is a defendant in a criminal proceeding

You may wonder how to go about this process. To do so, you will first want to find a SBA 7(a) lender. If you do not know where to start with this step, you can look at the SBA website where you can use the lender match tool. Next, you will want to ensure you have gathered the correct documentation to submit your application. Examples of documentation you will need to provide are:

• SBA Form 1919, Borrower Information Form.

• Personal background and financial statement (SBA Forms 912 and 413).

• Business financial statements, such as balance sheets, profit and loss statements and projected financial statements.

• Business certificate or license.

• Loan application history.

• Income tax returns.

• Resumes for each business owner.

• Business overview and history.

• Business lease.

Your lender should be able to determine if you have the right documentation and will help you through the process, as well as submit the application. The SBA will inform you or your lender of approval within ten days. The closing process on this loan will require collateral, loan documents and your authorization. You will receive the funding and follow through on the repayment terms agreed upon.