SBA 7a Loan

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The Small Business Administration SBA 7a Loan Guarantee program is one of the most popular loan programs offered by the agency and is the basic SBA loan program. A 7a loan guarantee is provided to lenders to make them more willing to lend money to small businesses with “weaknesses” in their loan applications.

For example, a business startup would not have cash flow history to provide a lender with the assurance of continued ability to pay back a loan, so the SBA 7a loan would serve to provide the lender with an increased guaranty against default. The SBA warns, though, that lenders do not have to accept 7a loans.

How Much Can You Get in an SBA 7a Loan?

SBA 7a loans are for a maximum of $5 million, with SBA loan guarantee 85% for loans up to $150,000 and 75% for loans greater than $150,000. The terms of SBA 7a loans are 25 years for real estate and equipment and 10 years for working capital. Interest rates are based on the prime rate, the size of the loan, and the maturity of the loan.

How can I use 7a funds?

The 7a Program lets you get loan amounts (up to $5 million) to fund startup costs, buy equipment and more. Here’s what else you can do with 7a funds:

  • Purchase new land (including construction costs)
  • Repair existing capital
  • Purchase or expand an existing business
  • Refinance existing debt
  • Purchase machinery, furniture, fixtures, supplies or materials

What are the benefits?

The 7(a) Program offers flexibility, longer terms and potentially lower down payments compared to other financing options. There are also specialized programs for individuals interested in exporting; those located in underserved communities; members of the military community; and small businesses owners looking to meet their short-term and cyclical working capital needs.

What are the repayment terms?

Most 7(a) term loans are repaid with monthly payments of principal and interest. For fixed-rate loans, the payments stay the same because the interest rate is constant. For variable-rate loans, the lender can require a different payment amount when the interest rate changes. 

7(a) Small Loan $350,000 < is Collateral Required?  

Lenders are not required to take collateral for loans up to $25,000. For loans over $25,000, up to and including $350,000, the lender must follow the collateral policies and procedures that it has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans, but at a minimum the lender must take a first lien on assets financed with loan proceeds and lender must take a lien on all of the applicant’s fixed assets including real estate. Lender is not required to take a lien against applicant’s real estate when the equity is less than 25% of the fair market value. The lender may limit the lien taken against real estate to the loan amount.

7(a) Standard $350 > Collateral Requirements?

Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.

What else should I know?

Keep in mind that SBA doesn’t fund these loans directly to small business owners, but banks receive a guarantee that the SBA will repay a portion of the loan if you default on payments. If you think you’re suited for a 7(a) loan, check out these resources and a checklist to help prepare your loan application.


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