An SBA 7(a) is a tool that Small Business Administration SBA designs to help the business grow or expand. This SBA 7a loan is not directly from the SBA; instead, the SBA helps small business owners secure loans by guaranteeing a portion of the amount borrowed, interest rates, and fees. In this article, we will guide you on how to get SBA 7(a) Loan.
What is an SBA 7(a) Loan?
SBA 7a loan is one of the best ways that assist small businesses. When you apply for this loan, you work with a lender, and the SBA participates by assuring a portion of the loan amount. This government assurance helps the business acquire funds, even if they may not have qualified for a business loan.
This is a fact that operating a small business can be a challenge, and this challenge enhances the time of revenue loss and uncertainty. In times of hardship, this loan helps business owners to get back on their feet and become a competitor in the market.
You can use these loans for various purposes, such as real estate, purchasing equipment, working capital, and inventory. There are different SBA 7(a) Loans types, and each loan fulfills an additional requirement.
The Working of SBA 7(a) Loan
SBA 7(a) loan encourages business owners to get loans when they disapprove. Once a business holder finds a lender from whom they can borrow money, they can start obtaining an SBA loan.
SBA 7(a) loan allows business owners to borrow up to $5 million. It will guarantee 85% of loans up to $150,000 and 75% of loans greater than $150,000. But there is a maximum interest rate for an SBA loan, but the lender and the borrower must negotiate the limit.
Interest rates depend on the prime rate, the loan’s maturity, and the loan size. Furthermore, these loans protect the business from other fees. Although, SBA loans also come with some payment penalties that can easily cover the three years of the loan.
Now, you will be wondering how you can get an SBA loan. So, let’s jump and find out how to get an SBA loan.
How to get an SBA 7(a) Loan?
To get an SBA loan, you need to find a lender who can give you the amount you need for your business. That lender will ask you to complete an application process for this loan, and you will work with the lender on the paperwork required by the SBA.
To get an SBA loan, you should keep the following points in mind.
- Your business needs to operate for profit.
- Your business should have the resources to invest your assets.
- You should know the purpose of getting a loan.
- Be defined as a small business by the SBA.
But one thing to remember is that a business dealing with something illegal cannot get approval for an SBA loan. In addition to these requirements, there are some other criteria that lenders can use to evaluate the ability of your business to repay the loan on time.
Your business should produce solid revenue, at least $100,000. Hence, SBA might have expectations for the company with solid credit.
Personal Credit Score
The lender requires a 700 or higher credit score, but they can look at the personal credit history to check the condition of your business.
It would help if you also have a strong business plan that shows three to five years of financial projections. Thus, you should clearly understand the market and the competitor in the market.
If you have existing debt, you should show that you can easily manage additional financing. For instance, if you take loans of $350,000, then the SBA requires the debt service to be at 1.15.
You also have to submit collateral that you will put down as security. This will make your application more vital, and the lender can easily give you the loan amount.
Time in Business
To get an SBA loan, your business should have spent two or more years in the company. Thus, if you have finished this time, then the chances are that you can quickly get the loan.
So, if you fulfill all these requirements, you can quickly get this loan.
How to apply for an SBA 7(a) Loan?
Now, if you fulfill the business requirement, the next step is applying for a loan. Follow the steps to apply for an SBA loan.
Choose an SBA Lender
Many national, local, and online lenders offer SBA loans. But you must look for an SBA 7(a) lender that has experience in giving loans because they can help you through the application process and quickly get the loan.
You must contact the bank or the lender first and check the criteria of the application.
Gather your documentation
After finding the right lender for your business, you must collect all your documents. Because with applying for an SBA loan, you have to attach all relevant documents. This is the most time-consuming part of the application process.
Thus, you have to stay organized and make sure that you completely understand what your lender demands from you. In this way, you will collect all the documents on time, and it will not waste your time.
The documents essential for the loan approval can vary from lender to lender. But these are the most common documents that the lender will ask for.
- Borrower personal information form.
- Personal financial statements.
- Statement of personal history.
- Individual and business tax returns.
- Collateral information.
- Bank statements.
- Business certificates, licenses, and permits.
- Ownership and affiliations.
- Debt schedule.
- Business lease.
Submit your Application
When all of your documents are ready, you can submit them to your lender. Once you have submitted your application, you have to wait for the approval of the loan.
If your lender is an SBA-preferred lender, he will approve your loan application without sending the application to the SBA. If I put it in simple words, it means that you will get approval more quickly in this way.
But, non-preferred lenders take time to approve the request. But it takes 60 to 90 days in this process.
Review the Loan
Once you get approval, then you have to review the loan terms. It includes repayment, amount, interest rates, and other loan details. Once you have signed the application, the lender will start the process and get the loan and all the repayment schedules.
So, in this way, by following these steps, you can quickly get the SBA 7(a) loan.
To sum up, we can now know how to get an SBA loan, but you might have questions about where you get these loans. There are plenty of companies that offer these loans. But BitX Funding is one of the best financial companies that provide these loans. We have experts that review your business situation and then suggest loans that suit your business well.