SBA 7(a) Loans: Application, Requirements, Rates, Terms & More

Established in 1953, the U.S. Small Business Administration (SBA) is an independent agency tasked to provide counseling, capital, and all kinds of business-related assistance to small businesses. It is the only cabinet-level federal agency dedicated to accommodating the needs of small business owners that are trying to start and grow their companies. <br> If you have ever shopped around for business loans, you may have come across one of the most popular loans available for small businesses: the SBA 7(a) loan.

What is an SBA 7(a) loan?

The 7(a) loan program is the primary financing program offered by the SBA. Through the 7(a) loan, the SBA works with the borrower and the lender and sets guidelines that determine loan amounts, interest rates, and maturity terms. When you opt for an SBA 7(a) loan, the SBA guarantees a portion of the loan amount which makes it easier for businesses to acquire the necessary funding they need for their business. Lenders are also reassured as SBA loans are entirely underwritten by an official SBA underwriter.

What makes the SBA 7(a) loan a popular choice for small business owners is its flexible loan amounts and longer-term maturity which is often ideal for businesses that are trying to gain a foothold on the market. However, one thing to consider when choosing what type of SBA 7(a) loan to apply for is that you may be asked to offer up collateral in order to secure a loan. Collateral may be in the form of commercial real estate, machinery, and equipment among others. As the business owner, your personal assets can also be considered as collateral for your loan.

What are the different types of SBA 7(a) loans?

There are several types of SBA 7(a) loan programs designed to meet different business needs. Keep in mind that terms and conditions such as the guaranty percentage and loan amount may depend on the type of loan that you are applying for.

SBA Standard 7(a) loan

Probably the most popular out of the different types of SBA 7(a) loan is the Standard 7(a). When you avail of the Standard 7(a) loan, the maximum amount that you can borrow is $5 million. The SBA usually leaves it up to the borrower and the lender to negotiate an interest rate as long as it does not exceed the rates set by the SBA.

• Standard 7(a) at a glance

• Maximum loan amount: Up to $5 million

• Maximum SBA guarantee: 85% for loans up to $150,000 and 75% for loans greater than $150,000

• Forms needed: SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)

• Credit decision: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.

SBA 7(a) Small Loan

The 7(a) Small Loan is known for having a simpler lending process that is more accessible to a wider range of businesses. Essentially, the 7(a) Small Loan comes with similar terms and maximum guarantees - the only thing that’s different between the 7(a) Small Loan and the Standard 7(a) loan is that the 7(a) Small Loan caps at a maximum loan amount of $350,000.

• The 7(a) Small Loan at a glance

• Maximum loan amount: Up to $350,000

• Maximum SBA guarantee: 85% for loans up to $150,000 and 75% for loans greater than $150,000

• Forms needed: SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)

• Credit decision: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.

SBA Express loan

As the name implies, the SBA Express loan has an expedited turnaround time so that borrowers can get a faster decision on their loan applications. As opposed to other SBA 7(a) loans, lenders have much more freedom when it comes to approving an application for an SBA Express loan. The SBA Express program features a standard response time of 36 hours.

• The SBA Express at a glance

• • Maximum loan amount: Up to $350,000
  • Maximum SBA guarantee: 50%
  • Forms needed: Lender primarily uses own forms and procedures, plus SBA Form 1919
  • Credit decision: Made by the lender

SBA Export Express loan

An even more streamlined method to acquire an SBA-guaranteed loan is through the SBA’s Export Express program. Compared to the SBA Express, borrowers can apply for a maximum loan amount of $500,000 and can expect a response from the SBA within 24 hours. This type of loan program is geared toward exporters that want to develop or improve their export capabilities. The SBA also offers in-house training for lenders to become more proficient in the Export Express program.

• The Export Express at a glance

• • Maximum loan amount: Up to $500,000
  • Maximum SBA guarantee: 90% for loans of $350,000 or less, 75% for loans more than $350,000
  • Forms needed: Lender primarily uses own forms and procedures, plus SBA Form 1919, and other borrower information
  • Credit decision: Made by the lender 

SBA Export Working Capital loan

The SBA’s Export Working Capital program allows advances of up to $5 million to fund export transactions ranging from purchase orders to collections. This type of SBA loan is delivered through a network of SBA Senior International Credit Officers located throughout the country.

• The Export Working Capital at a glance

• • Maximum loan amount: $5 million
  • Maximum SBA guarantee: 90%
  • Forms needed: SBA Form 1920
  • Credit decision: Made by the SBA 

SBA International Trade loan

The SBA’s International Trade loan is designed to help small businesses enter and expand into international markets. According to the SBA, the International Trade loan enables business owners to compete in the international scene with enhanced export financing options for their export transactions. This type of SBA loan offers a combination of fixed assets, working capital financing, and debt refinancing.

• The International Trade loans at a glance

• Maximum loan amount: Up to $5 million

• Maximum SBA guarantee: 90%

• Credit decision: Made by the SBA 

SBA Veterans Advantage Program 

The Veterans Advantage Program is available to qualified veterans, their spouses, active duty service members, reservists, National Guard members, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability. This type of SBA loan is made to veteran-owned small businesses and comes with reduced fees.

SBA CAPLines Program

The SBA’s CAPLines program features four lines of financing options designed to meet a business’ short-term working capital needs. Each CAPLine program is unique and is intended to fund specific business purposes. Let’s take a look at the four programs offered through CAPLines:

• Seasonal CAPLine - Funds from the Seasonal CAPLine program must be used to finance the seasonal increases of accounts receivable, inventory, and - in some cases - increased labor costs. This line is not intended to be used for maintaining business activity during slow seasons. This type of CAPLine loan can be revolving or non-revolving.
• Builders CAPLine - Borrowers applying for the Builders CAPLine loan should use loan proceeds for direct expenses related to construction as well as substantial renovation of eligible residential or commercial buildings. It can be revolving or non-revolving.
• Contract CAPLine - According to the SBA, Contract CAPLines are used to finance the cost of one or more specific contracts, sub-contracts, or purchase orders, including overhead or general and administrative expenses. This type of CAPLine loan can be revolving or non-revolving.
• Working CAPLine - A business’ working capital and operating needs can now be addressed by a specific SBA 7(a) loan in the form of the Working CAPLine loan program. This CAPLine loan must not, however, be used to pay delinquent withholding taxes or similar trust funds, or for floor planning.

How does an SBA 7(a) loan work?

In general, SBA 7(a) loans are geared towards small businesses that need capital to make short-term and long-term investments. The SBA guarantees 7(a) loans up to a certain percentage depending on the type of 7(a) loan program you are trying to acquire.

What are the SBA 7(a) loan fees?

Like in the previous section, fees associated with SBA 7(a) loans depend on the type of loan program you are applying for. The SBA usually collects loan guaranty fees so entrepreneurs (not US taxpayers) bear the majority of the cost of funding of SBA’s loan programs. Certain fees associated with the SBA 7(a) loan program are due within 90 days of the date of the loan approval and may be financed with the proceeds of the SBA-guaranteed loan.

How do I qualify for an SBA 7(a) loan?

The SBA has outlined specific requirements of eligibility for businesses that are trying to apply for the 7(a) loan program. While the SBA does not specify which particular businesses are eligible to receive funding through the 7(a) loan program, there are standard requirements businesses must meet to be eligible. Here are some of the requirements:

• A business must be operating for profit
• Must qualify under what the SBA defines as a small business
• Proof that you will use the funds for a sound business purpose
• Proof that you have already tried to use alternative financial resources such as personal assets before seeking financial assistance
• Proof that you are not delinquent on any existing debts to the U.S. government

Which type of SBA 7(a) loan is right for you?

Wouldn’t it be convenient to have a tool that lets you review the different types of SBA 7(a) loans that you can qualify for? Thankfully, there’s PrimeRates. PrimeRates is an online tool that partners with various lenders to provide access to personalized business loan offers. After a quick and easy pre-qualification application, business owners can select the best offer for them and finalize the specifics of the business loan with their prospective lender. And, because the SBA has strict guidelines when it comes to 7(a) loans, you can rest easy knowing that you are choosing between SBA-guaranteed loans that would not exceed the rates set by the SBA.

Sources:

Types of 7(a) loans - SBA

History of the SBA - Britannica

International Trade Loan - SBA

CAPLines Program - SBA

Understanding SBA 7(a) loan fees - SBA