What is a 7(a) Loan?

A 7(a) loan is the SBA’s primary program for providing financial assistance to small businesses. It’s the most widely used loan program of the Small Business Administration (SBA) and is named after section 7(a) of the Small Business Act. This act authorizes the SBA to provide loan guarantees to participating SBA lenders, who then work directly with American small businesses.

Here’s what you need to know about 7(a) loans:

• Eligibility: To be eligible for a 7(a) loan, your business must meet all of the following criteria:
  • Meet SBA size standards
  • Be for-profit
  • Not already have the internal resources (business or personal) to provide the financing
  • Be able to demonstrate repayment
• Loan Amount: The maximum loan amount is $5 million.
• Interest Rate: The interest rate is negotiated between the lender and borrower, but it may not exceed the SBA maximum.
• Repayment Term: The maximum length of the loan is 25 years for real estate and up to 10 years for working capital, inventory, equipment, or other business assets.
• Collateral: The SBA considers a loan “fully secured” if the lender has taken security interests in all assets being acquired, refinanced, or improved with the 7(a) loan and available fixed assets of the applicant with a combined adjusted net book value up to the loan amount. However, other conditions may apply.
• Credit Decision: The credit decision can be made by the SBA or qualified lenders may be granted delegated authority to process, close, service, and liquidate the loan without SBA review.

Types of 7(a) Loans:

There are several different types of 7(a) loans, each with its own unique features Here are a few of the most common types:

• Standard 7(a) loans: These are the most common type of 7(a) loan. They can be used for a variety of purposes, including acquiring real estate, equipment, or working capital.
• 7(a) Small loans: These loans are for smaller amounts (up to $500,000) and have a faster turnaround time than standard 7(a) loans.
• SBA Express loans: These loans are designed for businesses that need a quick decision. They have a streamlined application process and a faster turnaround time than standard 7(a) loans.
• Export Express loans: These loans are designed to help small businesses that want to export their products or services. They have a higher guarantee percentage than standard 7(a) loans to mitigate international credit risk.
• CAPLines: These are lines of credit that can be used for short-term working capital needs.

How to Apply for a 7(a) Loan:

Applying for a 7(a) loan requires working with a lender who has been approved by the SBA. The SBA’s Lender Match tool can help you locate a lender in your area. The lender will assist you in gathering the required paperwork and will walk you through the application process.

Benefits of a 7(a) Loan:

7(a) loans offer a number of benefits to small businesses. including:

• Access to affordable financing: 7(a) loans typically have lower interest rates than other types of small business loans.
• Flexible repayment terms: 7(a) loans offer a variety of repayment terms to fit the needs of your business.
• Government guarantee: The SBA guarantees a portion of the loan, which makes it less risky for lenders to approve.
• Technical assistance: The SBA offers a variety of technical assistance programs to help small businesses succeed.

If you are a small business owner looking for financing, a 7(a) loan may be a good option for you. To learn more about 7(a) loans, please visit the SBA’s website or contact an SBA-approved lender.