SBA 7(a) Loan
The U.S Small Business Administration, also known as the SBA, provides multiple types of loans and financing options for small businesses. The SBA was established in 1953 to offer support to those who want to start or grow their own business.. Historically, the SBA has provided thousands of dollars to individual small businesses all over the United States. In fiscal year 2020, the U.S Small Business Administration guaranteed over $28 billion in lending programs to small businesses. $22.5 billion of this funding went to the 7(a) loan program, that helped over 40,000 businesses. According to data reported by the SBA, the businesses that benefitted the most from these 7(a) loans were minority business owners, women-owned businesses, and veterans.
How 7(a) Loans Work
The SBA offers the 7(a) loan program, which is the most popular loan program. The 7(a) loan program was created for small businesses to meet their long-term financing needs. An institution issues the loan in this loan program, as it does not directly loan money to a small business. Essentially, the SBA takes responsibility for the loan. They reassure the institution that they will make payments on the loan if the business fails to make payment. The biggest advantage of this loan program is that it allows businesses to repay the loan over time. The repayment terms can range anywhere from 7-10 years for equipment and working capital loans. Or up to 25 years for real estate or major purchases. The maximum loan size for a standard 7(a) loan is up to $5 million with interest rates around 2.75%.
There are several different 7(a) loan types, depending on how much funding your business is looking for, how fast you need funding and what you intend to use the funding for. For a standard 7(a) loan, the SBA guarantees 85% for loans up to $150,000 and 75% for loans over $150,000. You can use this loan for working capital needs, equipment purchases, business expansion, and real estate. A 7(a) small loan permits a maximum loan amount of $350,000, which businesses can use to fund smaller financing needs. Both of these loans have an application turnaround time ranging from 5-10 business days. If you are in need of quick funding, the SBA also offers express loans. Moreover, these express loan have an application turnaround time of 24-36 hours. The maximum loan amount for these express loans are $500,000.
The SBA 7(a) Loan Application Process
To qualify for 7(a) loan assistance, businesses must operate for profit, be considered small businesses, and conduct business in the United States. Furthermore, have a good personal credit score, have invested equity, have used your own personal assets before applying for financing, be able to demonstrate needs for funding, and not have any existing debt with the U.S government. According to the SBA, a small business is defined as a business that is independently owned and operated, is not nationally dominant, is located in the U.S, has 500 or fewer employees and makes under $7.5 million annually.
Once reviewing these eligibility terms, you may work with a lender to complete your loan package application. The U.S Small Business Administration requires you complete the SBA 1919 form, both SBA 912 forms, SBA 413 form. Additionally, submit a profit and loss statement, projected financial statements, ownerships and affiliations list, your business license/certification, loan application history, income tax return, your resume, a business overview, and a copy of your business lease. The lender must complete and review all of these documents, and then submit them to the SBA. The lender’s approval of the application is dependent on the timeframe. The timeframe for approval and funding to be received can vary from 30 days to a couple of months.