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Updated: August 30th, 2021
SBA 7(a) loans can be a game-changer for small businesses in need of big financing. With large maximum loan amounts, low interest rates, and generous repayment terms, it’s no wonder the 7(a) loan is the SBA’s most popular loan program.
Whether you need working capital, land, or a brand-new food truck, you can count on an SBA 7(a) loan. These loans can be used to cover just about any business-related expense, making them one of the most flexible, affordable loans on the market for small businesses.
However, like many things with the government, SBA loans require lots of paperwork, processes, and hula-hooping—we’re here to walk you through all of it. This complete guide to SBA 7(a) loans will provide everything you need to know to navigate these government-backed loans in 2021.
Here’s an outline of what we’ll cover:
Let’s dive right in!
SBA 7(a) loans are part of the SBA’s flagship loan program. These loans provide small businesses with up to $5 million in financing.
However, the SBA isn’t doing the actual lending—they just partially guarantee the loans. The SBA will guarantee up to 85% of the loan’s total amount, but an SBA-approved lender will be doing the financial lending.
This SBA guarantee lowers the risk for traditional banks and alternative lenders to offer large loan amounts with low interest rates.
Your business can use SBA 7(a) loans to cover various business expenses. The 7(a) program can get you a working capital loan for uses like purchasing inventory or refinancing debt, or they can get you loans for acquiring land or constructing buildings.
Here’s a list of popular SBA 7(a) loan uses:
There’s a lot of parts to SBA loans. You have maximum loan amounts, use of proceeds, repayment terms, guaranty fees, interest rates, and much more.
Here’s a brief overview of the main characteristics of SBA 7(a) loans in 2021:
*The guaranty fee is charged on the guaranteed portion of your loan—not the entirety of it.
Like with any financing method, SBA 7(a) loans have their good and bad sides. You’ll need to understand the pros and the cons to determine if they’re the right financial option for your business. Below, we’ll give you the down-to-earth facts about the upsides and downsides of SBA 7(a) loans.
SBA 7(a) loans have a lot going for them. Here’s what makes them fantastic tools to finance small business needs:
While SBA 7(a) loans are popular business financing options, they’re not all sunshine and roses. Let’s take a quick look at the downsides to these government-backed loans:
You’ll need to pay additional fees beyond your typical interest rates on your monthly payments. Here’s a list of SBA 7(a) loan fees to expect:
SBA 7(a) loans aren’t the easiest loans to qualify for. You’ll need good credit, proven revenue, collateral, and a solid business plan to get approved.
Let’s start with the essentials. Here are the fundamental requirements to get an SBA 7(a) loan. You must:
Next, here are the general eligibility requirements. These requirements have a little bit of wiggle room, but they’re all fairly standard:
Curious if you qualify? Check out the SBA’s in-depth eligibility questionnaire to learn more.
Consider if an SBA 7(a) loan is the best financing tool for your business purpose. If your expense falls under the allowable use cases, then there’s a good chance it is—however, if time is of the essence, another loan may serve you better.
Do your research to determine exactly how much financing you’ll need and how much you can reasonably afford. The SBA will expect numbers like these in your business plan.
Try our handy-dandy SBA Loan Calculator. It’ll help you calculate your monthly payments based on predicted loan amounts and terms. We’ll even show you your monthly payments broken down. However, keep in mind that you’ll have other fees associated with your SBA loan—like the fees we mentioned in the SBA 7(a) loan fees section. These fees are variable, so we don’t include them in this calculator.
You’ll need documentation to back up any of your financial claims. Organize your financial statements, update your cash flow projections, and complete all of your SBA application forms.
SBA loans often require personal guarantees and collateral. Identify which business assets you can leverage to serve as default security. This could be equipment, buildings, accounts receivables, and even inventory.
Different lenders will offer varying rates and loan amounts. Look around to find a trusted lender that provides the exact type of loan characteristics you need.
Once you’ve identified your lender, it’s time to submit your application. Each lender will have its own step-by-step process. However, you could use a lending platform like Funding Circle to submit one application to several SBA designated “Preferred Lenders.” This expedites the application process and improves your chances of approval.
We’re here to help you navigate the confusing SBA 7(a) loan process. Submit your application through Funding Circle to get hands-on help from a loan specialist who’ll help you prepare and complete an approval-friendly application. Plus, we work with a network of SBA preferred lenders to offer you in-house approvals, accelerated processing, and faster closings.
Here is the kind of SBA 7(a) loans you can secure through Funding Circle:
And here are the typical eligibility requirements:
Start your loan application online now—it takes only about 6 minutes and will have no effect on your credit score.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.