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Updated: October 20th, 2023
SBA 7(a) loans can be a game-changer for small businesses in need of financial assistance. With maximum loan amounts, low interest rates, and generous repayment terms, it’s no wonder why the 7(a) loan is the Small Business Administration’s most popular loan program.
Used to cover just about any business-related expense, 7(a) loans are one of the most flexible and affordable funding solutions on the market for small business owners. That’s right—whether you need working capital, land, or a brand-new food truck, an SBA 7(a) loan could be just the resource you need to help take your business to the next level.
Keep in mind that like many government-backed programs, Small Business Administration loans involve a fair share of paperwork, processes, and hula-hooping. So, to help you get started, we’re sharing our complete guide to 7(a) loans.
Keep reading as we walk you through just about everything you need to know about navigating the SBA 7(a) loan.
Let’s dive right in!
The SBA 7(a) loan is a part of the Small Business Administration’s government-backed flagship loan program. While the 7(a) loan provides small businesses with up to $5 million in financing, it isnt the Small Business Administration that does the actual lending. Instead, they partially guarantee up to 85% of the loan’s total amount while the SBA lenders do the financial lending.
This Small Business Administration guarantee lowers the risk for traditional banks and alternative lenders to offer large loan amounts with low interest rates.
How can you use SBA 7(a) loans?
SBA 7(a) loans can be used to cover various business expenses ranging from purchasing inventory and refinancing debt to acquiring land or constructing buildings. In order to secure funding, business owners must demonstrate a legitimate need for the funds.
Here’s a list of popular SBA 7(a) loan uses:
SBA loans consist of a lot of moving parts. From maximum loan amounts and use of proceeds to repayment terms, guaraunty fees, interest rates, and more—here’s a brief overview of the main characteristics of SBA 7(a) loans in 2022:
*The guaranty fee is charged on the guaranteed portion of your loan—not the entirety of it.
Like any funding program, the SBA 7(a) loan has its own set of pros and cons which you’ll need to understand in order to determine if its the right financial option for you. Below, we’ll give you the down-to-earth facts about the upsides and downsides of 7(a) loans.
An SBA 7(a) loan can be a fantastic tool for helping finance small business needs:
While 7(a) loans are popular small business financing options, they’re not all sunshine and roses. Let’s take a quick look at the downsides to these government-backed loans:
SBA 7(a) loans require you to pay additional fees beyond your typical interest rates on your payments. Here’s a list of 7(a) loan fees to expect:
There’s still no relief program specifically for 7(a) loan borrowers. In addition, the existing COVID Economic Injury Disaster Loan (EIDL) program closed applications completely in early May 2022. It is now recommended that all small businesses looking for funding apply for traditional SBA loans like the 7(a) program.
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 a 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.
Considering if a 7(a) loan is the best financing tool for your small business? 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 to estimate your monthly payments based on predicted loan amounts and terms. We’ll even show you your payments broken down. Keep in mind that you’ll have other fees associated with your loan program—like the ones 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.
Loan program 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.
At Funding Circle, we’re here to help you navigate the confusing SBA 7(a) loan process.
Submit your application 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.
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.