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Updated: March 10th, 2021
The United States depends on small businesses to drive the economy and create jobs for close to 50% of the entire private workforce. But starting a business isn’t easy—it takes time and money.
However, if small businesses can’t overcome startup hurdles, the whole country will suffer. The federal government launched the U.S. Small Business Administration (SBA) in 1953 to strengthen the overall economy by providing aid and counsel to small businesses. The agency focuses on providing financial support to underrepresented business owners and those hit hard by economic disasters, like business victims of the COVID-19 pandemic.
One of the program’s most coveted loan programs is the much-sought-after 7(a) loan. It’s one of the best loans small businesses can find, making it competitive and somewhat elusive.
Below, we’ll dive deeper into what a 7(a) loan is and how it works.
7(a) loans are the SBA’s most popular financing method. If you ever hear the term “SBA loan” alone, it’s usually safe to assume it’s referring to a 7(a) loan.
However, the SBA doesn’t actually do any of the lending on these loans. Instead, they partner with their network of SBA-certified banks and lenders around the country. The SBA guarantees a large percentage of these loans, while the banks do the actual lending.
The SBA’s guarantee lowers risk for lenders, making the banks more likely to lend to less-than-perfect applicants who qualify.
Here’s why small businesses compete for 7(a) loans:
Estimate your monthly payments for a 7(a) loan with our handy-dandy calculator.
7(a) loans function like most small business loans. First, you’ll need to find an SBA-certified lender. Here’s a list of the SBA’s most active 7(a) lenders.
Once you find a lender, you’ll need to start the application process. This is an application for a government-backed loan, so you can expect lots of paperwork and documentation.
Funding Circles works with a select network of SBA lenders to offer in-house approval and expedited processing to accelerate your time to answers and closings—we’ll connect you with the best-of-the-best lenders.
Some lenders will help with your application more than others, so don’t settle for any ol’ application process.
The SBA doesn’t require lenders to take collateral if the loans are under $25,000—but anything over that will require the same collateral policies that the lender would demand for non-SBA loans.
The approval process takes around 5 to 10 days. Once you’ve been approved for a 7(a) loan, you’ll typically receive funds in the next 1 to 2 months. However, this varies by lender. For example, you can get funds as soon as 3 days after your accept your offer through Funding Circle.
After that, you can use the funds to expand your business or cover working capital costs. You’ll start making monthly payments on your loan with no prepayment penalties.
7(a) loans are notoriously difficult to qualify for. Eligibility requirements vary from lender to lender, but here are the general expectations:
You’ll also need to make sure your business doesn’t fall under the SBA’s ineligible industries:
SBA 7(a) loans are one of the best loans available to small businesses. If you need funding for business expansion, working capital, or long-term development, make a 7(a) loan your first choice—you’re not likely going to find a more affordable loan anywhere else.
Start your application with Funding Circle now to get the ball rolling. Fill out our 6-minute form, and a dedicated loan specialist will reach out to get to know you and your business before helping you complete your SBA 7(a) loan application.
The entire process can take 1 to 2 months, so don’t wait to get started!
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.