A Small Business Owner’s Guide to

Common SBA 7(a) Loans

Many business owners reach a point where they need a financial boost.

Whether it’s time for an expansion, an equipment update or some extra cash flow to keep things running smoothly, selecting the right type of loan can make all the difference.

Some of the most common loan options include traditional bank loans, lines of credit, equipment loans and factoring receivables. While each of these may be appropriate in certain situations, some business owners find that the U.S. Small Business Administration (SBA) 7(a) loan program provides the flexibility and favorable terms they’re looking for.

You may be wondering, “What is a 7(a) loan, and how do I get one?” This quick guide will explain how SBA 7(a) loans work, the different types available and how to apply.

What Is an SBA 7(a) Loan?

SBA 7(a) loans are small business loans partially guaranteed by the SBA. Unlike direct loans from the SBA, an SBA 7(a) loan is offered by approved lenders, such as banks and credit unions. If the borrower defaults on an SBA 7(a) loan, the SBA covers a portion of the loss.

Because this lowers the lender’s risk, lenders may be more willing to offer loans to small business owners who otherwise would not qualify for traditional loans. This backing may also translate into more favorable terms, such as lower interest rates and longer repayment periods.

The SBA 7(a) loan program offers a significant amount of flexibility. Business owners can use the funds for various needs, including working capital, business real estate purchases, equipment, inventory, debt refinancing, business acquisitions or ownership changes.

Common Types of SBA 7(a) Loans

The SBA 7(a) loan program includes a variety of loan types, each designed to meet the specific needs of small business owners. This allows borrowers to choose the loan that best fits their financial situation, timeline and funding goals. Here’s a look at the options:

Standard Loan

The Standard 7(a) Loan is available in amounts between $500,001 and $5 million. These loans typically have a credit-approval turnaround time of five to 10 business days, with closing occurring within 60 to 90 days. Borrowers can use the funds for a range of business purposes.

Small Loan

A 7(a) Small Loan is a non-revolving loan for $500,000 or less. The average turnaround time is two to 10 business days. These loans are appropriate for business owners who have smaller financing needs.

International Trade Loan

The 7(a) International Trade Loan supports small businesses that are expanding their international trade efforts or facing competition from imports. These loans are commonly used to modernize facilities, buy equipment or purchase real estate that will enhance a company’s ability to compete internationally.

SBA 7(a) Loan Rates, Terms, Costs and Requirements

SBA loans have predefined rates, terms, costs and requirements, which vary depending on the loan type. For SBA 7(a) loans, the SBA’s guidelines are summarized as follows.

Interest Rates

SBA 7(a) loan interest rates are fixed or variable, and they are tied to the prime rate plus an additional margin, which is negotiated between the lender and the borrower. The SBA sets a maximum rate to ensure competitive borrowing costs.

Loan Terms

The length of repayment for SBA 7(a) loans varies based on the loan’s purpose. The Standard SBA 7(a) loan length is up to 10 years. However, real estate loans may have terms of up to 25 years.

Costs and Fees

SBA 7(a) loans are charged an SBA Guarantee Fee, which is based on the loan amount and term length. Lenders also charge packaging and service fees, which are regulated by the SBA.

Eligibility Requirements

Business owners often wonder, “How hard is it to get an SBA 7(a) loan?” While it’s not difficult, the SBA requires borrowers to meet certain minimum standards.

SBA 7(a) loan requirements include:

Meeting SBA size standards, which vary by industry
Operating in the U.S. or its territories
Operating as a for-profit business
Being owned/controlled (that is, at least 51% of the business is owned) by an owner who is a U.S. citizen or lawful permanent resident

The borrower must also have a good personal credit score, strong business financials and proof they can repay the loan. Business owners with a 20% or greater stake in the business must also provide a personal guarantee and/or pledge additional collateral if required.

Benefits of 7(a) Loans

SBA 7(a) loans offer several advantages that make them an attractive financing option for small businesses. Here are some of the key benefits:

Competitive interest rates: The SBA sets maximum interest rates, which may help borrowers access financing at lower costs than many traditional business loans.
Flexible use of funds: Borrowers can use SBA 7(a) loan funds for a wide range of needs, including working capital, real estate purchases, equipment purchases and debt refinancing.
Longer repayment terms: Loan terms can extend up to 25 years for real estate and up to 10 years for other purposes, making monthly payments more manageable.
Potentially easier qualification: The SBA’s guarantee reduces the risk for lenders, which may make it easier for businesses to secure financing.
Access to larger loan amounts: With a maximum loan of $5 million, SBA 7(a) loans can accommodate businesses with substantial funding needs.

How to Prepare and Apply for a 7(a) Loan

Applying for an SBA 7(a) loan requires careful preparation and an understanding of how to get a business loan. The following steps can help you ensure a smooth process and avoid unnecessary delays.

1. Assess your business needs: Determine how much funding you need and how you’ll use the loan.

2. Check eligibility: Determine whether your business meets the SBA’s required size standards, profit status and creditworthiness benchmarks.

3. Prepare documentation: Gather your personal and business tax returns, financial statements, business plan, loan application history, proof of ownership and licenses.

4. Find an SBA-preferred lender: Preferred lenders have been granted delegated authority by the SBA due to their experience and track record in processing SBA loans. This delegated authority allows preferred lenders to process, approve, service and close loans more quickly, without the need for the SBA’s direct review for every application.

5. Submit your application: Your lender will guide you through submitting the loan application and may ask for additional details depending on the loan type.

6. Close the loan and receive funds: Upon approval, the lender completes the closing process and funds are disbursed according to the loan agreement. The repayment term begins based on the agreed schedule.

Put an SBA 7(a) Loan to Work for Your Business

An SBA 7(a) loan offers flexible terms, competitive rates and the support you need to grow. As an SBA Preferred Lender, Banc of California offers a streamlined process and the expertise to help secure the best loan for your needs.

Visit Banc of California’s SBA Program Resources to learn more about SBA 7(a) loans and decide whether they might be right for your business. If you’re ready to move forward, contact our team for assistance.

All credit products are subject to credit approval. Not an offer of credit.

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