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Can I Get Approved for the SBA 7(a) Loan Program

by Liz Froment7 minutes / December 11, 2021

Can I Get Approved for the 7a Loan Program

Any small business owner who spends time searching for small business loans–both through banks and online–has likely come across the SBA 7(a) loan program. It’s one of the more popular small business lending options out there. With that, many small business owners look to the Small Business Administration (SBA) to help with financing.

One way the SBA helps small business owners is through their Loan Guarantee Program. Here, you’ll learn what you need to know about the SBA 7(a) loan program and the requirements for approval.

What is the SBA loan program?

SBA loans don’t actually go through the government. Instead, the SBA offers guarantees to participating lenders, including traditional banks, credit unions, online lenders and private lenders.

The goal is to make small business loans less risky for these lenders. This means that more business owners can secure funding to help grow their businesses.

Guarantees typically cover anywhere from 50 to 85 percent of the total loan amount, depending on the loan. The SBA has a variety of loan options, including the 7(a) program, the 504 program, microloans and disaster loans.

However, the SBA 7(a) program is the focus here.

What is a 7a loan?

SBA 7(a) loans are some of the most popular options available for small business owners. In the 2019 fiscal year, over $23 billion in loans saw approval. An average loan was for just under $450,000.

The flexibility of the 7(a) loan program makes it popular among small business owners. 7(a) loans are guaranteed up to $5 million. For loans up to $150,000, the SBA guarantees 85 percent. The SBA guarantees 75 percent for loans over $150,000, up to $3.75 million on the $5 million maximum loan amount.

If you default, the SBA will pay out the guaranteed amount. It’s one way the administration removes some of the default risks from lenders. This allows them to offer more attractive repayment terms.

Many small business owners would likely struggle to secure financing from traditional financial institutions without the SBA Loan Guarantee Program.

What are the SBA 7a loan terms and interest rates?

SBA loan terms are set with the long-term goals of small business owners in mind. Repayment terms are often based on your particular financial situation. However, most of these are paid back via monthly installments.

The set terms are as follows:

Real estate: up to 25 years
Equipment: up to 10 years
Working capital and inventory: up to 10 years

Another benefit of an SBA loan is that it sets a maximum with lenders on interest rates. Base rates are tied to Prime Rates, benchmark interest rates and additional spread rates.

The spread rate varies depending on the loan amount and the term. Typically, higher loan amounts with shorter terms have slightly lower spread rates.

The SBA has specific spread rates they use. But, the rates can change as the market rates do over time.

Are there fees involved with the SBA 7(a) loan program?

While you typically won’t find origination, application and processing fees with SBA loans, there still are fees to consider.

These fees can include:

SBA loan guarantee fees (which vary depending on the size of the loan; but they only apply to the guaranteed amount)
Credit authorization fees
Packaging fees and closing costs
Appraisal fees for real estate related loans
Late payment penalties
Prepayment penalties which apply to loans longer than 15 years that are prepaid within the first three years

The guarantee fee is the highest of all associated SBA loan fees. Keep these fees in mind as you figure your total payment amount.

The basics of qualifying for SBA 7(a) loans

The SBA has several eligibility requirements you must meet to qualify for any of their loans, including the 7(a). Since these are popular loans, you should understand the different requirements before you apply.

First, your business must be for-profit and based within the United States or its territories. Also, the SBA has size standards they use to ensure that the definition of small business gets met–since it varies across industries. This standard is generally a combination of employee size and annual average receipts.

Second, the SBA wants you, as the small business owner, to have a stake too. So, they require that you invest your own time and money into your small business. Also, eligibility rules state that you need to have been in business for a sufficient amount of time, typically a few years.

Finally, your business must be eligible for a loan. Some are not including real estate investment firms, rare coin dealers, companies involved in speculative activities, and companies where gambling is the primary activity, among others.

What are the SBA 7(a) loan program requirements?

Your job isn’t over yet, even once your business is eligible for a loan application. You need to meet the loan requirements, too. The SBA requires you to submit information on your “personal background and character”. This includes criminal history (if any), your citizenship status, work history in the form of a resume, past addresses, and other items as well.

You also need to provide a business plan. A solidified business plan goes a long way towards showcasing the strength of your business and your plans for the future. Don’t forget to include detailed information on how you’ll use your loan.

Other documents required are your business financial statements. You need to show your revenue and profitability. The SBA typically approves businesses with at least $100,000 in revenue each year. You should also provide a listing of any debts and your debt schedule, which can help highlight your expected cash flow.

Your personal credit score is important. The SBA and lenders will typically look for a FICO credit score above 650.

Finally, there is some personal risk involved with 7(a) loans too. The SBA requires anyone who owns over 20 percent of the business signs a personal guarantee on the loan.

While each lender is different and requirements vary depending on your situation, keep these requirements in mind as you move through the process.

Types of loans in the 7(a) program

Within the 7(a) loan program, there are different loan options beyond the 7(a) standard loan you can explore.

The 7(a) Small Loan program has all the requirements of the standard 7(a) loan with one significant difference: it offers a maximum loan amount of $350,000.

SBA Express loans are designed with quick turnarounds in mind. They have a maximum loan limit of $350,000. Note that the SBA guarantees 50 percent of the loan amount.

SBA Export Express loans are directed at exporters for lines of credit up to $500,000. The SBA guarantees 90 percent for loans up to $350,000 and 75 percent for amounts beyond that. It’s yet another option with quick turnaround times.

An Export Working Capital loan is for a revolving line of credit up to $5 million with a 90 percent SBA guarantee. This loan often has short terms of up to 12 months.

International Trade loans are set to meet the long-term financing needs of export businesses. The maximum amount is for $5 million, with the SBA guaranteeing 90 percent of the loan.

How can you use a 7(a) loan?

The SBA sets guidelines for both the general loan terms and how funds get used.

These include:

Expansion and or renovation needs
New construction
Purchasing land or buildings
Purchasing equipment, fixtures, or lease-hold improvements
Working capital
Refinancing debt (the SBA cites it must be for “compelling reasons”)
Seasonal lines of credit
Inventory costs
Business startup costs

Understandably so, it’s essential to know this information before you apply. Otherwise, you could lose your funding if you’re using it for unapproved reasons.

The Bottom Line

It’s easy to see why SBA 7(a) loans are so popular with small business owners. They provide funding with flexibility and attractive terms. If you meet the qualifications and requirements for an SBA loan, it just could be what you and your small business need to achieve your long-term goals. To learn more about SBA loans, click here.

Liz Froment

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Understanding the SBA Microloan

Financing, Manage Your Money

by Kelley Katsanos4 minutes / December 26, 2019

The SBA Microloan program can provide small business owners with small-scale, low-interest loans with very good repayment terms to either launch or expand a business. Here is what prospective borrowers need to know.

What Is a Microloan?

The SBA Microloan program offers loans up to $50,000. They help women, low income, veteran and minority entrepreneurs, certain not-for-profit childcare centers and other small businesses startup and expand. The average microloan is approximately $13,000, according to the U.S. Small Business Administration (SBA).

Microloan lending is different from other SBA loan products from traditional financial channels. The SBA microloan program provides funds through nonprofit community-based organizations. These nonprofit organizations act as intermediaries and have knowledge in lending, management and technical assistance. They are also responsible for administering the microloan program for eligible borrowers.

Uses for Microloans

Microloans are applicable for working capital purposes or for purchasing supplies, inventory, furniture, fixtures, machinery and equipment. Ineligible uses include real estate, leasehold improvements and anything not listed as eligible by the SBA.

Microloans are a great option for businesses with smaller capital requirements. If you need additional financial assistance with purchasing real estate or help with refinancing debt, other SBA Loan Programs are available, such as the 7(a) loan or 504 loan.

Microloan Stipulations

According to SBA, microloans have certain stipulations. For instance, any borrower receiving more than $20,000 must pass a credit elsewhere test. The analysis from the credit elsewhere test determines whether the borrower is able to obtain some or all of the requested loan funds from alternative sources without causing undue hardship. No business or single borrower may owe more than $50,000 at any one time. Furthermore, proceeds cannot contribute to real estate purchases or pay for existing debts.

Microloan Qualification Requirements

Each microloan intermediary has their own credit and lending requirements. In general, intermediaries require some type of collateral in addition to the personal guarantee of the business owner.

Eligible microloan businesses must certify before closing their loan from the intermediary that their business is a legal, for-profit business. Not-for-profit child care centers are the exception and are eligible to receive SBA microloans. Qualified businesses are in the intermediary’s set area of operations and meet SBA small business size standards. Another requirement is that neither the business nor the owner are prohibited from receiving funds from any Federal department or agency. Furthermore, no owner of more than 50 percent of the business is more than 60 days delinquent in child support payments, according to SBA.

Prospective microborrowers must also complete SBA Form 1624.

Microloan Repayment Terms, Interest Rates and Fees

Microloan loan repayment terms, interest rates and fees will vary depending on your loan amount, planned use of funds, the intermediary lender’s requirements and your needs.

The maximum repayment term allowed for an SBA microloan is six years or 72 months. Loans are fixed-term, fixed-rate with scheduled payments. Interest rates will depend on the intermediary lender and costs to the intermediary from the U.S. Treasury. The maximum interest rates permitted are based on the intermediary’s cost of funds. Normally, these rates will be between 8 and 13 percent.

Microloans aren’t structured as a line of credit nor have a balloon payment. Microloans are malleable if the loan term does not exceed 72 months, but not exclusively for the purpose of delaying off a charge. They allow refinancing. However, any microloan that is more than 120 days delinquent, or in default, must be charged off, according to SBA.

There are certain microloan fees and charges. You might have to pay out-of-pocket for the direct cost for closing your loan. Examples of these costs include Uniform Commercial Code (UCC) filing fees and credit report costs. You may also have to pay an annual contribution of up to $100. This contribution isn’t a fee and can’t be part of the loan. Late fees on microloans are generally not more than 5 percent of the payment due.

How to Apply for a Microloan

To begin the application process, you will need to find an SBA approved intermediary in your area. Approved intermediaries make all credit decisions on SBA microloans. Prospective applicants can also use the SBA’s Lender Match referral tool to connect them with participating SBA-approved lenders. Document requirements and processing times will vary by lender.

You may need to participate in training or planning requirements before the SBA considers your loan. This business training helps individuals launch or expand their business.

For more information, you can contact your local SBA District Office or get in touch with a financing specialist at Kapitus.

Kelley Katsanos

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6 Business Alternatives for Bank Loans and When They Make Sense

Financing, Manage Your Money

by [email protected]6 minutes / July 22, 2019

Need financing for your business but can’t qualify at a bank? There are various financing alternatives to keep your operations running.

Borrowing money is an essential part of building a small business. But when you need a loan, traditional lenders like the bank might not be an option. They tend to have strict small business lending standards. For example, you need established business credit, collateral and detailed financial statements for bank loan approval. This is a difficult hurdle for companies that have only been around for a couple years. Fortunately, as a business owner, you have other options, with a number of business alternatives for bank loans on the market today.

These alternative options can be your financing lifeline until you build enough of a financial track record to qualify for more traditional financial products.

LET’S TAKE A LOOK AT THESE BUSINESS ALTERNATIVES FOR BANK LOANS AND WHEN THEY MAKE THE MOST SENSE.

1 – Online Loans

Banks aren’t the only ones lending money. Alternative and online lenders are also a quality source of small business financing. They offer stand-alone cash flow loans that you can invest into your business and spend however you choose. If you want more flexibility, you could also open a line of credit. A line of credit lets you borrow, pay the money back and re-borrow again as many times as you want.

It’s easier to qualify for loans from alternative lenders because their requirements are not as strict as with banks. Another advantage is you often don’t have to secure the loan with your future business revenue or other collateral. However, your business will need to meet some standards like stable revenue and a good business plan for how you will use the loan proceeds.

Best fit for: A business with stable revenue looking to borrow cash quickly, without putting up collateral.

2 – SBA Loans

Another way to borrow is through the Small Business Association. This government organization assists small business owners and one of their services is to help them qualify for loans. The SBA doesn’t actually lend money. Instead they agree to back a certain percentage of the loan, guaranteeing repayment to the lender. This makes the lenders more likely to accept your application.

SBA loans can be a great tool provided you can qualify. The process does take time and you’ll need to submit, at minimum, similar documents that you would include as part of a bank loan application – such as a business plan, bank statements and your credit report.

Understanding the SBA system can improve your chances of qualifying so be sure to work with a lender that regularly works with these types of loans.

Best fit for: A business that can meet the SBA standards for a loan and also knows a lender that understands the application process.

3 – Equipment Financing

If your small business needs money specifically to buy a new piece of equipment or machinery, then equipment financing could be the answer. These small business loans can only be used to buy an asset, which also counts as the loan’s collateral. This makes it easier to qualify because if you end up not paying off the debt, the lender can take back the equipment as repayment.

With this type of financing, you can often buy new equipment with no money down but you’ll still receive the full tax break for the business investment, as if you bought the equipment with cash. You can also set up the financing as a lease which would let you replace the equipment earlier with new versions as they come out.

Best fit for: Buying or leasing new equipment for your business.

4 – Purchase Order Financing

A lack of cash can put even thriving businesses in trouble. 52% of small business owners had to forgo a project or sales worth $10,000 because of insufficient cash, according to an Intuit Quickbooks survey (slide 2). If you’ve got a project lined up but need some extra money to make it happen, purchase order financing could be the answer.

These short-term loans cover up to 100% of your supplier costs if you can show that you’ve got an order that will turn things around. Once you make the sale, the lender will deduct their fees from the proceeds. That way you still fulfill your order without taking on any extra debt. And since you can prove that you’ll be able to pay the money back quickly this financing is easier to qualify for. You just need to prove the upcoming purchase order.

Best fit for: When you’ve almost completed a sale and need a quick cash infusion to reach the finish line.

5 – Invoice Factoring

After you make a sale, your job still isn’t done because you you’ll need to collect payment. This can take between 30 to 90 days, depending on your payment terms. And, as many know, it could take even longer when customers miss payment deadlines. Not to mention there’s always the risk they don’t pay.

If your invoices are piling up and you need cash, invoice factoring could be the solution. You transfer over an unpaid invoice to a financing company, called the factor, and they’ll give you an advance on the payment.

From there, the factor takes over collecting from your clients. Once they get paid, they’ll give you the rest of the invoice amount minus their fee, which could be as little as 1.5% of the invoice amount.

Best fit for: A business with unpaid client invoices that wants to improve cash flow.

6 – Revenue Based Financing

Revenue based financing is the last of our business alternatives for bank loans. These loans have a simplified and fast application process, a great solution if your business needs money now. Lenders can approve this financing quickly because they just look at your historic revenue and how long you’ve been in business. They use this to forecast your future cash flow.

Based on that, they’ll give you a lump sum of cash. The lender will then collect a set percentage of your future sales on a daily or weekly basis.

Best fit for: A business with a proven history of revenue that needs money but does not want to go through a lengthy loan application process.

Don’t let a bank loan rejection discourage you from raising the money your business needs. As you can see, there are plenty of alternatives. If you have any questions to figure out which of these solutions is the right fit, reach out to a loan specialist today.

[email protected]

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How the SBA May Help You Recover From Natural Disasters

Financing, Manage Your Money

by [email protected]3 minutes / October 3, 2018

How the SBA May Help You Recover From Natural Disasters

Hurricanes, wildfires, earthquakes, volcanoes, mudslides — all can be devastating to the health of your small business.

In 2017, 40 percent of small businesses located within a FEMA-designated disaster zone reported natural disaster-related losses, according to the Federal Reserve. Forty-five percent of affected businesses reported asset losses of up to $25,000, while 61 percent reported revenue losses of up to $25,000.

Recovering from a natural disaster can be an uphill climb but the Small Business Administration offers relief in the form of Economic Injury Disaster Loans (EIDL). These loans can help you get your business back on solid ground.

How Economic Injury Disaster Loans Work

The EIDL program provides small businesses with funding to repair and rebuild following a natural disaster. As of 2018, qualifying businesses can borrow up to $2 million, which can be used for:

Replacing or repairing damaged equipment or machinery
Buying new inventory or replacing other assets, such as computers, that were damaged or destroyed
Repairing or rebuilding your physical premises if they were damaged or destroyed
Making improvements that could help reduce the risk of natural disaster-related damage in the future, such as installing generators or storm windows and doors

The main goal of the program is to help businesses that have been affected by a natural disaster get back to normal operations as quickly as possible. These loans are low-cost, with a maximum interest rate of four percent per year, with terms that can extend up to 30 years.

Who’s Eligible for a Disaster Loan?

In addition to small businesses, the EIDL program is also open to small agricultural cooperatives, small aquaculture operations and most private nonprofits.

It goes without saying that your business needs to be located in a federally declared disaster area to qualify. But, physical property damage to your business isn’t a requirement for eligibility.

There is one caveat, however. The program only offers these loans to small businesses if the SBA determines they’re unable to get credit elsewhere. If you’re able to get approved for an equipment or term loan, for instance, an EIDL wouldn’t be an option.

Covering the Gap When Insurance Falls Short

The SBA has a second program to help businesses that have physical property damages which aren’t covered by insurance. The Business Physical Disaster Loan program also offers up to $2 million to small businesses that need to repair or replace property, equipment, inventory or fixtures following a natural disaster.

The maximum interest rate is four percent if you’re unable to get credit elsewhere. If you have other borrowing options, the max rate tops out at eight percent. Like the EIDL program, repayment terms can stretch up to 30 years.

It’s possible to qualify for both an EIDL and a physical disaster loan — you’re just limited to borrowing $2 million total through both programs. You can submit an application for each loan program online to get the ball rolling on disaster relief for your business.

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How Do Small Business Administration (SBA) Loans Work?

Financing, Manage Your Money

by [email protected]4 minutes / March 16, 2018

Next up in the “How It Works” series let’s take a look at how SBA loans work

Every business is unique.

What works for one may not work for another. With a range of choices, each with its own unique requirements and mechanisms, how do you identify which type of financing is best for your business and your needs at this time? You should start with the basics with a full understanding of your situation. You need to be clear about what you want/need versus what your business can take on. Whether you want capital immediately, or sometime later in a lump sum, or phased over time, take stock of your situation and needs first and then consider your financing options.

Let’s take a look at one of the most frequently used business financing options available to small businesses:

How SBA Loans Work – Small Business Loans through SBA

Government-backed Small Business Administration (SBA) extends aid to all small businesses via loans that help them to not just start up a business but to also sustain and grow that business. While the agency itself does not provide financing, it makes affordable loans available through SBA approved lenders like banks. These loans are designed to meet very specific business purposes, so it is important to understand each of these options before applying for an SBA loan. Though cheaper, you may find it difficult to qualify for these loans. Many individuals are disqualified due to insufficient collateral, low credit scores or falling within an unqualified category.

SBA loan programs are designed to meet major financial requirements of varied small businesses. These include microloans, real estate loans, equipment loans, and basic loans under the 7(a) program. You can use the loans provided through the 7(a) program for a variety of purposes – setting up a new business, acquiring a business, purchasing equipment and machinery, or as an influx in working capital, among others

How SBA Loans Work – Eligibility

The general small business loans from the 7(a) program are the most popular among all SBA loans. Since these loans are guaranteed by federal agencies, lenders can offer businesses very lucrative and flexible terms for these loans. It is no secret that the 7(a) loans through the SBA are by far the best way for any small business to get financing if they are able to qualify.

To be eligible for 7(a) loans a business must be for-profit; operate within the United States; show a business need for the funds, and – most importantly – show proof that you’ve exhausted all other avenues and financial resources before applying. This means, you will need to have used your own personal assets, reached out to family and friends, and be able to show that you applied for and had been declined by a traditional lender. It’s no wonder, then, that most small businesses find these loans out of their reach. In fact, a 2016 Forbes report points out that, “The head of the U.S. Small Business Administration has cited industry estimates that 80 percent of small business loan applications are rejected.”

How SBA Loans Work – What you should know

Lowest cost option for small businesses looking for financing to start up or grow a business.
Offered by traditional and alternative lenders and backed by government guarantee.
Multiple types of loans and grants depending on business type and need.
Businesses applying for a loan must first use other resources including personal assets.
Personal guarantee required by business owners or top management of the company.
Long application and funding process compared to alternate financing options.

SBA loans may be a good option when:

Working capital is needed to expand the business over the next few years.
Consolidating loans from multiple lenders.
Hiring new employees or opening a new location.
Recovering from declared disasters.
Your business is impacted by NAFTA.

SBA loans may not be an option when:

Working capital is needed immediately for a very short term.
Consolidating loans will require the company to take a loss.
Business owner cannot provide a personal guarantee.

Besides the general 7(a) loans, the SBA provides 7(a) loans to cover special situations like companies conducting business in underserved communities and companies looking to expand export activities. There are also microloans up to $50,000, and special programs to help businesses recover from declared disasters. To learn more about SBA loans visit their website right here. Many traditional and alternative lenders also help businesses navigate through the process of applying for these loans.

Want to learn more about your options? Here are the pros and cons of the revenue-based financing.

[email protected]

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Tag Archive for: SBA Loans

What is the SBA loan program?

What is a 7a loan?

What are the SBA 7a loan terms and interest rates?

Are there fees involved with the SBA 7(a) loan program?

The basics of qualifying for SBA 7(a) loans

What are the SBA 7(a) loan program requirements?

Types of loans in the 7(a) program

How can you use a 7(a) loan?

The Bottom Line

Liz Froment

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What Is a Microloan?

Uses for Microloans

Microloan Stipulations

Microloan Qualification Requirements

Microloan Repayment Terms, Interest Rates and Fees

How to Apply for a Microloan

Kelley Katsanos

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LET’S TAKE A LOOK AT THESE BUSINESS ALTERNATIVES FOR BANK LOANS AND WHEN THEY MAKE THE MOST SENSE.

1 – Online Loans

2 – SBA Loans

3 – Equipment Financing

4 – Purchase Order Financing

5 – Invoice Factoring

6 – Revenue Based Financing

Related Posts

What is the Difference Between Interest Rate and APR?

How to Build Business Credit in 7 Steps

2024 Small Business Grants, The Ultimate List

How Economic Injury Disaster Loans Work

Who’s Eligible for a Disaster Loan?

Covering the Gap When Insurance Falls Short

Related Posts

What is the Difference Between Interest Rate and APR?

How to Build Business Credit in 7 Steps

2024 Small Business Grants, The Ultimate List

Next up in the “How It Works” series let’s take a look at how SBA loans work

How SBA Loans Work – Small Business Loans through SBA

How SBA Loans Work – Eligibility

How SBA Loans Work – What you should know

SBA loans may be a good option when:

SBA loans may not be an option when:

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How to Build Business Credit in 7 Steps

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