If you are struggling to secure a small business loan, the SBA 7(A) program can provide you with cash to flourish with low down-payments and interest rates. Here is everything you need to know about qualifying for the SBA 7(A) loan!
What Is the SBA 7(A)?
The SBA 7(A) is one of several lending programs the U.S. Small Business Administration offers to help mom and pop businesses get access to capital. Rather than lending to entrepreneurs directly, the SBA acts as a guarantor on a controlled loan through commercial lenders.
Interest rates on SBA loans are capped at a percentage over the prime rate
, or the lowest possible rate available to commercial customers. Qualifying for an SBA loan typically means far more attractive interest rates than business owners can receive otherwise. This means entrepreneurs can borrow money that is less expensive, which can help in managing cash flow.
How to Use
The 7(A) program is the most commonly used because of it can be used for a variety of expenses. Other SBA lending programs, such as the SBA 504
, has more restrictions on who qualifies and how the loan can be used. The 7(A) can help owners borrow up to $5 million
to use for a range of business expenses include expansion, purchasing equipment or real estate, or debt refinancing. In rare cases, you may even qualify for an SBA loan to start a new business. Generally, lenders prefer to provide financing to established businesses and seasoned entrepreneurs
that pose a lower threat of default.
Eligibility for the 7(A) depends on several factors including size requirements and industry. The company must be a for-profit, small- to medium-sized business based in the United States. More qualitative requirements
include the likelihood that the business owner will repay loan.
How to Apply
The SBA only acts as the guarantor on loans, which are administered through partnered commercial lenders. The banks ultimately decide whether to extend credit to the business or entrepreneur. Given the attractive benefits of an SBA-backed loan, the process can be stringent. You should expect to provide ample financial documentation, including business plans, financial statements, and profit projections. In some cases, lenders may also want to evaluate your personal credit and financial history, so be prepared to provide personal financial documents.
Unlike an ordinary loan, which only has to be approved by the lender, 7(A) loans must also receive approval from the SBA, which means more requirements. However, the benefits are often worth the extra trouble. The 7(A) program gives entrepreneurs access to low-cost, long-term loans with other borrower-friendly features like fixed maturities, predictable payment schedules, and no prepayment penalties. If you are ready to apply for a SBA loan
, be sure to explore your lending options and consider the features that matter to your business.