SBA 7(a)

Last Updated: 03/24/2024

Loan Highlights

Small business owners seeking financing for various business purposes, including real estate acquisitions, equipment purchases, working capital, or business expansion.
Business owners that file their taxes with decent amount of deduction but not too much. Can be for real estate acquisition or business acquisition without real estate.
SBA 7(a) Loans offer attractive financing options for small businesses, providing government-backed guarantees and flexible terms.
Way more lenient qualification compared to 504. A bit faster closing time. Prioritized more by lenders
Borrowers with limited access to traditional financing options or those in industries considered high risk by lenders.
Suitable for borrowers seeking lower down payments, longer repayment terms, and access to capital for various business needs.
Ranges from $50,000 to $5 million, with the average loan size around $400,000, depending on borrower qualifications and intended use of funds.

Prime Rate + 2.50% to 4.75% margin

*The mortgage interest rate calculation above is estimated.

Interest rates: Always ARM
Amortized schedule and closed end (no balloon).
Variable or fixed-rate financing with terms typically ranging from 20, 25 or 30 years, depending on the use of funds.
Loan-to-value (LTV) ratio varies but is typically up to 90% for real estate acquisitions and 85% for working capital or equipment purchases.
A seller’s note can be an alternative to the down payment (premium).
No balloon payments or prepayment penalties for loans with terms less than 15 years; longer-term loans may have prepayment penalties.
Guaranty fees ranging from 2% to 3.75% of the guaranteed portion of the loan amount, depending on the loan size and term.
There is only one lender in an SBA 7A Loan: a private institutional lender contribute up to 90% LTV at 1st position and no government-backed lender at 2nd position.
Typically 5 years prepayment penalty. Penalty amount go down incrementally equal every year starting at 5 points in first year.

FICO: 650+ (Loan guarantor)
History: No Bk or foreclosure
Eligible businesses: Small businesses operating for profit and located in the United States, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs).
Borrower qualifications: Borrowers must demonstrate the ability to repay the loan, good character, and sufficient equity injection (minimum 10% of purchase price).
Use of funds: Loans can be used for various business purposes, including real estate purchases, working capital, equipment purchases, business acquisition, or debt refinancing.
Collateral: SBA (7a) requires collateral to secure the loan, typically including business or personal assets and personal guarantees from business owners with a significant ownership stake.
Documentation:
- Typical Documents: Income pre-approved based on tax returns of the business (2 years), financial P&L for last 12 months, 3 months bank statements of the business, financial statements of both the guarantor and the business (all time), debts schedule showing all the debts tied with the business and guarantor.
- Borrowers may also need to provide evidence of available equity, business projections, and a detailed plan for how the loan proceeds will be used.

SBA 504: Provides long-term, fixed-rate financing for major fixed assets, such as real estate or equipment, with the SBA providing a subordinate loan to cover up to 40% of the project costs.
SBA Express Loan: Offers expedited processing for smaller loan amounts, up to $350,000, with reduced paperwork requirements and faster approval times compared to traditional SBA 7(a) loans.

SBA 7(a) Loans are funded by participating lenders, including banks, credit unions, and non-bank lenders, with the Small Business Administration (SBA) providing a government guarantee on a portion of the loan amount.

Common misunderstandings with SBA 7(a) Loans include:
- Lengthy approval process: While SBA loans offer attractive terms and government guarantees, the approval process may take longer compared to traditional bank loans due to the extensive documentation and underwriting requirements. Borrowers should be prepared for a thorough review of their financials and business plans and work closely with their lender to navigate the approval process efficiently.
- Limited availability: Not all lenders offer SBA loans, and those that do may have different eligibility criteria and loan terms. Borrowers should research lenders and inquire about their experience with SBA lending to find the best fit for their financing needs. Working with an experienced SBA lender or broker can help streamline the process and increase the likelihood of approval.
- Importance of business planning: SBA loans require a detailed business plan outlining the borrower's business model, market analysis, financial projections, and use of loan proceeds. Borrowers should invest time and resources in developing a comprehensive business plan to demonstrate their readiness for financing and increase their chances of approval.