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How Does LendingTree Get Paid?LendingTree is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace. SBA 7(a) Loan: How to Get the Popular SBA LoanWritten by Melissa Wylie Edited by Kurt Adams Updated on: December 28th, 2022Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners. The U.S. Small Business Administration’s 7(a) loan program is the federal government’s primary offering for general business financing. SBA 7(a) loans can cover business expenses like working capital and operating costs, real estate and equipment, up to $5 million. The 7(a) loan program provides financing with favorable rates and terms up to 25 years to businesses that have difficulty obtaining funding elsewhere. On this page
What is an SBA 7(a) loan?SBA 7(a) loans are issued through lenders that have partnered with the SBA, including banks, credit unions, community development organizations and microlending institutions. The SBA guarantees a portion of each loan, which is how lenders are able to keep rates relatively low. Business owners can apply for other types of SBA loans beyond 7(a) loans, including CDC/504 loans and microloans. You could use an SBA 7(a) small business loan as working capital to cover seasonal expenses or make one-time purchases of fixed assets like furniture, real estate or machinery. You could also use a 7(a) loan to fund construction or remodeling projects. Types of 7(a) loansThere are several types of loans under the 7(a) program that meet different needs for borrowers, such as the SBA Express for faster turnaround times or seasonal and short-term financing options using an SBA line of credit. Types of 7(a) LoansLoan AmountTermsGuarantee PercentageBest forStandard 7(a)Up to $5 millionUp to 25 yearsUp to 85%Working capital, equipment, real estate7(a) Small LoanUp to $350,000Up to 25 yearsUp to 85%Working capitalSBA ExpressUp to $500,000Up to 7 years if used as a line of creditUp to 50%Urgent needs — SBA turnaround within 36 hoursExport ExpressUp to $500,000Up to 7 years if used as a line of creditUp to 90%Entering or expanding an existing export marketExport Working Capital Up to $5 millionUp to 3 yearsUp to 90%Export companies in need of working capitalInternational Trade LoanUp to $5 millionUp to 25 yearsUp to 90%Long-term financing for growing export companiesCAPLinesUp to $5 millionUp to 10 yearsUp to 85%Short-term or cyclical fundingCommunity Advantage**Up to $250,000Up to 25 yearsUp to 85%Businesses in underserved areas**Expires Sept. 30, 2024 The SBA expanded the 7(a) program to include the Paycheck Protection Program for business owners struggling during the coronavirus pandemic. The deadline to apply for a forgivable PPP loan up to $10 million is Aug. 8. How do SBA 7(a) loans work?Once you find an SBA-approved lender and meet certain criteria — we’ll talk about requirements and the loan application process, below — a lender could require you to make a down payment of 10% to 20%. The SBA prefers to work with borrowers who are willing to invest equity in their own operations. Collateral may also be required for loans in excess of $350,000, but not for loans below $25,000. SBA guaranteeBorrowers must provide a personal guarantee, which would put you on the hook to personally repay an SBA loan if the business defaults. And because SBA loans are government financing, failing to fully repay your debt could hinder your ability to receive other federal assistance in the future. SBA 7(a) loan rates and termsThe SBA places a cap on the maximum amount of interest SBA 7(a) lenders can charge. Interest rates may be fixed or variable, and are based on the federal Prime rate. The Prime rate is 7.50% as of Dec. 15, 2022. SBA 7(a) variable loan interest ratesLoan amountLoans with a maturity under 7 yearsLoans with a maturity 7 years or moreRate standardVariable rate maximum (with current 7.5% prime rate)Rate standardVariable rate maximum (with current 7.5% prime rate)$0 - $25,000Base* + 4.25%11.75%Base + 4.75%12.25%$25,001 - $50,000Base* + 3.25%10.75%Base + 3.75%11.25%$50,000 or aboveBase* + 2.25%9.75%Base + 2.75%10.25%
According to the SBA, fixed interest rate 7(a) loans are based on the Prime rate in effect on the first business day of the month of your loan. SBA 7(a) fixed loan interest ratesLoan amountFixed rate maximumFixed maximum allowable (with current 7.5% prime rate)$0 - $25,000Prime + 8.0%15.5%$25,001 - $50,000Prime + 7.0%14.5%$50,000 - $250,000Prime + 6.0%13.5%Over $250,000Prime + 5.0%12.5% 7(a) feesSBA 7(a) loans also come with fees up to 3.75% of the guaranteed portion. Loans of $1 million or more would have a fee of 3.5% of the guaranteed portion up to $1 million, plus 3.75% of the guaranteed portion exceeding $1 million. In addition to the SBA guarantee fee, lenders can pass on costs related to your loan closing but not the SBA service fee. The SBA waives guarantee fees for Express loans for veterans. 7(a) maturityRepayment terms for SBA 7(a) loans vary depending on the assets that the loan is financing:
If you plan to use your loan for multiple purposes, your maximum term may be based on the purchases that take up the majority of your loan proceeds. You could use an SBA 7(a) loan calculator to estimate the monthly cost of an SBA loan based on your rate and terms. SBA 7(a) loan requirementsSBA 7(a) loans are open to a wide range of small businesses that meet the SBA’s size standards, which include revenue or employment limits that vary by industry. In addition to size criteria, business owners must meet these additional general SBA requirements:
Time in business, credit requirementsBorrowers typically need two years in business to qualify for an SBA 7(a) loan, though you could be approved with less time. While the SBA does not have a minimum required credit score, it does use the FICO® Small Business Scoring Service℠ (SBSS) to prescreen 7(a) applicants. The SBSS takes into account a mix of consumer and business credit bureau data, along with information borrowers and lenders supply on Form 1919 and Form 1920. You may have a higher chance of being approved with a personal FICO Score of 680 or higher. Ineligible businessesBusinesses in a number of industries are not eligible for SBA 7(a) loans, including:
As mentioned earlier, business owners with low credit scores or those with less than two years in business may not qualify for an SBA 7(a) loan. How to apply for an SBA 7(a) loanThe first step in getting an SBA 7(a) loan is finding an approved SBA lender in your area. You could begin with the SBA’s Lender Match tool to connect with a nearby financial institution, read more about these top SBA lenders or browse the 100 most active 7(a) lenders. Once you find a lender, you’ll need to compile several documents to complete your SBA 7(a) loan application. The lender would then submit your finished application to the SBA for approval. Some lenders have received “preferred” status and are able to independently approve borrowers. Here are the documents you’d need to submit along with your loan application:
Frequently asked questionsHow long does it take to get an SBA loan?It could take as many as two or three months to be approved for an SBA loan. Unless a lender has preferred status, it may take a few weeks just for the SBA to approve a guarantee for a lender. What are the SBA 7(a) loan fees?Fees for an SBA 7(a) loan may be as much as 3.75% of the guaranteed portion of the loan. The SBA may allow lenders to charge additional fees if a loan requires extensive servicing. What is the maximum 7(a) loan amount?The maximum loan amount for a standard SBA 7(a) loan is $5 million. The maximum guarantee percentage is 85% for loans up to $150,000 and 75% for loans exceeding $150,000. Do SBA loans have higher interest rates?Because they are backed by the Small Business Administration, SBA loan rates tend to be lower than average business loan rates. These loans are more competitive and have a set maximum interest rate, although the exact rate you pay will depend on your lender and how much your business needs to borrow.
How is interest calculated on a SBA loan?SBA loan rates for 7(a) loans are pegged to the daily prime rate, which is based on the Federal Reserve's actions. The rate you will pay is based on the daily prime rate plus a lender spread. 7(a) loan interest rates can be either fixed or variable.
Can SBA loan be forgiven?Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.
Does SBA charge interest?As with many other SBA loans, interest rates depend on the individual lender, but they typically range from 8% to 13%. Many SBA microloans are also secured by the asset being financed or other collateral, and borrowers must personally guarantee the loan amount.
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