Entrepreneurs often need financial assistance to launch their business or expand operations, from buying machinery and equipment to real estate. Banks across the US offer a variety of business loans; one of them is the SBA 7(a) business loan, backed by the US Small Business Administration (SBA).
Banks granting SBA 7(a) loans range from small, regional banks to national chains like JPMorgan Chase Bank, as well as a selection of credit unions and lending companies. The SBA 7(a) small business loan is its most popular SBA loans program for businesses. It’s the SBA’s primary program because of its flexibility in loan amounts, use of funds, and repayment plans.
What is an SBA 7(a) loan?
A SBA 7(a) loan is a special type of SBA loan for qualifying small businesses and start-ups that need funding for working capital (for example, to purchase or install equipment, or buy furniture or supplies) or other financial help to otherwise grow their business. Business owners can use their SBA 7(a) loans for refinancing current business debt, buying an existing business, and purchasing real estate, if done so by the owner (not by a real estate investment firm).
The interest rates are typically lower than traditional loans and the repayment terms more flexible. With maximum loan amounts ranging from $350,000 to $5 million, each 7(a) loan has its own maturity period, interest rates, repayment plans, and other terms and conditions. For example, 7(a) loans used toward real estate purchases have a longer maturity period of 25 years, while loans used to buy equipment have a 10-year period.
Loans are issued through SBA-approved lenders such as banks, credit unions, or economic development corporations. The timeline from SBA approval to the release of the loan proceeds from the financial institution to the business owner vary from lender to lender. It could take anywhere from 90 to 150 days.
7 types of SBA 7(a) loans
- Standard 7(a) loan
- 7(a) small loan
- SBA Express loan
- Export Express loan
- Export Working Capital loan
- International Trade loan
- CAPLines loans
There are seven types of SBA 7(a) small business loans; some are for general small businesses, while others are designated for specific types of businesses—from exporters to international trade. Each loan has its own parameters and rules, such as certain interest rates, dollar amount maximums, collateral requirements, and revolving lines of credit options, among other terms. Sometimes the SBA makes the loan eligibility and credit decisions on loan applications; other times it’s the qualified lenders (banks, credit unions, economic development corporations). The seven types of SBA 7(a) loans are:
1. Standard 7(a) loan
The Standard 7(a) Loan is one of the generic loans for small business owners, but may be a consideration if you are already an established business and want to expand.
- Maximum loan amount is $5 million.
- Eligibility and credit decisions made by SBA and qualified lenders.
- SBA turnaround time is five to 10 business days.
2. 7(a) small loan
The 7(a) Small loan is a smaller loan than the Standard loan for small business owners.
- Maximum loan amount is $350,000.
- Eligibility and credit decisions made by SBA and qualified lenders.
- SBA turnaround time is five to 10 business days.
3. SBA Express loan
Time can be a factor for small business owners, the SBA Express loan applications are reviewed quickly.
- Maximum loan amount is $500,000.
- Eligibility and credit decisions made by lender.
- SBA application turnaround time is within 36 hours.
4. Export Express loan
Small exporting businesses can obtain financing for loans and lines of credit with the Export Express loan, and applications are reviewed quickly. Typically, you must have been in business—within or outside of exports—at least one year. A unique feature of this loan is it can be used for export development activities, like attending non-US trade shows.
If you apply, keep in mind:
- Maximum loan amount is $500,000
- Eligibility and credit decisions are made by lender
- SBA loan approval time is typically 36 hours.
5. Export Working Capital loan
Small businesses that make export sales and need working capital can apply for an Export Working Capital loan. This type of loan can be especially beneficial because you can apply before the terms of your export contract are finalized, offering more flexibility during negotiations. Proceeds can be used to acquire inventory, for costs associated with the manufacturing of exported items, and other export transactions.
- Maximum loan amount is $5 million.
- Eligibility decision made by SBA and qualified lender; credit decision by SBA.
- SBA turnaround time is five to 10 business days.
6. International Trade loan
The International Trade loan provides long-term financing for small businesses planning to enter international commerce, already making increased export sales, or that need upgrades to face global market competition. Businesses can use International Trade loans for fixed assets for construction, building, real estate equipment, and working capital for export transactions.
- Maximum loan amount is $5 million.
- Eligibility and credit decisions made by SBA.
- SBA turnaround time is five to 10 business days.
7. CAPLines loans
The CAPLines loans program is a financing program that helps small businesses get working capital through different types of short-term lines of credit. Examples of CAPLines (short for Capital Lines of Credit) loan scenarios include funding to address seasonal cost increases due to stocking more inventory, or the direct costs of constructing a commercial building for business expansion. There are four types of CAPLines programs, and each loan has very specific ways the money can be used in small business financing.
- Seasonal CAPLine: Financing can be used for seasonal increases of accounts receivable and inventory, and, in some cases, increased seasonal labor costs. Maximum maturity on this loan is 10 years.
- Contract CAPLine: Financing can be used for direct labor and material cost of transfer of contracts. Maximum maturity on this loan is 10 years.
- Builders CAPLine: Business financing can be used for renovating commercial or residential buildings, labor, and material costs. Maximum maturity on this loan is five years.
- Working CAPline: A line of credit that provides financing for cyclical growth and short-term needs. Maximum maturity on this loan is 10 years.
Eligibility requirements for an SBA 7(a) loan
Applicants who are eligible for an SBA 7(a) loan must meet the following criteria:
- Own a for-profit business
- Be a small business, as defined by the SBA
- Operate in the US or territories
- Demonstrate loan need (such as a failure to qualify elsewhere)
- Have used other financial resources, including personal assets, prior to applying
- Use funds for business purposes only
- Not be in debt to the US government
- Have good credit history, a minimum credit score of 640, preferably higher
- Can assure repayment of loan via historical business performance and cash flow projections
How to apply for an SBA 7(a) loan in 5 steps
There are several steps to take to apply for an SBA 7(a) loan:
1. Find an SBA lender
There is no list of banks who are SBA lenders granting SBA 7(a) loans on the SBA website. Instead, go to the SBA Lender Match page and fill out the required form with information about your business. According to the SBA, it can take as little as five minutes. In addition, there is a list of SBA lenders who have approved 7(a) and 504 loans in the past.
2. Get matched
Within two days, you should receive an email from the SBA with SBA lending partners interested in providing financial assistance by issuing you a loan. Some of these lenders might contact you, others you are free to contact. There is a chance you will not be matched if no lenders are interested in lending to your business.
3. Compare lenders’ offers
Each lending institution will have their own terms and conditions for their SBA 7(a) loans. These variables might include dollar amounts, interest rates, and fees, among other factors.
4. Apply for the loan
Once you’ve chosen your lender, fill out their required SBA forms and supply any additional paperwork, which generally includes:
- SBA Form 1919 (required)
- Personal financial statements and business financial statements
- List of any subsidiaries and affiliates
- Business license or certificate
- Income tax returns (required)
- Résumé
- Loan application history
- Business overview
- Business lease
If you’re buying an existing business, you’ll also be required to send:
- Current balance sheet of that business
- Three years of federal income tax returns for that business
- Purchase agreement with the terms of sale
- Asking price with inventory, machinery, and furniture
Keep in mind you might be asked by the lender to supply additional information.
5. Wait for the response
Applicants waiting for an SBA 7(a) loan might get a response in as soon as 24 hours, or up to 10 business days.
SBA 7(a) loan FAQ
What are the repayment terms for an SBA 7(a) loan?
Most 7(a) loans require monthly payments, which pay off both principal and interest; prepayment penalties apply when a borrower prepays on a loan with a maturity of 15 years or more. Borrowers who have fixed rate loans will make the same payment amount; variable rate loans might fluctuate when interest rates change.
How long does it take to be approved for an SBA 7(a) loan?
The approval rate varies depending on the type of loan, but ranges from 24 hours to five to 10 business days. Loans are approved by the SBA or lenders, depending on the type of 7(a) loan.
What are SBA preferred lenders?
The SBA can give select lenders qualified status, which allows them to be more independent when processing or closing SBA loans.
Can you apply for an SBA 7(a) if you have bad credit?
The SBA suggests a minimum credit score of approximately 640. Anyone can apply, but the chances of getting an SBA 7(a) loan with bad credit is slim.
