SBA 7(a) Loans
What is the SBA 7(a) Program?
The 7(a) Loan Program is SBA’s primary program for helping small businesses with financing guaranteed for a variety of general business purposes.
75–85%SBA guarantee
$5 MillionMaximum loan
Up to 25 yrsReal estate terms
No balloonFully amortized
Uses of proceeds
- Equipment purchases (machinery, business vehicles)
- Permanent working capital
- Inventory
- Business expansion
- Business purchase/acquisition
- Real estate purchase
- Land acquisition and real estate construction
- Real estate improvements
- Refinance of existing business debt
- Startup costs (case-by-case basis)
Maturity
- Acquire an Existing Business: typically structured not to exceed a maximum of 10 years
- Inventory or working capital: typically structured at 7 years but not to exceed a maximum of 10 years.
- Equipment, fixtures, or furniture: typically structured at 7 years but not to exceed a maximum of 10 years; it may not exceed the economic useful life.
- Real estate (acquisition, rehabilitation, renovation, or construction): up to 25 years plus any interest period to reasonably complete the construction or improvements.
- 7(a) refinancing: must coincide with the remaining useful life of the assets being refinanced or use of proceeds chart.
- Mixed Purpose: Business Acquisitions with Owner Occupied Commercial Real Estate will be on a blended basis.
Interest rate and other terms
- Fixed or variable rates, negotiated between borrower and lender subject to SBA maximums, and based on loan amount, term and collateral.
- Fully amortized over the life of the loan (no balloon payments).
- Prepayment penalty: none on loans under 15 years. For loans of 15 years or longer, 5%, 3%, 1% during the first 3 years.
SBA guarantee fee
| Loan amount | Fee |
|---|---|
| $150,000 or less | 2% of the guaranteed portion |
| $150,001 to $700,000 | 3% of the guaranteed portion |
| $700,001 to $5 million | 3.5% on the guaranteed portion up to $1 million, plus 3.75% on the guaranteed portion exceeding $1 million |
The lender may charge up to a $2,500 packaging fee.
Who qualifies
- Must be for profit and meet size standards
- Good character and credit management
- Must be an eligible type of business
- 100% of owners and all required guarantors must be U.S. citizens or U.S. nationals with a principal residence in the U.S., its territories or possessions (no Green Card holders)
Benefits for borrowers
- Long term financing
- Improved cash flow
- Fixed maturity
- No balloon payments
- No prepayment penalty under 15 years
Paul is NOT a loan broker but works for a financial institution that is a direct lender.