What is the SBA 7(a) Loan? What are the Different Types?

You’re a business owner encountering hard times. Fewer customers are visiting your bakery shop over time.

You must also make payroll to pay your employees. Also, you must invest in new kitchen equipment. All of these expenses are adding up, and you don’t know where to find the revenue.

You begin thinking about a business loan. However, you don’t know if you qualify. One day, a friend mentions an SBA 7a loan program from the Small Business Administration (SBA).

You’re intrigued, but you don’t know if you qualify.

How does the loan process work?

Under a SBA 7a loan program, the government guarantees the loan up to a certain amount. However, you wouldn’t borrow from the SBA itself. Rather, the government will refer you to a bank or lender to obtain the loan.

You can also choose from several other types of SBA 7a loans, such as an SBA Express Loan or an Export Express Loan. This article will provide an in-depth guide into SBA loan programs and SBA loan requirements. Read further if you wish to know more.

Inner-Workings of an SBA 7a Loan

Under conventional SBA 7a, you can borrow up to $5 million. In most cases, the repayment terms last for up to 10 years. The SBA will back 85 percent of the loans up to $85K and 75 percent for loans over $150K.

You don’t have to put up collateral if you borrow $25K and under. Loans over $350K require collateral, and the SBA requires the lending institution to collateralize the loan to the fullest extent possible.

Overall, you can use the loan for the following purposes:

  • Hire new employees

  • Purchase new equipment

  • Refinance debt obligations

  • Expand your business operations

  • Upgrade electronic equipment

You can use the funds for any aspect of your business.

Another version of the SBA 7a loan is the 7a Small Loan Program, which is a smaller version of the standard SBA 7a. Under the Small Loan 7a, you can borrow up to $350K. The small-loan program also adheres to the same guarantees and standards as standard SBA 7a loans.

SBA Express Loans

An SBA Express carries the same borrowing limit as the Small Loan program, which is $350K. However, an SBA Express loan only carries a 50-percent guarantee. Additionally, the application and underwriting process take less time, allowing you to get funding sooner.

You can also utilize Exporting Working Capital Loans and Export Express loans. Both of these loans break down as follows:

  • Short-term loans

  • Guarantee backing between 75 percent to 90 percent

The Export Working Capital option affords you a $5 million borrowing limit, and the Export Express Loan has a cap of $500K.

What are the SBA 7A Loan Qualifications?

To qualify for an SBA 7a, you must retain less than 500 employees. Moreover, your tangible net worth must fall below $15 million and your two-year average net income must fall below $5 million. You must meet various other thresholds, including a minimum 640 FICO score, satisfactory credit history and adequate cash flow to cover the debt.

However, the SBA 7a option increases your chances of getting funding because the SBA backs your loan. Therefore, a bank or lender is more willing to finance your business needs.

Are you thinking about an SBA loan? Click here to loan about the right time to fund your business.