What is an SBA 7a Loan? How Does it Work?

what is sba 7a loan

It is not easy running a small business, especially when you are just starting off. One problem that often crops up is a cash crunch. Customers delaying payments and business expansion plans are just some issues that can lead to a shortfall in finances. This is when you need to look at financing options available to you. The Small Business Administration (SBA) has come to the rescue of many an entrepreneur when traditional banks have denied help. The SBA does not directly lend the money, but it supports the borrower by guaranteeing to repay a major part of the debt if they are unable to do so. The SBA 7a loan program, in particular, has proven to be immensely popular with a large number of small business owners. So, let us take a look at what is an SBA 7a loan and how does it work?


Qualification Criteria

The SBA specifies certain eligibility requirements for a business to qualify for this loan.

Businesses with fewer than 500 employees bringing in less than $7.5 million in revenues each year as well as having an income of under $5 million annually, can apply.

Your business must be one that operates for profit and have adequate equity to invest. It is also essential to demonstrate that you have attempted to utilize other financial options such as using personal assets before applying for this loan.

Speculative businesses such as real estate and lending companies are some businesses that will not be considered
for this loan program.


How Does It Work?

The SBA 7a loan can be used for a variety of purposes including purchase of equipment, supplies, materials, furniture, and new land inclusive of construction costs, expansion of business, boosting existing capital, and refinancing existing debt.

A 10 percent down payment may be essential if the loan is being used for purchases. An SBA 7a loan must be repaid on a monthly basis and can come with fixed or variable rates of interest.

If you opt for a fixed rate of interest, the payments will not vary from month to month as it will if you have opted for the variable interest option.


Why Choose This Loan Program?

The primary advantages of an SBA 7a loan are the flexibility it offers in terms of purposes it can be used for, the longer terms with 25 years for purchases and 7 years for working capital, and lower down payments when compared to other financing options.

An SBA 7a loan has a maximum cap of $5 million where the maximum loan guarantee would be for 75% of the amount, i.e. $3.75 million.

It also has specific provisions for different categories of borrowers such as those in the export industry, people serving in the military or veterans, and those looking to fulfill cyclical or working capital need can all find this a helpful option.


Wrapping Up

Being equipped with all the answers to the questions like what is an SBA 7a loan and how does it work will help you ensure that your application is submitted according to due process with all the supporting documentation and information.

About Sreeram Sreenivasan

Sreeram Sreenivasan is the Founder of Ubiq, a business dashboard & reporting platform for small & medium businesses. Ubiq makes it easy to build business dashboards & reports for your business. Try it for free today!