SBA 7(a) Loan Amounts, Maturity, Interest Rates, and Fees
The SBA 7(a) loan might be right for your business, so we want to make sure you have all of the information you need to make a decision. This page includes the details of the SBA 7(a) loan terms and rates, as well as specifics about loan amounts and maturity rates. Also, if you’re making an SBA loan checklist, you might find the items you need here. Here are all of the loan terms, at a glance, followed by a more detailed explanation of each below. If you're in a hurry, check out our loan terms fact sheet below.
Eligibility for an SBA 7(a) Loan
Most small businesses are eligible for the SBA 7(a) loan. Some exclusions do apply, however. These include the following:
Applicants who are not considered a small business by SBA. The size limits vary, according to industry.
The bank would otherwise be able to lend the money to the business on reasonable terms without the SBA guarantee.
The business is planning to use the funds to pay off unsecured creditors.
The business is running as a non-profit.
The business is involved in lending, rental real estate, investing or speculation.
If your business is not eligible for an SBA loan, you aren’t out of luck as far as arranging financing is concerned. Banks aren’t the only source of funding, if you are prepared to consider alternative lenders. For example, you may be able to work with a small business financing company that will buy your future credit card receipts for a set time; you receive a cash advance, and the financing company deducts a certain percentage of your credit card receipts daily until it is paid off.
When you apply for an SBA 7(a) loan, the lender will evaluate your creditworthiness based on a number of factors:
You must be able to show that you can pay your business expenses, a draw for yourself and the loan payment the income generated by the business. The lender will ask to see sales records for prior years and cash flow projections.
If you are operating a start-up, the lender will have questions about your prior business experience and education to determine that you have the know-how to successfully operate the type of business you wish to start.
Business owners need to invest a significant amount of money in their own company before they can seek outside funding. For a startup, the lender will want to see a minimum of $1 of the owner’s money invested in the business for $3 of loan funding. For an established business, the lender is looking for a maximum of $4 of debt to $1 of net worth for the business.
The lender will check your personal and business credit histories. You are more likely to be approved if your credit report shows that you have a history of meeting your credit obligations as agreed. If there are any blemishes on your credit reports, be prepared to explain them to the lender in detail.
Collateral for an SBA 7(a) Loan
Collateral is a term that describes the assets a borrower is prepared to put up as security for a loan. Lenders want borrowers to pledge assets as collateral to minimize their risk in lending money. The lender knows that it has something of value it can potentially seize and sell if the loan goes into default.
The SBA has two requirements for collateral for this type of loan:
When the loan is approved, all available business assets are expected to be made available as collateral for the loan. If the value of the company assets are not high enough to provide enough security for the loan, the SBA may register liens on personal assets such as your home or other real estate holdings.
If you don’t have enough collateral to secure the loan, don't worry, the SBA won’t turn down your application based on this fact if you meet all other qualifications.
Loan Amounts for the SBA 7(a) Loan
SBA 7(a) Loan Amounts
|Minimum||No minimum, but commonly no less than $30,000|
Your business can get an SBA 7(a) loan for any amount of up to $5 million. The loan has no minimum, which is good news for small businesses. (For example, in 2010, a small business in eastern Missouri obtained a $5,000 SBA 7(a) loan.) However, if you're thinking about taking out a smaller loan, it might be a good idea to check out one of the SBA's other loan programs -- like the 7(a) Small Loan or the Express Loan. Alternately, if you need more than the max amount of $5 million, the SBA 504 program or another loan is a better fit.
Maturity Terms for the SBA 7(a) Loan
SBA 7(a) Loan Maturity
|Loan Type||Maturity (years)|
|Real estate loans||25|
|Working capital or inventory||10|
The type of SBA 7(a) loan you get will determine the payment length, or maturity. The maximum maturity for an SBA 7(a) loan is 25 years, regardless of the purpose or amount. For loans used to buy real estate or land, the maturity is up to 25 years. Equipment loans, or loans used for working capital or inventory, have a payment length of up to 10 years.
Another SBA 7(a) loan term is the guarantee -- the maximum guarantee for lenders is $3.75 million on the $5 million maximum loan amount. Guarantee amounts from the government fluctuate based on the amount of the loan and the program type. For loans of up to $150,000, the guarantee amount is up to 85%. Loans of over $150,000 have a lower guarantee amount of up to 75%.
Interest Rates and Fees
If you came into enough cash to pay off your business loan shortly after signing the contract, it might be good news for you, but your lender may not see it in the same light. Since lenders make money on the interest charged on the loans they make to businesses, they include prepayment fees in your loan agreement to discourage you from paying off your loan early. From their point of view, the prepayment penalties are a way for them to guarantee that they will be fairly compensated if a borrower is able to pay down all (or part) of a loan quickly. On SBA 7(a) loans with terms of over 15 years, prepayment penalties are imposed by the SBA. But, consider these facts:
The penalty only applies to the first three years, starting at 5% of the outstanding balance.
Each year, the penalty declines: in the second year, the prepayment penalty is 3%; and in the third year, it reduces to 1%.
There's also a guarantee fee that the SBA tacks on to your loan agreement. As of 2017, the SBA collects guaranty fees on loans of over $150,000:
For loans between $150,000 and $700,000, the guaranty fee is 3%.
Loans from $700,000 to $1 million are charged a 3.5% guaranty fee.
Over that amount, and up to the maximum of $5 million, the loan guaranty fee is 3.5% plus an additional 0.25% for the portion that’s over $1 million.
Additionally, there’s an annual service fee of 0.52% of the total outstanding loan balance. See the following chart for a breakdown of interest rates based on loan amount and maturity.
SBA 7(a) Loan Interest Rates
|Loan Amount||Maturity of less than 7 years||Maturity of more than 7 years|
|$25,000 or less||Base rate + 4.25%||Base rate + 4.75%|
|$25,001 to $50,000||Base rate + 3.25%||Base rate + 3.75%|
|$50,001 and up||Base rate + 2.25%||Base rate + 2.75%|
|*Current prime rate is 4.50% as of January 2018.|
Luckily, the SBA prohibits lenders from going completely crazy with their fees. It’s a good thing, otherwise business owners might have to deal with an excess of fees from both lending institutions and the SBA!
Here’s the scoop: lenders are allowed to charge borrowers service fees and fees for out-of-pocket expenses. Fees for late payments are also allowed. However, SBA lenders are specifically barred from charging the following types of fees:
Fees for services, such as insurance, as a condition of approving an SBA loan
Fees for legal services, unless the lender is being billed an hourly rate for services rendered
Commissions, bonuses, broker or referral fees.
SBA lenders are also prohibited from sharing any premium they receive from the sale of an SBA loan with any loan-referral source.
Certified Lenders and Preferred Lenders
The Certified Lender Program allows lenders to speed up the lending process as long as they have a firmly established history of making and servicing guaranteed loans. Certified Lenders can use their own forms (as long as they have been approved by SBA) and the information the SBA is required to review is minimal. Certified Lenders make up approximately 10 percent of SBA loan guarantees.
Under the Certified Lender program, the lender submits a full application to the SBA, which confirms the lender’s credit decision regarding the loan. This process normally takes three business days. It's a great way for business owners to get their loan funds quickly.
Under the SBA Preferred Lender program, the SBA has given certain lenders unilateral authority to approve loans. Credit unions, savings and loan institutions and banks can be approved for preferred status. Once a lender has been approved, it follows the same guidelines for SBA 7(a) loans as other lenders. This authority is reviewed every two years, and the SBA will conduct its own checks of the lender’s portfolio. Preferred lenders make up about 18 percent of SBA lenders. A Preferred Lender can give an applicant an answer in less than 24 hours in many instances.
Want Personalized Guidance?
At SBA7a.Loans, we live and breathe the SBA 7(a) loan process. We match business owners like you with the best lender for your situation, even if it means that we have to look outside of the SBA 7(a) loan platform. We serve our customers by 1) offering a free educational portal, and 2) leveraging our lender-matching service to help you on your way to success. We have a deep love of American small businesses, and we believe it shows in our customer-first attitude.