Does the SBA 7(a) Loan Program Have Borrower Equity Requirements?
Yes. Borrowers are expected to inject their own money into their business, and this monetary injection is what’s referred to as borrower equity or collateral . Your lending institution may require you pledge a second mortgage on your home or other collateral.
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Yes. SBA 7(a) loan borrowers are expected to inject their own money into their business, and this monetary injection is what’s referred to as borrower equity or collateral. Your lending institution may require you pledge a second mortgage on your home or other collateral.
The requirements are different depending on whether you're a new business or an established one. According to the SBA, a new business must have "approximately one dollar of cash or business assets for each three dollars of the loan." For established firms, the business should have "no more than four dollars of total debt for each dollar of net worth."
For more on SBA 7(a) loan borrower equity, check out the blog linked here.
To learn more about the SBA 7(a) loan program or to Apply for a free quote, simply fill out the form below!
What are the equity requirements for an SBA 7(a) loan?
For a new business or an existing business looking to buy an existing one, the lender wants to see an investment of $1 (cash or business assets) for each $3 borrowed. For an existing business, the lender wants to see a maximum of $4 of debt to $1 of net worth.
For a more detailed look at specific loan terms and rates, see our SBA 7(a) loan fact sheet.
What types of collateral are accepted for an SBA 7(a) loan?
Most lenders will expect you to identify two sources of repayment in case you can't repay the loan. The first source of collateral is typically profits from the business, and the second could be real estate, equipment, or some other type of capital you own. Generally, a lender prefers that you offer something like equipment, real estate, or other high-value assets which they could sell, if needed.
What are the advantages of an SBA 7(a) loan?
The advantages of an SBA 7(a) loan include:
- Highly competitive, low interest rates
- Long loan terms, up to 25 years
- Fixed and variable-rate options are available
- A variety of businesses are eligible
- Low down payments, typically around 10-20%
- Variety of loan options, including SBA 7(a) express loans, SBA 7(a) CAPLines
- Most SBA loans, including 7(a) loans are fully amortizing, meaning borrowers don’t have to worry about balloon payments
What are the eligibility requirements for an SBA 7(a) loan?
The eligibility requirements for an SBA 7(a) loan include:
- The business must meet the SBA's size standards for its particular industry.
- The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
- The business must physically be based in the U.S. and operate within the U.S. and its territories.
- The business must operate for profit.
- Business owners must first have used other sources of financing, including personal funds, in order to qualify.
- Businesses must not be involved in lending, real estate, or speculation.
- Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
- You must also have some equity in the business — this could mean you already have a profitable business, or you could use your own personal equity as collateral.
- If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
- The business owner cannot be on parole.
- You must be doing business in the U.S. or its territories.
How long does it take to get approved for an SBA 7(a) loan?
The length of time it takes to get approved for an SBA 7(a) loan depends on the type of loan processing used. Standard 7(a) loan processing takes between 7-10 business days, while Certified Lenders Program (CLP) processing takes only 3 business days.
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