SBA 7(a) loans are some of the most popular small business loan products in the U.S, with a total loan volume of almost $26 billion in 2017 alone. And, while these loans can provide businesses with the capital they need at extremely affordable rates, they aren’t without their disadvantages. In this easy-to-read article, we’ll review some of the pros and cons of SBA 7(a) loans in order to help you determine whether they’re a good funding option for your business.
What are the Advantages of SBA 7(a) Loans?
SBA 7(a) loan advantages 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 Disadvantages of SBA 7(a) Loans?
SBA 7(a) loan disadvantages include:
Lengthy approval times (for standard SBA 7(a) loans)
Lots of documentation
Collateral is often required
Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
High credit scores are typically required (typically 680+)
May be restrictions on supplemental/additional financing
Is an SBA 7(a) Loan a Good Choice for My Business?
Well, that depends. If you want to be approved for an SBA 7(a) loan, it may require a little more effort on your part, as well as a certain amount of collateral. So, if you need a large amount of financing extremely quickly, your credit isn’t good, or your business isn’t in one of the SBA’s approved industries, non-SBA financing may be your best bet. However, if you have good credit, are in an approved industry, and can wait a bit for your funding, a 7(a) loan could be a great choice. Keep in mind, though, that SBA Express Loans can be approved in as little as 36 hours, so if your business needs up to $350,000, you may be able to get it more quickly than a Standard SBA 7(a) Loan, which may take between 30 and 90 days to be approved.