What Are the Different SBA 7(a) Loan Programs?
Did you know that there are several different SBA 7(a) loan programs available to small business owners? The SBA 7(a) loan is the most popular of these, but it’s actually just one of several government-backed loans offered through lending institutions. Many small business owners may find themselves
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Did you know that there are several different SBA 7(a) loan programs available to small business owners? The SBA 7(a) loan is the most popular of these, but it’s actually just one of several government-backed loans offered through lending institutions. Many small business owners may find themselves eligible for many of the SBA's loan programs. However, each is designed to fit a specific need, so it's helpful to learn about what each has to offer.
Before we get into the different SBA loan programs, it's important to note that you won't go directly to the SBA to apply for your loan -- you'll go to a bank or lending institution. The bank actually provides you with the loan money, while the SBA insures ("guarantees") the loan. This just means that if the borrower fails to repay the loan, the SBA will pay the bank back a certain amount of money to help them recoup the loss. This is good news for your bank, making them all the more willing to offer an SBA loan to a qualified business owner.
All right, let's get to it!
SBA 7(a) Standard Loan
The SBA 7(a) Standard loan is the most popular of the SBA loans, and the most widely awarded. The SBA guarantees the funds for the SBA 7(a) up to 85%, in some cases. The funds from the 7(a) can be used for nearly any legitimate business purpose. You can purchase equipment, land and real estate, or use the funds for working capital. The maximum loan amount for the SBA 7(a) is $5 million, and there is no minimum.
SBA Express Loan
If you need a loan fast, the SBA Express Loan may be exactly what you’re looking for. The SBA Express Loan is a smaller loan than the 7(a) Standard, but has a much faster turnaround time. As such, the guarantee amount from the SBA is also lower, which means banks are less likely to award small business owners with the Express if they are not well prepared and eligible. An Express loan can be up to $500,000, with no minimum.
7(a) Small Loan
Another option for small business owners looking for funds, but not as much as offered by the 7(a) Standard, is the 7(a) Small Loan. This loan has a maximum of $350,000, and is guaranteed up to 85% in some cases. While the turnaround time of the Small Loan doesn’t compare to the Express Loan, the repayments terms are more favorable to small business owners.
Some businesses have recurring needs for loans. These are often seasonal, and may involve inventory, labor, or materials. The SBA recognizes these needs, and offers the CAPLines program to businesses that qualify. CAPLines have a maximum loan amount of $5 million.
Small businesses that are considered exporters by the SBA can receive expedited government-backed loans. The Export Express program is just that — a small loan offered to exporters that has a fast turnaround time. Businesses that demonstrate that the funds from the Export Express program would help them export goods can receive up to $500,000 to use for product translations, equipment, inventory, or even real estate and land.
Export Working Capital Program
There are other loan programs for exporters under the SBA. The Export Working Capital Program (EWCP) is made for businesses that need funds for activities related to exports. These loans can be up to $5 million, and the loan maturity is typically 12 months or less. You read that right -- the term for an EWCP loan is usually a year or less.
Businesses that are at least 51% owned by veterans, service members in active duty, or their spouses or widows, can benefit from the Veterans Advantage loan program. The details of the program are modular, and each year the terms change to meet the times. Until September 30, 2018, SBA 7(a) VA loans of up to $125,000 have no fees and an 85% guarantee; loans from $125,001 to $350,000 have reduced fees, up to 50%. To be considered eligible, a business owner must also meet SBA 7(a) eligibility and qualification standards.
If you want to see the different SBA 7(a) loan programs compared side-by-side, check out our SBA loan comparison flowchart here.
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.
What are the different types of SBA 7(a) loans?
The SBA 7(a) loan program offers several types of loans for small business owners. The most common type is the SBA 7(a) Standard Loan, which is offered through banks and other traditional lending institutions. The SBA guarantees the funds up to 85% in some cases. The funds from the 7(a) can be used for nearly any legitimate business purpose, such as purchasing equipment, land and real estate, or for working capital. The maximum loan amount for the SBA 7(a) is $5 million, and there is no minimum.
Other types of SBA 7(a) loans include the SBA Express Loan, the SBA Export Express Loan, the SBA CAPLines Loan, the SBA International Trade Loan, the SBA Military Reservist Economic Injury Disaster Loan (MREIDL), the SBA Community Advantage Loan, and the SBA Microloan. For more information about each of these loan programs, please visit https://www.sba7a.loans/sba-7a-loans-small-business-blog/what-are-the-sba-7a-loan-programs.
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
Flexibility in underwriting, often has lower interest rates than other comparable financing options, and flexible collateral requirements are also advantages of an SBA 7(a) loan.
What are the disadvantages of an SBA 7(a) loan?
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
How long does it take to get an SBA 7(a) loan approved?
The SBA 7(a) loan approval process generally takes between seven and 10 business days if you are dealing with a lender who will only see an SBA 7(a) loan application occasionally. However, if you are dealing with a Certified Lender, the process is much shorter and only takes three business days.Source