What Are Liabilities in the SBA 7(a) Program?
A business’s financial obligations—like SBA 7(a) loan payments, salaries, mortgages, and deferred payments—are considered liabilities. Liabilities are deducted from a business’s total equity. A business will settle liabilities over time by paying them off, or by trading goods or services.
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A business’s financial obligations—like SBA 7(a) loan payments, salaries, mortgages, and deferred payments—are considered liabilities. Liabilities are deducted from a business’s total equity. A business will settle liabilities over time by paying them off, or by trading goods or services. Typically, a business will sort liabilities into two categories:
Those payable within a year, or current liabilities (e.g., an invoice for goods delivered, or fluctuating expenses like payroll and utility bills).
All others, called long-term liabilities (e.g., loan payments, leases, and other similar debts).
Expenses are different from liabilities in that they aren’t usually for something physical. Services rendered, for example, is a business expense by which some physical good or asset might not be involved. Payments a business makes to keep running can be expenses, such as the internet bill.
How Liabilities Apply to the SBA 7(a) loan
SBA loan payments are a liability to businesses that are awarded funds. Don’t let that scare you, though. The term liability may bring thoughts of risk and uncertainty, but it’s really just a term for bookkeeping purposes. Our SBA 7(a) loan calculator can help you determine what kind of payments to expect, and you can even view a full amortization schedule.
To learn more about the SBA 7(a) loan program or to get a free quote, simply fill out the form below!
What are the eligibility requirements for the SBA 7(a) program?
The SBA 7(a) program has the following eligibility requirements:
- The business must be officially registered as a for-profit business and must be operating legally.
- The business owner cannot be on parole.
- The business must have fewer than 500 employees and less than $7.5 million revenue on average each year for the past three years.
- The business must have a net income of less than $5 million (after taxes and not counting carry-over losses) and a tangible net worth of less than $15 million.
- The business owner must show they are investing their own time and money into the business, having “invested equity.”
- The business must be physically based in the United States and must be doing business with the U.S. and its territories.
- The business must be in an SBA-eligible industry (speculative, illegal and non-profit businesses are not eligible).
- The business owner must show they have already tried and failed to get funds from other financial lenders, fully exhausting non-SBA loan options.
- The business owner must prove they have a sound business purpose for the loan they are requesting, and that their intended funds usage is approved by the SBA.
- The business owner must prove they are not delinquent on any existing debts to the U.S. government (taxes, student loans).
For more information, please visit www.commercialrealestate.loans/sba-7a and www.sba7a.loans/eligibility-and-qualifications-for-the-sba-7a-loan.
What types of businesses are eligible for the SBA 7(a) program?
The SBA 7(a) program is available to businesses with fewer than 500 employees. It can be used for anything from buying or leasing office space, to purchasing equipment, and even meeting payroll expenses. The eligible business types for SBA 7(a) loans include:
- Hotels and Motels
For more information, please visit https://www.sba7a.loans/eligible-and-ineligible-industries.
What are the advantages of the SBA 7(a) program?
The SBA 7(a) loan program offers several advantages, including flexible terms, competitive interest rates, and government backing.
The SBA 7(a) loan program offers flexible terms, meaning you can tailor your loan to fit your specific needs. For example, if you need a large loan for long-term financing, you can structure your loan accordingly.
The SBA 7(a) loan program also offers competitive interest rates. Interest rates are typically lower than those offered by traditional lenders, such as banks.
Finally, the SBA 7(a) loan program offers government backing. Loans of up to $5 million qualify under SBA 7(a), with the SBA providing a guarantee of up to $3.75 million, or 75%. For loans worth less than $150,000, the government will back up to 85% of the debt.
What are the disadvantages of the SBA 7(a) program?
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
- They may be difficult to get if you don't have a strong credit history, though this is not a hard requirement.
- Significant paperwork is required by the SBA.
- They cannot be used for investment properties.
What are the maximum loan amounts available through the SBA 7(a) program?
The maximum loan amount for the SBA 7(a) program is $5 million. If you borrow the maximum, the SBA will be funding $3,750,000 of the loan and your private lender will cover the rest. For larger loans, you can try the SBA 504 loan calculator.