What is an SBA 7(a) Loan?

The SBA 7(a) loan is the Small Business Administration’s (SBA’s) most popular form of business financing. SBA 7(a) loans, which were issued in excess of $25 billion in 2017, can be used for both working capital and commercial real estate, making them an excellent choice for entrepreneurs with a variety of different needs.

SBA 7(a) Loans Are Issued By Private Lenders, Not The SBA

With the exception of SBA disaster loans, all SBA loans, including SBA 7(a) loans, are not actually issued by the Small Business Administration. Instead, the SBA simply guarantees a large portion of the loan in order to reduce risk for the lender. Depending on the loan, the SBA will guarantee between 75% and 85% of the loan amount, a small percentage of which will be passed onto the borrower in the form of an SBA guarantee fee (guarantee fees only apply to loans of more than $150,000.)

SBA 7(a) Loans Come In A Variety of Flavors

While the Standard SBA 7(a) loan may be the most popular, it’s not the only option available to small business borrowers. Other SBA 7(a) loan types include:

  • SBA 7(a) Small Loans: Small 7(a) loans, which defined as any loans up to $350,000, often have slightly better terms than larger loans. For example, loans up to $25,000 don’t need collateral (according to the SBA, though an individual lender may require it.) Plus, loans of $150,000 and less don’t require any SBA guarantee fees.

  • SBA Express Loans: Also part of the 7(a) program, SBA Express Loans are issued in amounts of $350,000 and less, and can be approved in a much shorter time period than a standard 7(a) loan.

SBA 7(a) Loan Terms

While terms can vary, in general, terms for SBA 7(a) loans include:

  • Loan Term:

  • Loan Size: Up to $5 Million

  • Interest Rate: Maximum rates are between 7.25% and 9.75%

SBA 7(a) Loan Eligibility

While SBA 7(a) loans are a great financing option for many small businesses, they aren’t available for everyone. In particular, SBA 7(a) borrowers must be:

  • For-profit businesses (no non-profits allowed)

  • Operating in an SBA-approved industry. Non-approved industries include:

    • Speculation

    • Real estate investing

    • Lending

    • Gambling

  • Within the SBA’s business size limits

  • In possession of a good credit score (640 is typically the minimum, but 680+ is ideal)

Even if you do qualify for an SBA 7(a) loan, it may not be the best choice for your business. For example, businesses that only need funds to purchase commercial real estate for their business may want to consider an SBA 504 loan. SBA 504 loans have a slightly larger maximum loan amount than 7(a) loans (at $5.5 million), and offer slightly lower interest rates. However, SBA 504 loans cannot be used for working capital, and they typically require even better credit than an SBA 7(a) loan.


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