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What Is the 7(a) Small Loan?
The SBA 7(a) Small Loan is the name for an SBA 7(a) Loan up to $350,000. The SBA offers a guarantee of 85% for loans of up to $150,000, and 75% for loans between $150,001 and $350,000. For a SBA 7(a) Small Loan, the SBA allows lenders to submit two initial forms that quickly generate a credit score
SBA 7(a) Loans provide funding for small business owners of up to $5 million. Yet the biggest void in the small business landscape has been for smaller amounts of business funding, which is why the agency began addressing this need. The SBA decided to get rid of “cumbersome analyses of a company’s cash flow,” which often delayed small loan decisions. With a simpler lending process, they hoped to get more SBA 7(a) Small Loans into the hands of eager entrepreneurs.
The SBA 7(a) Small Loan is the name for an SBA 7(a) Loan up to $350,000. The SBA offers a guarantee of 85% for loans of up to $150,000, and 75% for loans between $150,001 and $350,000. For a SBA 7(a) Small Loan, the SBA allows lenders to submit two initial forms that quickly generate a credit score based upon the business owner’s personal credit, the business, and the projected success of that business. The SBA’s “total credit score” approach – which the SBA confidently backs in terms of predictive accuracy – makes it easier and less time-consuming for banks to partner with the SBA. And faster for you!
7(a) Small Loan Screening
Small Loan applications will be pre-screened to determine whether or not you’re an easy approval. Your creditworthiness will be decided based on a blend of consumer credit data, business credit data, borrower financials, and the contents of your application. If you pass the pre-screen, you’ll be fast-tracked through the SBA’s E-Tran system. If you fail the pre-screen, you’ll be required to go through the more rigorous SBA 7(a) Standard Loan process instead.
How Can I Use SBA 7(a) Small Loan Funds?
Small Loans can be used to fund standard approved uses of SBA-guaranteed funds except for temporary working capital (revolving loan structure). The approved uses include:
Buying owner-occupied commercial real estate
Constructing owner-occupied real-estate or financing an expansion (additional collateral required)
Funding improvements for tenants in a leased space (additional collateral required)
Funding equipment, owner-occupied real estate, or working capital and inventory for exporters
Purchasing a business or buying out a partner
Buying vehicles, furniture or other equipment required to run the business
Buying machinery or equipment (useful life must be at least 10 years, usually tied to real estate)
Paying for hiring or inventory related to business expansion (opening a new location, for example)
Refinancing existing debt (if the debt is currently on unreasonable terms such as high interest rates)
Expenses related to starting a new business or franchise
What are the eligibility requirements for the 7(a) Small Loan?
The eligibility requirements for the 7(a) Small Loan include:
- A maximum loan amount of $5 million with no minimum loan amount (most loans, however, are $30,000 or more).
- 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.
What are the advantages of the 7(a) Small Loan?
The SBA 7(a) loan program offers several advantages, including flexible terms, competitive interest rates, and loan amounts ranging from $5,000 to $5 million.
Flexible terms mean that 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.
To learn more about the SBA 7(a) loan program or to get a free quote, simply click the button below!
Get A Free quoteWhat are the disadvantages of the 7(a) Small Loan?
The disadvantages of the 7(a) Small Loan 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 approved for a 7(a) Small Loan?
The SBA 7(a) loan program has two different types of loan processing: Standard 7(a) Loan Processing and Certified Lenders Program (CLP) Processing.
Standard 7(a) Loan Processing takes between seven and 10 business days. Source
Certified Lenders Program (CLP) Processing takes three business days. Source
What documents are required to apply for a 7(a) Small Loan?
To apply for a 7(a) Small Loan, you will need to provide the following documents:
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Business and affiliate financial statements, including a balance sheet, profit and loss, and income projection
- Agreement to purchase the business (if applicable)
- Letter of intent to buy the business (if applicable)
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
The SBA also allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.
If you’re considering applying for an SBA Small Loan, you can download this PDF checklist from the SBA to make sure you’re gathering all the right materials and speed up the process. And of course, we offer free consultations to small business owners interested in SBA financing.