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
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.