Can I Use the SBA 7(a) Loan for Equipment?

Have you tried to finance new equipment purchases yourself? Maybe you’ve gone to family and friends to ask for small loans. Maybe you’ve tried to obtain a personal loan, or have even thought about using credit cards. But the money you need just isn’t there — it’s like it doesn’t exist.

The SBA 7(a) loan is what you’re looking for: a government-backed loan that you can receive from a bank, credit union, or other lending institution that’s meant to help small businesses with real estate and working capital. And yes, you can use the SBA 7(a) loan for equipment purchases.

Industries That Qualify for the SBA 7(a) Loan

Before you start looking for an SBA 7(a) loan lender for your equipment, take a look at the eligibility requirements. First consider which industry you operate in, because certain industries don’t qualify for an SBA 7(a) loan. Ineligible industries include:

• Bail bond

• Gambling

• Life insurance

• Mining

• Mortgage servicing

• Oil wildcatting

• Primarily political and lobbying activities

• Real estate investment or development

• Religious teaching

Now, below are just a few examples of equipment you might buy within industries that do qualify for an SBA loan:

• Accounting and financial: new computer systems, furniture, office equipment

• Agriculture or agribusiness: tractors, generators, milking equipment

• Construction: lifts, tools, safety gear, cranes, and other machines

• Education: subject textbooks, dry-erase and electronic boards

• Entertainment, arts, recreation, and sports: lighting and sound gear, uniforms, recording studio equipment

• Hospitality and restaurants: ovens, hoods, other kitchen appliances

• Information technology: fiber cabling, software licenses, computer systems

• Manufacturing: hydraulic machines, overhead cranes, waterjet and laser cutters

• Media, broadcasting, and PR: AV gear, studio props and sets, makeup

• Real estate: advertising materials (signage, flyers, etc.), staging furniture

• Retail: POS systems, racks and shelves, office equipment

• Telecom: phone systems, computer systems, desks, and chairs

• Transportation: fleet vehicles, forklifts, and other loaders

How Does an SBA 7(a) Loan Work?

The government backs a number of loans that small U.S.-based businesses can get from a bank, credit union, or other lending institution. The SBA 7(a) loan is the most popular of these commercial loans.

People often assume that the SBA lends this money directly to businesses, but that’s not how it works. Instead, a bank or financial institution provides the loan, and the SBA guarantees it up to a certain amount. The money from the SBA 7(a) loan can be used for equipment, but also for real estate and other business purposes.

Borrower Requirements

There are some basic eligibility requirements for the SBA 7(a) loan:

• 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.

SBA 7(a) Loan Terms

Here’s a more detailed look at the SBA 7(a) loan terms:

As you can see, the SBA 7(a) loan accommodates both large and small loans. There’s no minimum loan amount, and the maximum is a whopping $5 million. The Small Business Administration guarantees at least 75% of the loan, and the rates for the borrower are reasonable.

Finding the Perfect SBA 7(a) Lender

You can find an SBA 7(a) loan lender in most U.S. cities. Banks, credit unions, savings and loans companies, and specialized lenders can all operate as SBA lenders. A good sign of an appropriate bank or credit union is if they are considered a Preferred Lender by the SBA. SBA Preferred Lenders have a track record of helping small businesses get loans efficiently and effectively.

Speak with SBA7a.Loans and let us help match you with a lender. We can give you the best opportunity to find a lender through our years of experience in working with small businesses and startups. Above all, we want to provide you with an educational platform to better familiarize yourself with the intricacies of the SBA 7(a) loan process.

SBA7a.Loans Can Help with Equipment Loans

At SBA7a.Loans, we live and breathe the SBA 7(a) loan process. We match business owners like you with the best lender for your situation, even if it means looking outside the SBA 7(a) loan platform. We serve our customers by offering a free educational portal and leveraging our lender matching service to help you on your way to success. We have a deep love of American small businesses, and we believe it shows in our customer-first attitude.

More About SBA Loans From the Blog

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SBA Loans for Laundromats and Dry Cleaners

In 2017, laundromats and dry cleaners generated $14 billion of revenue and employed nearly 200,000 workers across the U.S. While the industry has faced serious threats due to shifting consumer preferences and an increase in in-home laundry machines, there’s still a huge demand for laundry and dry cleaning services, especially in certain markets.

What are SBA International Trade Loans?

SBA International Trade Loans (ITLs) are a form of SBA-guaranteed export financing available for businesses who are involved in producing goods in the U.S. that will be involved in international trade, or to support businesses that have been negatively affected by international trade in recent years. SBA International Trade Loans have a maximum loan amount of $5 million, and provide the lender with a 90% loan guaranty.

Small Business Loans for Real Estate Agents

In 2017, over 6 million homes were sold across the United States, and nearly 90% of sellers used a real estate agent to help them through the process. Right now, there are over 2 million Americans with active real estate licenses, and over 1.3 million members of the National Association of Realtors (NAR). So, while the housing market may be hot, there’s a ton of competition to contend with. And, if you’re a real estate agent or realtor looking to get an edge over the competition, getting an SBA loan could be great way to do so.

SBA Loans for Plumbers

The U.S. plumbing industry generates more than $100 billion in revenue each year, and employs nearly 500,000 Americans, making it an essential facet of the U.S. economy. If you own a plumbing business, and you want to expand your company, buy a competitor, or refinance business debt, getting SBA financing could be one of the best way to do so.

Can You Use an SBA Loan to Buy an Online Business?

Do you need to have a physical office or sell goods and services in person to qualify for an SBA loan? The answer is no. Online and fully-remote companies are just as eligible for SBA loans as their traditional counterparts. However, they still have to prove that they have what it takes to qualify, including a good credit score, strong financials, and that they’re in an SBA-approved industry.

Can You Use An SBA Loan To Buy Part Of A Business?

Unfortunately for borrowers, SBA 7(a) loans cannot be used to purchase part of a business. Partial equity, earn outs, and employment arrangements are also generally prohibited. In addition, due to the SBA’s ban on employment arrangements, the seller may not stay on as a director, officer, shareholder, or essential employee of the business that they are selling. However, an SBA loan borrower is permitted to offer the seller a consulting agreement, but that agreement may not last any more than 12 months.

SBA 7(a) Loans for Tax Preparation Firms

With more than 121,000 tax preparation firms in the U.S. generating more than $10 billion in annual revenue, it’s safe to say that the tax prep industry is booming. Plus, SBA loan repayment data from the years 2000-2016 places three tax preparation firms as among 50 the best franchises to own in the U.S.; Jackson Hewitt Tax Service, H&R Block and Liberty Tax Service all had SBA loan repayment rates of more than 75% during that 16-year period. So, If you’re considering acquiring or expanding a tax prep firm, using a loan from the SBA 7(a) program could be a great solution.

SBA Loans for Computer Repair Companies

In 2017, the U.S. computer and electronics repair industry took in $18 billion of revenue and employed nearly 140,000 workers across the country. While the industry has been challenged by the reduced costs of electronics, companies in the right market can still take in a big profit. So, if you’re looking for financing to open, expand, or refinance business debt on a computer repair company, an SBA loan could be the perfect option.

Goodwill in Relation to SBA 7(a) Loans

Goodwill is an intangible asset that arises when a new owner purchases a business. Goodwill only arises when the new owner purchases the business for more than the tangible and intangible assets, minus the business’s liabilities. In general, SBA loans limit the amount of goodwill involved in a business acquisition, as the more goodwill involved in a transaction, the riskier it is for both the lender and the borrower.

Can You Get an SBA 7(a) Loan for a Medical Center?

Americans spent over $3 trillion on healthcare in 2016 alone, making it one of the largest industries in the entire country. And, while much of the industry is dominated by large public and private hospitals, as well as doctors’ offices, smaller, private medical centers also occupy an important market niche. And, if you own (or want to own) an independent outpatient medical center, a small surgery clinic, or an ultrasound/MRI center, an SBA 7(a) loan could be a great way to get the financing you need to start, maintain, and grow your business.