Using the SBA 7(a) Loan to Repair Capital
You can use the SBA 7(a) loan for fixes and repairs on existing capital.
Using an SBA 7(a) Loan to Repair Existing Capital
Roofs can suffer damage during storms, or wear over time and leak. Equipment will always break down, and machinery — from food service to manufacturing equipment — needs regular maintenance. Required repairs drive up operating costs, which can sometimes drive a business to go under.
If you’re struggling to find the funding you need to repair your existing capital, an SBA 7(a) loan might be your best option.
Repairing or Improving Capital
To use SBA 7(a) loans to repair existing capital, such use must be for repairs — and not for improvement. Here’s a breakdown of each category to help you determine what kind of project you have:
Repairing existing capital includes costs used to maintain assets in working order. Some examples include real estate maintenance like roofing, painting, and electrical. Equipment maintenance costs are also considered capital repair.
Improving existing capital is going beyond normal maintenance. If an asset is modified beyond its normal working condition, or replaced with something newer or better, these costs are considered capital improvement.
About the SBA 7(a) Loan
To get an SBA 7(a) loan:
Your business must operate for profit.
It must operate in the U.S. or one of its territories.
The business owner must not be on parole.
You must have reasonable equity to invest, like a profitable business or your own personal equity.
Any alternative financial resources — like a savings account or the ability to get a personal loan — must have been sought out and exhausted before you qualify for an SBA 7(a) loan.
Financial institutions will require 10% or more down based on a credit score of 600 or more.
The loan term can be no more than 25 years, and the loan amount cannot exceed $5 million.
There’s no loan minimum.
The government guarantees 85% of loans up to $150,000, and 75% for larger loans.
Interest rates also depend on the amount of the loan, with rates based on the Wall Street Journal Prime. The typical interest rates for loans can be found here, though rates vary based on whether or not the loan involves real estate.
Comparing the SBA 7(a) Loan to the SBA 504 Loan
The SBA 504 loan is a government-guaranteed loan that’s usually used for real estate improvement or remodeling, and for purchasing equipment instead of capital repair. Larger than the SBA 7(a) loan, the SBA 504 loan has a shorter term and different rates.
Borrowers often pair the SBA 504 loan with a loan from a traditional financial institution, which allows for a low 10% down payment. Compared to the SBA 7(a) loan, the SBA 504 loan:
is a larger loan, with a minimum of $125,000 and a maximum of $20 million
has a fixed interest rate
has a 20-year maturity rate for real estate and land
requires a 10% borrower down payment
Additionally, you must obtain an SBA 504 loan from a Certified Development Company (CDC) rather than from a bank or traditional lending institution.
Looking for Personalized Guidance?
Reach out to us. We live and breathe the SBA 7(a) loan process at SBA7a.Loans. Every day, we match business owners like you with the best lender for your situation, even if it means that we have to look outside of 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 it through our customer-first approach.
More on SBA Loans from the Blog
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Eligibility depends on several factors decided by both the lender and the SBA. You must operate a for-profit business, have reasonable owner equity, have a proven need for the loan, and intend to operate the business within the United States or its territories.
SBA 7(a) approval time varies, depending on the lender’s experience level. Preferred lenders offer fastest closings, followed by certified lenders and standard lenders. All will guarantee your small business loan under SBA rules.
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.
The SBA talks about fixed assets as tangible and long term, meaning they can’t be converted into cash easily. Things like real estate and land, certain equipment, and other specialized property are considered fixed assets.
An SBA Preferred Lender can help borrowers get the funds they need faster than a regular SBA lender. When a bank or financial institution has a "Preferred Lender" status, this institution has the authority to make final credit decisions on SBA-guaranteed loans.
The SBA 7(a) loan programs don't require collateral, but individual banks may have their own requirements. Buildings, equipment, and land are all possible types of collateral that you can offer.