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SBA Loans: the 7(a) Loan Program

T.J. Casady,

January 29, 2015

Building Your Business

Articles

The 7(a) Loan Program, which is the Small Business Administration's (SBA) most common loan program, includes financial help for businesses with special requirements. SBA 7(a) loan proceeds can be used to help buy an existing business, start a new business, or expand an existing business.

Basic uses for 7(a) Loan proceeds

  • Long-term working capital to pay operational expenses, accounts payable, and/or purchase inventory
  • Short-term working capital needs, including seasonal financing, contract performance, construction financing, and exporting
  • Revolving funds based on the value of existing inventory and receivables, under special conditions
  • Purchasing equipment, machinery, furniture, fixtures, supplies, and materials
  • Purchasing real estate, including land and buildings
  • New building construction or renovation of an existing building
  • Establishing a new business or assisting in the acquisition, operation or expansion of an existing business
  • Refinancing existing business debt, under certain conditions

Now let's take a look at some of the special types of SBA 7(a) loan programs.

Small Loan Advantage

The loan provided to the business is the equivalent of a Basic 7(a) Loan — not revolving — allowing the proceeds to be used for regular purposes. What differentiates a Basic 7(a) Advantage Loan from a Basic 7(a) Loan is which lenders can get a guarantee. Another difference is the amount of underwriting some lenders must conduct before providing a guarantee. The principal difference is tied to the lender who provides the loan, rather than the structure and purpose of the loan. The Advantage Program allows select lenders to obtain 7(a) guarantees on loans they propose to provide to eligible and creditworthy small businesses that meet all the requirements of a Basic 7(a) Loan through an alternative application process.

All the Special Purpose Loan Programs listed above have certain requirements (such as what collateral must be obtained and how the repayment structure of principal and interest) that the SBA imposes on the lender and/or that the lender must impose on the borrower.

SBAExpress

SBAExpress gives small business borrowers an accelerated turnaround time for SBA review. A response to an application will be given within 36 hours. SBAExpress generally follows SBA’s standards for the 7(a) loan program.

  • The maximum loan amount is $350,000.
  • The maximum SBA guaranty percentage is 50%.
  • Lenders and borrowers can negotiate the interest rate. Rates can be fixed or variable and are tied to the prime rate (as published in The Wall Street Journal), LIBOR, or the optional peg rate (published quarterly in the Federal Register) but they may not exceed SBA’s maximum rates. Lenders may charge up to 6.5 % over the base rate for loans of $50,000 or less, and up to 4.5 % over the base rate for loans over $50,000.
  • SBA permits qualified lenders to determine loan eligibility.
  • Revolving lines of credit are available up to seven years and maturity extensions are only available when the loan is approved.
  • Lenders primarily use their own forms and procedures for loan processing.
  • Lenders are not required to take collateral for loans up to $25,000; however, they may use their existing collateral policy for loans over $25,000 and up to $350,000.

For even more information about 7(a) Loans, check out 7(a) Loan Resources from sba.gov. If you have any questions about how an SBA Loan can work for your business, I'm here to help.

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I’m looking to Start a gutter business.

I am a new aspiring construction/handyman business whom is trying to get started I need to get my LLC , Insurances ,equipment for work,trucks , trailers, tools , materials etc , I need to lease a property fit for housing and conducting this business in all regards to it as well . I have lots of work lined up but cannot begin them without all these things . I’m lookin to borrow between $60 - 100,000 to purchase everything needed I have contacted multiple places for pricing on all needed for this type of company in which we are not one field based for we can do all aspects of construction and am working on getting a certified liscense from the state which would allow for us to do a few faucets of these areas in which normally we could not without . Like for instance hooking up thee electricity to fuse box panel I want to be able to provide each customer with the ability to hire someone to the work needed work and not have to hire multiple contractors to come do each individual job this is where we excel past any other company out there and are fairer on pricing then all i’ve I countered in this state . I need to build my company and career for all my employee’s as well which I can only continue to have if I get the nessecary funding for said company I please hope you take all this into consideration to make your decision on wether to help a small business owner trying to make it a fully functional business

Hi Christopher, thanks for visiting our blog and posting. Someone from our Small Business Team will be reaching out to you shortly.

This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.