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 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.