What is the SBA 7(a) loan program?
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The SBA 7(a) loan program is the most popular loan option offered through the U.S. Small Business Administration. It’s designed to help small businesses that can’t get funding through a conventional business loan.
Businesses can use these loans for nearly any purpose, including working capital, equipment financing, construction projects and real estate purchases. But your business has to qualify based on both the SBA’s and the lender’s criteria, making them difficult to obtain.
Here’s a look at the requirements to apply for the SBA 7(a) loan program and the different 7(a) loans you might qualify for.
What is the SBA 7(a) program?
The SBA 7(a) loan is the main program that the SBA uses to guarantee loans for small businesses. The program is designed for small businesses that can’t get funding through a conventional business loan.
7(a) loans are issued through participating SBA lenders and partially backed by the U.S. Small Business Administration up to a set percentage of the loan amount.
Types of SBA 7(a) loans
The SBA 7(a) loan program offers a variety of loans either for general purposes or specific types of businesses, such as those involved in exports. Here’s a rundown of the 7(a) loans available:
| Loan type | Maximum loan amount | Terms | Maximum guarantee |
|---|---|---|---|
| Standard 7(a) loan | $5 million | 10 years for equipment or working capital 25 years for real estate |
85% for loans up to $150,000 75% for loans over $150,000 |
| 7(a) Small loan | $350,000 | 10 years for equipment or working capital 25 years for real estate |
85% for loans up to $150,000 75% for loans over $150,000 |
| Community Advantage loan | $350,000 | 10 years for equipment or working capital 25 years for real estate |
85% for loans up to $150,000 75% for loans above $150,000 90% for International Trade loans |
| Express loan | $500,000 | Up to 7 years for revolving lines of credit 10 years for equipment or working capital 25 years for real estate |
50% |
| Export Express loan | $500,000 | Up to 7 years for revolving lines of credit 10 years for equipment or working capital 25 years for real estate |
90% for loans at or under $350,000 75% for loans above $350,000 |
| Export Working Capital | $5 million | 1 to 3 years Up to 12 months for revolving lines of credit |
90% |
| International Trade | $5 million | 10 to 25 years | 90% |
| CAPlines | $5 million | Up to 10 years | 85% of loans under $150,000 75% of loans over $150,000 |
SBA 7(a) loan amounts approved were:
- $10.9 billion for male-owned businesses
- $4.3 billion for female-owned businesses
How do SBA 7(a) loans work?
SBA 7(a) loans are similar to conventional business loans, except that the loans are partially backed by the U.S. Small Business Administration. The SBA sets minimum SBA 7(a) loan requirements for businesses to qualify.
One of the main benefits of SBA loans is that the SBA also sets maximum interest rates that lenders can’t exceed. This can help some businesses get lower rates than they would with a conventional loan.
But businesses also have to meet lending requirements from the individual lender. SBA 7(a) loans are processed through SBA-approved lenders, which can include traditional banks.
Total loan amounts granted to veterans were about $643 million, compared to $15.9 billion for non-veteran-owned businesses.
SBA 7(a) loan rates
The SBA sets interest rates for 7(a) loans by starting with a base rate and adding a percentage to that base rate, such as the base rate + 4.75 percent. Rates depend on the loan amount, repayment terms and whether you get a fixed-rate or variable-rate loan.
The current interest rates are:
7(a) loans and CAPLines
| SBA loan size | Loan paid off in under 7 years | Loan paid off in 7+ years |
|---|---|---|
| $25,000 or less | 12.75% | 13.25% |
| $25,001 to $50,000 | 11.75% | 12.25% |
| Over $50,000 | 10.75% | 11.25% |
Rates current as of 8/1/2023; calculated with current prime rate of 8.50%.
SBA Express loans
| SBA loan size | Maximum interest rate |
|---|---|
| $50,000 or less | 15.00% |
| Over $50,000 | 13.00% |
Rates current as of 8/1/2023; calculated with current prime rate of 8.50%.
7(a) loan fees
The SBA requires borrowers to pay a fee corresponding to the amount borrowed. These fees apply to business loans with SBA 7(a) loan terms longer than 12 months.
| Loan size | Loan fee |
|---|---|
| $150,000 or less | 2% of guaranteed portion of loan |
| $15,001 to $700,000 | 3% of guaranteed portion |
| $701,001 to $5 million | 3.5% of guaranteed portion up to $1 million + 3.75% above $1 million |
Exceptions
The SBA loan fee is reduced for borrowers in some circumstances, including:
- Short-term loans (terms of 12 months or less): 0.25% of guaranteed portion
- Express loans to veterans and their spouses: 0%
SBA 7(a) loan terms
The SBA uses the term loan maturity when referring to repayment terms. The maturity varies slightly based on the type of 7(a) loan, such as maxing out at five years for Builders CAPlines.
The general guidelines for (7a) loan maturity terms:
- Equipment loans: Up to 10 years, based on the lifespan of equipment
- Working capital loans: Up to 10 years
- Real estate purchases or construction: Up to 25 years, including property renovations of at least one-third of property value
SBA 7(a) loan requirements
To qualify for an SBA 7(a) loan, businesses must meet the SBA’s criteria and any requirements set by the lender. Minimum requirements from the SBA include:
- Considered a small business by the SBA’s size standards
- U.S.-based, for-profit business
- Owner has invested reasonable equity in business
- Owner has exhausted other resources like conventional loans and personal assets
Credit requirements
Businesses should be creditworthy and reasonably able to repay the SBA loan. The SBA doesn’t set a minimum credit score, so this credit requirement depends on the lender. Since SBA loans are competitive, many lenders require high scores of 650 to 680.
It’s possible to find a lender with relaxed credit eligibility requirements, especially if you work with a Community Advantage lender which aims to help underserved communities.
Time in business
The SBA doesn’t state time in business requirements for its 7(a) loans. Instead, this requirement depends on the lender. Many lenders stick to at least two years in business, though some may accept less.
Lenders don’t always post SBA loan requirements online, so you may need to inquire about your business’s qualifications with your preferred lender.
The loan amounts granted were:
- $3.1 billion for businesses under two years old
- $3.1 billion for opening new businesses
- $7.5 billion for existing businesses
Ineligible businesses
These industries don’t qualify to apply for an SBA loan, even if they meet other lending criteria:
- Businesses that profit mainly from product price fluctuations
- Businesses involved in illegal activities
- Charitable, religious or nonprofit organizations
- Consumer and marketing cooperatives
- Gambling
- Government-owned corporations
- Lending institutions
- Multi-level marketing businesses
- Rare coin and stamp dealers
- Real estate investment companies
How to apply for an SBA 7(a) loan
To apply for an SBA 7(a) loan, follow these steps:
- Find a lender. Use the SBA’s Lender Match tool to locate approved lenders near you. Preferred lenders may approve loans more quickly or efficiently than other lenders.
- Apply with one or more lenders. Submit documentation required with your preferred lenders. Compare rates and repayment terms offered through multiple lenders.
- Read the loan agreement. Review the loan contract with a representative and ensure you understand all the SBA 7(a) loan terms and conditions.
- Finalize the loan. Choose the loan and lender that suits you, sign the documents and pay the applicable fees.
Alternatives to SBA 7(a) loans
The SBA 7(a) loan isn’t right for every business, and many won’t qualify for the 7(a) program. If you can’t get an SBA loan but still need business financing, try these options:
| Type of business loan | Description |
|---|---|
| Business loans from banks | Brick-and-mortar banks provide various business loan options for working capital, business lines of credit, equipment and more. |
| Business loans from online lenders | Online lenders typically specialize in certain types of loans. They offer less strict lending criteria, increasing your chances of getting approved. |
| Business lines of credit | A business line of credit offers a credit limit you can borrow against whenever needed. The credit limit replenishes as you repay. Lenders match the credit limit to your business’s credit level. |
| Equipment loans | Equipment loans offer a lump-sum payment with set repayment terms, backed by the equipment as collateral. Many lenders set loose requirements for these loans since they’re secured. |
| Bad credit business loans | Some lenders work with business owners with less-than-ideal credit, such as a score of 550 or 625. Also, certain loans like merchant cash advances cater to high-risk borrowers with high approval rates but with added fees. |
Bottom line
The SBA 7(a) loan is ideal for working capital or other business financing needs since it offers long repayment terms and capped interest rates.
But your business must show that it’s both creditworthy and has applied for other conventional business loans. It will also need to meet credit and time in business requirements set by the SBA-approved lender. The approval process can take anywhere from 30 to 90 days, so it’s not the best option if you need funding quickly.
If the SBA 7(a) loan isn’t the right choice, explore alternative business loan options to see what you qualify for.
Frequently asked questions
-
SBA 7(a) loans are competitive, and your business must meet the SBA lending criteria and the lender’s SBA 7(a) loan requirements. Many lenders keep tight lending requirements, such as a credit score of 650 or 680 and two years in business. If you don’t qualify, you can look for Community Advantage lenders, which offer SBA loans to businesses in traditionally underserved markets or SBA microloans.
-
The maximum loan amounts depend on the type of SBA 7(a) loan you choose, but the standard 7(a) loan goes up to $5 million. The amount you qualify for will depend on your business’s creditworthiness.
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Most SBA 7(a) loans don’t require collateral for loan amounts under $25,000. Lenders can follow existing collateral requirements for non-SBA loans for $25,000 and above. The standard 7(a) loan requires collateral for loans above $350,000.
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