SBA 7(a) BASICS

LOAN SIZE

Up to $5,000,000

ELIGIBLE USE OF PROCEEDS

The 7(a) Loan Program is design to provide start-up and existing small businesses, with financing assistance for a variety of general business purposes, such as:

  • Working capita
  • Business debt refinancing
  • Purchase machinery and equipment
  • Purchase real estate
  • Building construction / renovation
  • Business acquisition

HOW THE PROGRAM WORKS

SBA partially guarantees loans made to small businesses by participating lenders, such as banks. This guarantee reduces the risk to the lender, although borrower remains obligated for the full amount of the debt. The terms of the loan are negotiated between the applicant and the lender, although the interest rates are subject to SBA limits

ELIGIBLITY

To be eligible, businesses must meet the following requirements:

  • The applicant business cannot exceed SBA’s size standard for its industry (or the alternative 504 size standard)
  • The applicant must be a for-profit business
  • The applicant must demonstrate alternative financing (business or personal) is not available under reasonable terms
  • The applicant must demonstrate the ability to repay the proposed debt.

LOAN TERMS

The maximum maturities for 7(a) loans is:

  • Working capital – 10 years
  • Machinery, equipment & furniture – 10 Years or useful life of asset
  • Real estate – 25 years

INTEREST RATES

The interest rate for 7(a) loans is negotiated between the applicant and the lender, subject to SBA maximums. The interest rate is comprised of two parts: the “base rate” and an allowable “spread”. The base rate can be based on the Wall Street Journal Prime rate, the LIBOR one-month rate +3%, or the SBA Peg Rate. Lenders are allowed to add a spread to the base rate based on the following maximums:

  • 2.25% for loans with a term less 7 years
  • 2.75% for loans with a term of 7years or longer
  • The spread on loans of less than $50,000 and SBA Express loans have higher maximum spreads

PERCENTAGE OF LOAN GUARANTEES

  • 85% for loans of $150,000 or less
  • 75% for loans over $150,000

LOAN FEES

SBA charges a guaranty fee on its loans. The fee is based on the loan’s maturity and the dollar amount guaranteed, not the loan amount. The guaranty fee is charged to the lender, but may be passed on to the borrower. The fee is calculated as follows:

  • 2% of the SBA-guaranteed amount on loans up to $150,000
  • 3% of the SBA-guaranteed amount on loans between $150,001 and $700,000
  • 3.5% of the SBA-guaranteed amount on loans of more than $700,000
  • There is an additional fee of 0.25% on any guaranteed portion above $1 million
  • On loans with a maturity of one year or less, the fee is 0.25% on the guaranteed amount

OTHER LOAN PROGRAMS

Through the 7(a) program, SBA offers various special purpose loan programs which can provide financing for revolving lines of credit, exporting, and other purposes.

For more information on 7(a) loans please contact a Loan Expert