SBA 7(a) Loan Guaranty
The SBA 7(a) Loan Guaranty is the most basic and most used type loan of SBA's business loan programs. SBA 7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA's requirements and who apply and receive a guaranty from SBA on a portion of the loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. the guaranty is a guaranty against payment default. To find out how the an SBA 7(a) Loan Guaranty can work for you and your clients, click on the questions below:
What is the maximum loan amount that can be guaranteed?
The SBA 7(a) Loan Guaranty has a maximum loan amount of $2 million. SBA's maximum exposure is $1.5 million. Thus, if a business receives an SBA guaranteed loan for $2 million, the maximum guaranty to the lender will be $1.5 million or 75%. For loans of less than $150,000, the guaranteed amount is 85%. (back to top)
What kinds of businesses and projects are eligible?
Businesses in a variety of industries are eligible, including manufacturing, distribution, health care, agri-business, retail, and service. These businesses must be the primary occupant of the financed property, must be for-profit, and cannot be engaged in speculation or investment in rental properties.
SBA 7(a) loan proceeds may be used to establish a new business or to assist in the operation, acquisition, or expansion of an existing business. These may include (non-exclusive):
- To purchase land or buildings, to cover new construction, as well as expansion or conversion of existing facilities;
- To acquire equipment, machinery, furniture, fixtures, supplies, or materials;
- For long-term working capital, including the payment of accounts payable and/or for the purchase of inventory;
- To refinance existing business indebtedness, which is not already structured with reasonable terms and conditions;
- For short-term working capital needs, including: seasonal financing, contract performance, construction financing, export production, and for financing against existing inventory and receivables under special conditions; or
- To purchase an existing business. (back to top)
Does the SBA place term and rate restrictions on the loan?
Yes. Maximum loan maturities have been established as 25 years for real estate and equipment and generally 7 years for working capital. The loan must be fully amortized over the term. Additionally, the maximum interest rate that a lender can charge is WSJ Prime plus 2.25% if the term is less than 7 years and WSJ Prime plus 2.75% if the term is 7 years or greater. SBA also has a fixed rate option, which is set by the SBA each month. The current maximum fixed rate price is stated on the home page. (back to top)
How much does the guaranty cost?
Guaranty fees are based on the guaranteed portion of the loan as follows:
Less than $150,000 = 2.0%
$150,001 - $700,000 = 3.0%
Over $700,000 = 3.5%
Over $1 million = 3.75%
Additionally, the SBA charges the lender an annual ongoing servicing fee of 55 basis points. (back to top)
How long does the application process take?
Your role is simple. You process the commercial loan as you would any other loan request, and we will take care of the rest. WCDC will work with you to coordinate the most cost-effective and efficient processing of the SBA 7(a) guaranty application. We will make sure the proper documents are assembled and the application is completed. From there, approval through the SBA usually takes about four weeks. (back to top)
What additional requirements will the SBA place on me and my proposed loan for participating in the program?
Your borrower must fully collateralize the loan to extent that there is available equity. Additionally, 20% and greater owners must personally guaranty the loan. The SBA requires that several of the closing documents be executed on SBA issued forms. Upon funding, the lender is required to notify the SBA of the borrower's repayment through monthly reports to calculate the payment of the ongoing servicing fee. WCDC will ensure that these requirements get completed appropriately. (back to top)
If the loan defaults, how do I collect on the guaranty?
If a loan defaults, the lender is required to notify the SBA and request the SBA to honor the guaranty. This is done by preparing a guaranty purchase following the current SOP and 10-tab system. (back to top)