SBA 7(a) Loan Guaranty
SBA 7(a) Loans are 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. To learn more about the SBA 7(a) Loan Guaranty, click on the questions below:
What kinds of businesses are eligible for a SBA 7(a) Loan Guaranty?
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. (back to top)
What can SBA 7(a) Loan Guaranty funds be used for?
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)
Are there any other requirements?
Maybe. The SBA 7(a) Loan Guaranty is actually approved and funded through the bank. The SBA may place additional requirements on the bank, which will result in additional requirements for the borrower. The SBA does have rate and term restrictions on the bank financing. Personal guarantees will be required from all individuals with 20% or greater ownership. Borrowers may also be required to provide an assignment of a life insurance policy to cover the outstanding balance of the loan. (back to top)
How much can my business borrow?
The actual loan amount is determined by the bank and the needs of the borrower. 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%. (back to top)
What are the rates and terms of the loan?
Rates and terms are negotiated between the lender and the borrower within the SBA guidelines. 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 SBA each month. The current maximum fixed rate price is stated on the home page. (back to top)
Are there any fees?
Yes. The SBA charges a guaranty fees 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 0.55%. (back to top)
How long is the approval process?
Approval through the SBA typically takes up to four weeks. The actual approval process is dependent upon the bank and their commercial loan application procedures. (back to top)
How do I apply?
Talk to your bank. The SBA 7(a) Loan Guaranty is a bank program through the SBA. Approach your bank regarding your specific financing needs, and the bank will determine if a SBA 7(a) Loan Guaranty can help secure your commercial note. (back to top)