SBA 7(a) Loan – What is it?

What is an SBA 7(a) Loan?

SBA offers its 7(a) Loan Program for small business owners who need financial help for various purposes. As SBA is aware that obtaining economic freedom for startups is a challenge, it welcomes borrowers to a more flexible and relatively affordable loan term.

Know more about what an SBA 7(a) loan is and how to become eligible for it by reading through this article.

What is an SBA 7(a) loan?

SBA 7(a) loans are one of the agency’s primary lending programs. It’s one of the most common and basic types of flexible loan. Borrowers can utilize this program for various financial reasons. They can have money for their working capital, purchasing of machinery, equipment, furniture, and fixtures.

Borrowers can also use the money for purchasing land and buildings and construction of new buildings. The renovation of building or the establishment of a new business can also be a goal. If you need the loan for debt refinancing, that’s even possible.

As these loans have a maximum amount of $5 million, qualified borrowers can apply through a participating lender. Note that the average loan maturity is up to 25 years for fixed assets. Additionally, the average loan maturity for loans that are purposed for working capital is around 10 years.

Are you still not sure if the SBA 7(a) loan is the right one for you? Then below are some insights to help you know if it’s the best loan program for you:

Are you eligible for an SBA 7(a) loan?

Borrowers need to show that they need the funds for sound business purposes. You can apply for a loan through SBA by showing that you’re on the right track. You’re considered to be eligible for this type of loan program if your business meets the SBA standards or requirements.

How can you use 7(a) funds?

As the 7(a) Program lets you get loan amounts up to $5 million, you can do the following tasks for your business growth:

  • Purchase new land (including construction costs)
  • Repair existing capital
  • Purchase or expand an existing business
  • Refinance existing debt
  • Purchase fixtures, machinery, furniture, supplies or materials

What are the benefits of the SBA 7(a) loan program?

You can potentially lower down payments when it comes to SBA’s 7(a) program. Enjoying longer terms and flexibility is also at hand. If you’re interested in exporting, there’s also a set of perks waiting for you. Those small business owners that sit in underserved communities or members of the military community can also enjoy 7(a) programs. If you’re a small businesses owner that’s looking to meet your short-term and cyclical working capital needs, you can also turn to 7(a) program for assistance.

What are the repayment terms?

Borrowers can repay 7(a) term loans with monthly payments of principal and interest. If you are availing for fixed-rate loans, your payments stay the same since the interest rate is constant. For variable-rate loans, the lender might require a different payment amount depending on the interest rate changes.

Keep in mind that SBA only guarantees to banks and other lending partners that the loan will be repaid in due time. SBA doesn’t fund the loans directly to the small business owners. If you think 7(a) loan is the best for you, keep track of the checklist for the requirements for an SBA loan.