What Is an SBA 7(a) Loan?

An SBA 7(a) loan is a federal government guarantee of a small business loan. Although the loan itself comes from a private lender, owners who qualify for SBA 7(a) loans have a significant portion backed by the government, which can make lenders more willing to finance businesses with less access to capital.

Loans of up to $5 million qualify under SBA 7(a), with the SBA providing a guarantee of up to $3.75 million, or 75%. For loans worth less than $150,000, the government will back up to 85% of the debt. To qualify under this program, borrowers must meet SBA standards of being a small business, not have defaulted on previous government loans, and demonstrate the ability to repay the loan.

SBA charges a subsidy recoupment fee only on loans with a maturity of 15 years or more, and only when voluntary prepayments exceed 25% of the highest principal balance in any of the first three years (13 CFR 120.223). SBA 7(a) doesn't have a balloon payment, and provides improved cash flow for the business. SBA 7(a)-backed loans can be used for various business purposes, including renovations, capital purchase, seasonal lines of credit, or refinancing of existing debt.

To ask about an SBA 7(a) loan, send a loan request on our financing form. We are not a lender.

The eligibility requirements for an SBA 7(a) loan include:

• The business must meet the SBA's size standards for its particular industry.
• Alternatively, the business can qualify with tangible net worth of $20 million or less and average net income of $6.5 million or less (13 CFR 121.301(b)(2)).
• The business must physically be based in the U.S. and operate within the U.S. and its territories.
• The business must operate for profit.
• The lender must certify that the credit is not available on reasonable terms from non-federal sources, taking account of the liquidity of the business and its owners (13 CFR 120.101; SOP 50 10 8.1, Sec. A, Ch. 1, Para. H).
• Businesses primarily engaged in lending, passive businesses owned by developers or landlords, and speculative businesses are ineligible (13 CFR 120.110).
• Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
• You must also have some equity in the business, this could mean you already have a profitable business, or you could use your own personal equity as collateral.
• A business with an owner who is currently incarcerated, or under indictment for a felony or a crime involving financial misconduct or a false statement, is ineligible (13 CFR 120.110(n)). An owner on parole or probation may still be eligible (SOP 50 10 8.1, Sec. A, Ch. 1, Para. E).
• You must be doing business in the U.S. or its territories.

The advantages of an SBA 7(a) loan include:

• Highly competitive, low interest rates
• Long loan terms, up to 25 years
• Fixed and variable-rate options are available
• A variety of businesses are eligible
• Low down payments, typically around 10-20%
• Variety of loan options, including SBA 7(a) express loans, SBA 7(a) CAPLines
• Most SBA loans, including 7(a) loans are fully amortizing, meaning borrowers don’t have to worry about balloon payments

SBA 7(a) loan disadvantages include:

• Lengthy approval times (for standard SBA 7(a) loans)
• Lots of documentation
• Collateral is often required
• Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
• Each lender sets its own credit standards; SBA sets no minimum credit score
• May be restrictions on supplemental/additional financing

The maximum loan amount for an SBA 7(a) loan is $5 million. The loan has no minimum, which is good news for small businesses.

If you need more than the max amount of $5 million, the SBA 504 program or another loan is a better fit.