SBA 7(a) Loan: How to Apply for SBA 7(a) Loan & Everything You Need to Know about it

Spread the love

Are you thinking of applying for an SBA 7(a) loan, good you are reading this post now. 7(a) loan is one of the three cores of SBA loan programs that offer small business owners financial support when they are finding it hard to get funding. SBA 7(a) loan is a small business loan issued by the U.S. Small Business Administration through the help of private lenders which are mostly banks in the United States to all American Small businesses.

SBA 7(a) Loan: How to Apply for SBA 7(a) Loan & Everything You Need to Know about it

Although SBA 7(a) loan is a very good option for startups or supportive means for financing your small business due to the low interest rates and long repayment terms but you have to meet the strict requirements attached to it before you can become eligible for it.

What is SBA 7(a) loan Program? 

The 7(a) loan program is one the well-known SBA loan program that offers financial support for small business but comes with strict or special requirements. To become eligible for 7(a) loan, you must consider certain factors which include residence of operation of the business, business’ credit history and the source of income of the business. These factors will help your lender know the best type of loan that suits your business.

The maximum loan amount for SBA 7(a) loan is $5 million and this loan program is a very good option for business purchases in real estate, refinancing current business debt, short and long term working capital and purchase of furniture, fixture and supplies.    

How to Qualify for SBA 7a loan Program? 

To become eligible for this loan type, your business must meet the SBA 7a loan requirements which include the following:

  • The business must be operating in the United States
  • Essence of the business must be for profit
  • It must be a small business as defined by SBA
  • Must make sure you are free of any existing debts and not delinquent in any form to the U.S. government
  • The fund must serve its purpose such that it must be used for sound business goal and you must show that your need for the loan
  • Applicant must have reasonable owner equity to invest
  • Must have other financial resources which include personal assets before seeking financial assistance from SBA

Steps to Apply for SBA 7a loan Program

Now that you are familiar with the requirements you need to qualify for the 7(a) loan, it is important you go through the steps to know all what it takes to complete the SBA 7a loan application process.

  • Step 1: find an SBA 7(a) loan lender by using the SBA lender match tool available on SBA website to give you information about your business and also connect you with the lender in your area.  These lenders are mostly popular banks in the United States.
  • Step 2: Gather the necessary application documents and submit it.
  • Step 3: Wait for approval from the lenders and close your loan   

RELATED”>>>>>>>>>>>>>>>>> SBA 504 Loan – How to Apply and Make your Businesses Qualify for SBA 504 Loan | Know the Businesses That Qualify

What Can I Use SBA 7(a) loan for? 

You can use 7(a) loan for different purposes which include the following;

  • Renovation of an existing building or construction of a new building
  • Purchase of equipment, furniture, fixture, machinery, materials or supplies
  • Purchase of real estate which include buildings and lands
  • Can serve as long and short term working capital
  • Can be used to refinance existing business debt under certain conditions
  • Establishing a new business or expansion of an existing business or operation or assisting in acquisition of a new business.

Documents Needed to Apply for SBA 7(a) loan for

The SBA 7(a) loan will require you to provide some important documents during your application process. They include the following;

  • Borrower information form: this is known as the SBA form 1919, you will have to fill and complete the form and then submit it to an SBA-participating lender. 
  • Background and financial statements: this form is called the SBA form 912 (statement of personal history) and SBA form 413 (personal financial statement).
  • Business financial statements: this will determine your ability to pay back the loan. The form include the following:
  • Profit and Loss statement: must be current within 180 days of your application. This statement must also show supplementary schedules from the last three fiscal years.
  • Project financial statements: this includes a detailed, one-year projection of income and finances. This statement also gives details of how you intend to achieve your projection. 
  • Business lease: you will have to attach a copy of your business lease with the terms of the proposed lease and a note from your landlord.
  • Business Overview & History: this shows history of the business and its challenges and also gives an explanation as to why you need the SBA loan and how it will improve your business.
  • Ownership and affiliations: this shows the list of names and addresses of any subsidiaries and affiliates which include concerns which you hold a controlling interest or those that are connected to you.
  • Business License or certificate: you will be asked to provide a copy of the original business license or certificate of doing business. If your business is a corporation, make sure you stamp your corporate seal on the SBA loan application form.  
  • Loan Application History:  this shows records of any loans you may have applied to in the past.
  • Resumes: this shows personal resumes for each principal.

Documents Needed to Apply for SBA 7(a) loan for those Buying Existing Businesses

  • Federal income tax returns for the previous three years
  • Current balance sheet and profit and loss statement
  • Proof of equity injection
  • Franchise, jobber, or licensing agreements
  • Asking price with schedule of inventory, machinery and equipment, and furniture and fixtures
  • Proposed bill of sale including the terms of sale

Keep in mind that you may be asked to submit more forms depending in the specific use of proceeds or fees paid on a loan package or to an agent or broker.

How Can I pay back my SBA 7(a) loan?

Paying back your loan is dependent on several factors which include the following:

  • 7(a) loan repayment term are usually repaid on monthly basis and it comes with principal and interest
  • Since interest rate is constant, payments remains the same for fixed-rate loans
  • Lenders may require a different payment amount when the interest rate changes

Types of SBA 7(a) loan

There are nine (9) types of 7(a) loans you can apply for and each comes with different packages. They include the following:

  • Standard 7(a)
  • 7(a) Small loan
  • SBA Express
  • Export Express
  • Export Working Capital
  • International Trade
  • Preferred Lenders
  • Veterans Advantage
  • CAP Lines
Type of LoanMaximum loan amountMaximum SBA guarantee %Interest rateEligibility decisionRevolving lines of creditSBA turnaround timeFormsCollateralCredit decision
  Standard 7(a)    $5 million85% for loans up to $150,000 and 75% for loans greater than $150,000Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximumBy the SBA. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review.Up to 10 years (Permitted only under CAPLines submission. See below)5-10 business daysSBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.By the SBA. Qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.
7(a) Small loan    $350,00085% for loans up to $150,000 and 75% for loans greater than $150,000Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximumBy the SBA. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review. 5-10 business daysSBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)Lenders are not required to take collateral for loans up to $25,000. For loans over $25,000, up to and including $350,000, the lender must follow the collateral policies and procedures that it has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans, but at a minimum the lender must take a first lien on assets financed with loan proceeds and lender must take a lien on all of the applicant’s fixed assets including real estate. Lender is not required to take a lien against applicant’s real estate when the equity is less than 25% of the fair market value. The lender may limit the lien taken against real estate to the loan amount.By the SBA. Qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.
SBA Express    $500,00050%Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximumMade by the lenderUp to seven years with maturity extensions permitted at the outsetWithin 36 hoursLender primarily uses own forms and procedures, plus SBA Form 1919  Lenders are not required to take collateral for loans up to $25,000. May use their existing collateral policy for loans over $25,000 up to $350,000.Made by the lender
Export Express    $500,00090% for loans of $350,000 or less, 75% for loans more than $350,000Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximumMade by the lenderMay not exceed seven years24 hoursLender primarily uses own forms and procedures, plus SBA Form 1919, Borrower InformationLenders follow collateral policies and procedures that the lender has established for its non-SBA-guaranteed loansMade by the lender
Export Working Capital    $5 million90%Lenders and borrowers negotiate the interest rate and there is no SBA maximum interest rate limit.By the SBA. Qualified lenders may be granted authorization to make eligibility decisions.Terms of 12 months or less5-10 business daysSBA Form 1920Export-related inventory and receivable generated by export sales financed with EWCP funds. The SBA also requires personal guarantee of owners with 20% or more ownership.Made by the SBA
International Trade    $5 million90%Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximumMade by the SBA10 years for permanent working capital, up to 10 years for machinery and equipment or the useful life of the equipment (not to exceed 15 years), and up to 25 years for real estate.5-10 business days  Made by the SBA

 Preferred Lenders

For those who want to use the Preferred lenders program, SBA gives select lenders more authority to process, close, service and liquidate SBA-guaranteed loans. An SBA field office serving the area in which a lender’s office is located can nominate the lender, or the lender can ask a field office to consider it for preferred status. During this decision making process, SBA consider whether the lender has following qualities – (a) ability to process, close, service and liquidate loans (b) ability to develop and analyze complete loan packages and (c) has satisfactory performance

Veterans Advantage

SBA loans issued to veteran-owned businesses come with reduced fees plus veteran-owned businesses are known to be one of the fastest-growing and important segments in the economy of the United States. However, there are certain requirements veteran-owned small businesses must meet to become eligible for Veterans Advantage program.

(I)  The business must be controlled by an honorably discharged veterans

(II)   It could be service-disabled veterans

(III)  Actively duty Military service member qualified for the military’s Transition Assistance Program (TAP)

(IV) Current spouse of any veteran, active duty service member, Reservist, National Guard member, or the widowed spouse of a service member who died while in service or as a result of a service-connected disability

RELATED”>>>>>>>>>>>>>>>> Easy Ways to Get a Personal Loan With Bad Credit from Top Lenders

CAPLines

CAPLines is 7(a) loan program that offers assistance to small businesses in order to meet their short-term and cyclical working. There are four line types of CAPLines you can apply for.

(I)  Seasonal CAPLine: Borrowers must use the loan proceeds mainly for the purpose of to financing the seasonal increases of accounts receivable and inventory — or in some cases associated increased labor costs. It can be revolving or non-revolving.

(II)   Contract CAPLine: this type of line enables you to finance direct labor and material costs associated with performing assignable contracts. It can also be revolving or non-revolving.

(III)   Working CAPLine: This is sometimes regarded as an asset-based revolving line of credit for businesses. This is usually for small businesses that are unable to meet credit standard associated with long-term credit. This offers recurring short-term needs and provides financing for cyclical growth. Repayment is usually made after conversion   of short-term assets into cash, which is remitted to the lender. Businesses continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender. 

(IV)  Builders CAPLine: this type of line enables you to finance direct labor and material costs associated with small general contractor or building constructing or renovating residential or commercial buildings. The building project will serve as the collateral, and the loans can be revolving or non-revolving.

SBA 7a loan Rates

Interest rates for 7(a) loans are negotiated between the borrower and the lender but are set based on certain factors of SBA which include the prime rate, the LIBOR rate, or optional peg rate. Interest rates can be fixed or variable.

The interest rates for variable rate loans are as follows:

Amount of Loan  Max rate if maturity is less than 7 yearsMax rate if maturity is more than 7 years
$25,000 or less  Base rate plus 4.25%Base rate plus 4.75%  
$25,000 to $50,000  Base rate plus 3.25%Base rate plus 3.75%  
$50,000 or moreBase rate plus 2.25%Base rate plus 2.75%  

The interest rates for fixed rate loans are as follows:

Amount of Loan  Prime rate in effect on the first business day of the month, plus  
$25,000 or less  6.0% (600 basis points) plus the 2.0% (200 basis points) permitted by 13 CFR 120.215
$25,000 to $50,000  6.0% (600 basis points) plus the 1.0% (100 basis points) permitted by 13 CFR 120.215
$50,000 to $250,000  6.0% (600 basis points)
$250,000 or more  5.0% (500 basis points)

SBA 7(a) loan Fees

  Gross Loan Size  Fees (see note 1)  Notes
Loans of $150,000 or less (See note 2)2% of guaranteed portion
Lenders is authorized to retain 25% of the fee
Maturities that exceed 12 months
SBA Express Loans to qualified Veterans & Spouses up to $350,000  Zero (When program is zero subsidy)Maturities that exceed 12 months
$150,001 to $700,000  3% of guaranteed portionMaturities that exceed 12 months
$701,001 to $5,000,000 (See note 3)  3.5% of guaranteed portion up to $1,000,000
PLUS 3.75% of the guaranteed portion over $1,000,000
Maturities that exceed 12 months
Short term loans  0.25% of the guaranteed portion.Maturities of 12 months or less
SBA On-Going Guaranty Fee  A percentage of the outstanding balance of the guaranteed portion.  The fee is set at time of approval.Paid by lender and cannot be passed on to the borrower

Keep in mind the following notes

Note 1: The SBA specifies the amount of certain fees each fiscal year for all loans approved during that year.

Note 2: For example, the guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700, of which the lender may retain $425.

Note 3: For example, the guaranty fee on a $5,000,000 loan with a 75% guaranty (3.75 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) plus 3.75% of $2,750,000 ($103,125) with totals $138,125.

RELATED”>>>>>>>>>>>>>> Debt Consolidation Loan in 2022

SBA 7(a) Loan Prohibited fees

There are fees SBA loan applicants are not allowed to pay, in other words you must not pay any money during your application process in case you want to be charged. They include Processing fees, origination fees, application fees, points, brokerage fees, bonus points, and other fees that could be charged to an SBA. However, the only time you are likely to pay a commitment fee is when you bid for a loan under the Export Working Capital loan program.  

Businesses That Qualify for Special Consideration for SBA 7(a) Loan

The following businesses receive special considerations for the 504 SBA loans.

  • Franchises are qualified except in circumstances where the franchisor retains power to control operations to such an extent that is as good as an employment contract.
  • Fishing vessels
  • Recreational facilities and clubs
  • Farms and agricultural businesses
  • Medical facilities
  • An Eligible passive company
  • Legal aliens
  • Probation or parole
  • Business with change of ownership

Businesses That Are not eligible for SBA 7(a) Loan

  • Pyramid sales plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants.
  • Firms involved in illegal activities.
  • Real estate investment firms when the loan is used for investment purposes.
  • Firms involved in speculative activities that develop profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the regular activities of the business.
  • Dealers of rare coins and stamps
  • Firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies, and any other firm whose stock in trade is money.
  • Charitable, religious, or other nonprofit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives
  • Firms involved in Gambling activities which include any business whose principal activity is gambling. The rule does not restrict loans to businesses that obtain less than one-third of their annual gross income from either the sale of official state lottery tickets under a state license, or legal gambling activities licensed and supervised by a state authority.

100 most active SBA 7a Loan lenders

This table is updated monthly, for more information you can check the lender activity reports.

  Lender Name  Approval Count  Approval Amount
  Live Oak Banking Company    223  $307,149,100
  Newtek Small Business Finance, Inc.  334  $219,101,500
  The Huntington National Bank    974  $137,704,600
  Celtic Bank Corporation    108  $106,125,900
  Wells Fargo Bank, National Association    473  $78,413,700
  Enterprise Bank & Trust    47  $59,027,500
  Cadence Bank    157  $57,017,800
  KeyBank National Association    133  $55,938,600
  United Midwest Savings Bank, National Association    182  $50,156,200
  Byline Bank    42  $47,329,000
  Bank of Hope    47  $45,316,400
  First Bank of the Lake    31  $43,601,700
   U.S. Bank, National Association    416  $42,680,200
  Harvest Small Business Finance, LLC    32  $39,538,800
  First Home Bank    82  $38,586,000
  Readycap Lending, LLC    60  $37,477,400
  Millennium Bank    20    $36,365,300
  Pinnacle Bank    34  $36,214,200
  FinWise Bank    26  $36,079,300
  First Financial Bank    41  $35,967,200
  Berkshire Bank    32  $33,074,300
  Commonwealth Business Bank    27  $30,400,000
  MUFG Union Bank, National Association    19  $30,137,600
  First Internet Bank of Indiana    29  $30,025,000
  Regions Bank    21  $29,475,700
  Bank of the West    34  $29,151,500
  Manufacturers and Traders Trust Company    249  $28,247,800
  JPMorgan Chase Bank, National Association    249  $28,247,800
  JPMorgan Chase Bank, National Association    121  $27,687,000
  TD Bank, National Association    302  $27,434,300
  Comerica Bank    68  $26,490,600
  Umpqua Bank    29  $25,707,500
  Bank of America, National Association    62  $24,886,000
  LendingClub Bank, National Association    16  $24,209,700
  Citizens Bank    34  $22,851,000
  Hanmi Bank    24  $21,960,100
  Customers Bank    33  $21,165,500
  Truist Bank d/b/a Branch Banking & Trust Co    21  $20,562,200
  PNC Bank, National Association    92  $20,034,300
  CIBC Bank USA    19  $18,683,000
  First IC Bank    15    $18,675,500
  Santa Cruz County Bank    9  $17,911,000
  First Savings Bank    22  $17,850,700
  BancFirst    35  $17,819,400
  Midwest Regional Bank    27  $17,484,000
  Craft Bank    10  $17,454,700
  Mission Valley Bank    9  $17,249,800
  Bank of George    4  $16,137,000
  NewBank    8  $15,950,000
  Columbia State Bank    68  $15,875,200
  Bank Five Nine    12  $15,813,000
  Plains State Bank    6  $15,702,100
  First Bank    19  $15,405,200
  HomeTrust Bank    16  $15,359,900
  Webster Bank, National Association    64  $15,236,800
  BankVista    18  $15,137,600
  Wallis Bank    9  $15,094,700
  Fifth Third Bank    27  $15,069,700
  Zions Bank, A Division of    28  $14,650,900
  Old National Bank    16  $14,592,700
  Home Loan Investment Bank, F.S.B.    4  $14,445,000
  United Community Bank    23  $14,406,000
  MVB Bank, Inc.    11  $14,317,500
  Hanover Community Bank    9  $14,069,000
  First National Bank of Pennsylvania    14  $14,044,400
  Five Star Bank    53  $14,029,000
  Nicolet National Bank    21  $13,912,800
  Patriot Bank, National Association    10  $13,792,500
  Vinings Bank    8  $13,605,500
  Wilmington Savings Fund Society, FSB    14  $13,316,900
  Mountain America FCU    20  $13,145,800
  US Metro Bank    4  $12,956,000
  Level One Bank    5  $12,943,300
  St. Louis Bank    10  $12,840,000
  First-Citizens Bank & Trust Company    14  $12,647,300
  Pacific City Bank    10  $12,573,000
  IncredibleBank    13  $12,443,000
  The Bancorp Bank    22  $12,378,700
  Citizens Bank, National Association    20  $12,365,300
  Genisys CU    6  $12,125,600
  VelocitySBA, LLC    9  $12,024,500
  Synovus Bank    10  $11,918,300
  CalPrivate Bank    9  $11,866,800
  Banco Popular de Puerto Rico    47 
$11,806,300  
  Alaska Growth Capital BIDCO, Inc.    6  $11,774,900
  Frandsen Bank & Trust    11  $11,687,900
  T Bank, National Association    6  $11,490,000
  First Business Bank    11  $11,429,600
  Security Bank    9  $11,259,000
  SouthState Bank, National Association    15  $11,187,500
  Heritage Bank, A Division of    9  $10,992,100
  American Equity Bank    21  $10,830,200
  Woori America Bank    10  $10,825,000
  Peoples Bank    29  $10,817,500
  Amerant Bank, National Association    6  $10,792,000
  NBT Bank, National Association    11  $10,774,300
  American Bank, National Association    6  $10,753,500
  Hancock Whitney Bank    18  $10,594,000
  First State Bank of Texas    5  $10,473,000
  Premier Bank    11  $10,450,300
  First State Bank    14  $10,345,500

Source: Sba.gov