7(a) SBA Loan Basics

The 7 (a) SBA loan is one of the most basic type of lending programs offered by the U.S. government under the supervision of the Small Business Administration to American entrepreneurs. Funds are provided by banks and non-bank lenders who participate in the program.

Application Process

Small business owners can apply for a loan with any participating lenders. The requirements submitted by the company to the lending bank will be evaluated. If the assessment's result appears weak and not sufficient enough to meet the lender's criteria, the business needs to apply for the 7 (a) SBA loan. This program gives the lender a guaranty of reimbursement from the government in case the business fails to fulfill its payment obligation. However, the bank is still given the full discretion to decide the loan's approval even if the company gets a warranty from the government.

Loan Criteria

Even with a 7 (a) SBA loan the small business must meet the the criteria set by the agency. To become eligible for the program, the company should:

  • demonstrate repayment ability through an excellent record of the business's cash flow;
  • meet the business type and standard size that SBA requires;
  • have a reasonable purpose of use of proceeds for the business;
  • show the availability of funds from other sources;
  • submit a "Statement of Personal History" to determine the owner/owner's character and capabilities to manage the business;
  • assure the agency of the businessowner's willingness to personally guarantee the loan.

Types of Business that are Eligible for the Loan

The following category of businesses is qualified to apply the 7 (a) SBA loan:

  • Recreational businesses and clubs--funds for general public facilities
  • Fishing businesses--funds for construction or reconditioning of fishing vessels under a cargo capacity of five tons
  • Farms and agricultural companies
  • Franchises
  • Hospitals, clinics, nursing homes--funds for medical facilities, dental laboratories

It should be noted that even though these types of businesses are eligible to obtain financing needs through the SBA's program, certain conditions still need to be observed for the loan to get approved.

Loan Amounts and Interest Rate

The 7 (a) SBA loan provides a maximum amount of $2 million dollars to any eligible business. With this amount, the lender is guaranteed 75 percent of the loan. This means a sum of $1.5 million will be reimbursed in the event a borrower becomes insolvent.

The interest rates applied on this loan program can be either fixed or variable and is agreed to between the lender and borrower. At the same time, the negotiated rate should adhere to the SBA's "Prime Rate" guidelines. The following amounts and rates are implemented on fixed-rate loans:

  • Loans of $50,000 or more have an interest rate of 2.25 percent with a maturity of less than 7 years
  • Loans between $25,000 and $50,000 have an interest rate of 3.25 percent with a maturity of less than 7 years, and 3.75 percent if the maturity is 7 years or more
  • Loans of $25,000 or less has an interest rate of 4.25 percent with less than 7 years of maturity, and 4.75 percent if the maturity is 7 years or more

The interest rate of loans with a variable rate are set either by the lowest prime rate or the SBA's optional rate specifications.