If you are looking for a loan for your small business, then the U.S. Small Business Administration (SBA) program might be able to help. The SBA has programs for qualifying small business owners that might make securing a loan easier, with the most common of these SBA loan programs being the 7(a) loan. The 7(a) loan is one that helps many small businesses with starting up, expanding, and growing their companies.
Who can use this program?
Below are some key points to determine if your business is eligible for SBA 7(a) lending:
- Operate as a for-profit entity
- Meet the SBA’s definition of a small business
- Conduct business in the United States
- Have personally invested equity in the company
How can you use 7(a) funds?
These funds are typically used for items such as:
- Purchase new land
- Purchase or expand an existing business
- Refinance existing debt
- Purchase machinery, furniture, fixtures, or materials
It’s important to remember that the SBA does not fund the loans directly to small businesses. The funds still come from your financial institution and are lent to the small business. The SBA offers a guaranty to the financial institution for that loan. The guaranty can be up to 85% of the loan, based on the size. This guaranty will repay a portion of the loan to the financial institution if the business defaults on payments. With this SBA guaranty, the lender can more comfortably lend to small businesses that don’t typically meet their standards. Along with helping the business to qualify for a loan, it may also provide better flexibility, longer terms and potentially lower down payments compared to other financing options.
Through the 7(a) loan program, you can apply for loan amounts up to $5 million, and they also have no set minimum. The SBA assesses a guaranty fee that is typically paid by the borrower. Fees increase with the loan size. Currently, on new loans of less than $125,000, there is no guaranty fee with loans with a maturity of one year or more. For loans of $150,000 to $700,000, the fee is 3% of the guaranteed portion of the loan. Loans greater than that have tiered fees that continue to increase.
How do you apply?
Most financial institutions have SBA 7(a) loan programs. If you are looking for financing, you can inquire if they are an SBA-approved lender. Some financial institutions are SBA Preferred Lenders, which helps expatiate SBA loans, reducing the time between approval and funding of the small business loan. There are many options of SBA loans and the 7(a) is the most popular government program that helps small businesses in the United States all the way from start up to expansion.
Trevor Ermers is a Business Banking Officer at American National Bank Fox Cities—a local business bank. He has over 7 years of experience working with business owners in Northeast WI as an SBA-preferred lender. Trevor is married with 2 daughters, and he enjoys sports and outdoor activities.