The SBA 7(a) Loan Guaranty Program

What is the SBA 7(a) Loan Guaranty Program

The SBA 7(a) program is the primary loan program provided by the Small Business Administration. This program was designed to help small businesses that otherwise could not obtain a conventional bank loan. The SBA minimizes

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the risk to lenders by guaranteeing a portion of the loan. The SBA can guarantee as much as 80% on loans up to $100,000 and 75% on loans of more than $100,000

Uses Of The 7(a) Loan Program

You can use the SBA 7(a) loan to purchase equipment / machinery, business acquisitions, expand or renovate business facilities, leasehold improvements, working capital (only a portion of an SBA loan can be used for working capital, generally you will also need to provide receivable to collateralize the loan), refinance some debts, seasonal lines of credit, the purchase of commercial land or buildings (not to be used for investment purposes ( your business must occupy a portion of the building / land) , & finance seasonal lines of credit.

7(a) Loan Terms, Fees & Collateral Needed

Repayment terms on the SBA 7(a) loan program is usually up to 25 years for real estate, the purchase of large machinery / equipment (fixed assets) and 5 to 10 years for working capital.

The interest rate is generally between prime+1% to prime+ 2.75%. On loans below $80,000 the rates can be higher.

Interest rates can be variable or fixed (depends on your lender). The SBA also charges the lenders a fee for the guarantee. This fee (.25% of the guarantee portion on loans above $80,000) maybe passed on to you from your lender.

Lenders like to see fixed assets (equipment, machinery, real estate) as collateral. They will usually ask for personal guarantees from the principals of the loan and may place liens on personal property & assets.

Is Your Business Eligible For SBA Lending?

The SBA will not provide a guarantee for loans used for investment or speculative purposes.

Generally 95% of all businesses are eligible for SBA financing. You must be a for profit organization. If you are a retail or service business and your annual sales are under $21,000,000 or a wholesale company with less than 100 employees, you maybe eligible. The size of your business will also be a factor in the lenders decision as to whether or not you qualify for SBA financing.

What Lenders Are Looking For In Potential SBA Loans

When reviewing a loan package for possible SBA lending, a lender would like to see:

  • Good Credit (A - C+) ( meaning no bankruptcies within the last 7 years, foreclosures, unpaid charged off accounts etc. A few slow pays MAY BE acceptable if the loan package is a strong one.
  • A good business plan
  • Sufficient investment from the owner ( SBA likes to see a capital infusion of 25% - 30% - although we have been able to obtain funding for our clients with a 10% capital infusion)
  • Collateral ( fixed assets, equipment, real estate)
  • Ability to repay

 

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