SBA 7(a) Loans

The SBA 7(a) loan is a type of SBA loan that is partially backed by the Small Business Administration and provides up to $5,000,000 in financing for small businesses that cannot get approved for traditional types of funding. While it is available through most financial institutions (i.e., banks and alternative lenders), both the SBA and the lender have to approve the application, so it has a lengthier process than traditional loans when it comes to approvals.

This loan in particular has high approval rates because the SBA partially backs the loan, reducing the lender’s risk. The high approval rates with the larger amounts of financing available, compared to traditional small business loans, make the SBA 7a one of the most competitive and sought-after financing solutions. This is why it is important to know if you qualify before you apply, to save yourself time.

The types of companies that can qualify include:

• Entity types including sole proprietors, LLCs, partnerships, and both C and S corps that are located in the US.
• For-profit businesses that have been rejected for other types of financing.
• Ecommerce and brick-and-mortar businesses.
• Service providers and companies that sell products.
• Manufacturers and resellers.
• Businesses that remain under the size requirements listed here.

As long as you are not in an industry that is ineligible for SBA 7(a) loans, which you can find here, you can apply. Examples of businesses that cannot qualify for SBA 7(a) loans include:

• Companies that provide or produce adult content.
• Companies in gambling.
• Political companies like lobbyists and even non-profits.
• Financial institutions including banks, lenders, and insurance companies.

If you’re a small business that operates as a for-profit company and you’ve been rejected for a small business loan, click here to get matched with our network of SBA 7(a) lenders. You may qualify if you meet the criteria above.

SBA 7(a) loans are popular because they’re a backup solution for small businesses that do not get approved for a traditional business loan. While all SBA 7(a) loan lenders must follow the SBA’s requirements, they can be flexible with loan terms based on your creditworthiness so long as they adhere to the SBA’s requirements. This is where some advantages and drawbacks come into play.

The benefits of SBA 7(a) loans include:

• Higher approval rates than non-SBA-backed loans.
• Large amounts of financing available, when compared to other SBA loans like the microloan and express loan.
• The ability to use funds for various purposes, including equipment financing, construction and renovations, replenishing inventory, debt refinancing, and even funding a startup.
• Capped interest rates.
• Entrepreneurial support and resources.

The downsides include:

• The low likelihood of getting approved for the maximum amount of $5,000,000.
• Longer waiting periods for approvals than online small business loans, making you miss time-sensitive opportunities.
• Long loan terms (generally 5 to 25 years), so the debt remains with you for longer, as well as penalties for curtailments.

Just because you get approved for the loan does not mean you’ll get the most competitive rate or the maximum amount. Choosing the right lender can go a long way. That’s where SBL can help.

Getting approved for an SBA 7(a) loan is easy when you use a matching platform like SmallBusinessLoans. You’ll be paired based on your business needs without having to wait for lenders to respond.

However, if you’re interested in the general terms small business owners can expect, take a look at the breakdown below.

• Loan amount: $500K to $1 million
• Maximum SBA guarantee: 75%
• Interest rate: Negotiable, but may not exceed SBA maximum
• Loan term: 6 to 25 years
• Line of credit: Only permitted under SBA Express, Export Express, or CAPLines
• Collateral: Considered fully secured if the lender takes security interests in all assets being acquired (other conditions apply)

If you need more financing or want a lender that better understands your unique industry, let us save you the guesswork by matching your financing needs with our SBA 7(a) lenders. It’s quick, easy, and free.

To qualify for an SBA 7(a) loan, small businesses must be for-profit and operate in the US. Additional qualifications include:

• A minimum individual credit score of 600
• At least 2 years in business
• A debt service coverage ratio (DSCR) of 1.25
• An employee count under 500 (this can change)

A debt service coverage ratio is a measurement of your company’s available cash flow to current debt obligations. A score of 1 shows that your business has exactly enough operating funds to pay off any debts. To get a general idea of your ratio, divide your net operating income by your total debt service.

DSCR = Net Operating Income (NOI) / Total Annual Debt Service (Principal + Interest)

Your net operating income can be found in your financial statements, and your annual debt service is your total debts owed with interest added in.

Typically, the SBA requires the lender to screen the application using a FICO SBSS score, which is a business credit score measured on a scale of up to 300. The SBA generally requires a minimum score of 165, but this can change. To get an idea of your business credit score, visit FICO SBSS. Business and personal credit scores help lenders determine the overall creditworthiness of an applicant and how likely an applicant is to repay the loan in full. The higher yours is, the more creditworthy you may appear.

Additionally, the SBA generally looks for business owners who have exhausted all other financing options and invested their own funds into the business. This is referred to as “equity injection” requirements, where the owner must prove they have invested their own money and time into the business.

Your lender will work with you to understand your business’ future projections and cash flow, but this requires a lot of documentation and can take a long time to process. That’s why savvy business owners choose SmallBusinessLoans. You can cut through the chaos and find SBA 7(a) lenders who understand your unique needs and industry in order to streamline the process. Our matching process is free and only takes seconds to complete.  

The SBA 7(a) loan, like other SBA loans, requires more paperwork and information than other types of business financing. You’ll want to make sure you have the following for your application:

• • Business and personal credit score

• Bank and financial statements
• Personal financial statements
• Accounts receivable and accounts payable
• Any legal documentation about your business formation
• Licenses, permits, and certificates
• A business plan with a focus on how the funding will be used and how you’ll recover the amount to make payments
• Proof that you applied and were not able to get funding elsewhere
• Verification that your business meets the requirements to be considered a small business
• Any required forms by the lender and SBA including Form 1919

The process is complicated to do on your own. Partnering with a lender that has experience in your space can help you know exactly what is needed, based on your type of business, and help you locate all applicable information.

Save yourself time and stress when searching for financing. Let our platform match you with the best SBA 7(a) lenders in seconds.

If you do not meet the requirements for an SBA 7(a) loan or do not have the time to wait for the approval process, you can use our services to find alternate types of financing that meet your specific needs and timeline. Here are a few other options to consider, which are known for their faster approvals.

• Working capital loans are a flexible kind of financing used to fund anything related to your company’s operations. This includes utilities, payroll, repairing software or equipment, and even stocking inventory if you have a rush and need to meet customer demand.
• Equipment financing is perfect if you are in a rush to buy or lease new or used equipment, including machinery and vehicles.
• Business bridge loans are ideal when you have a time-sensitive opportunity. You can use the funding to cover a deposit while you wait for permanent financing to clear. This can include real estate deals, buying a competitor out, or securing raw materials in bulk.

When you can’t get approved for an SBA 7(a) loan, or you simply don’t have the time to wait, you have solutions available to you. Our platform helps you find these solutions. Click here and get matched with lenders for SBA 7(a) loans, faster small business financing, and more.