The U.S. Small Business Administration (SBA) helps small businesses lock in funding by setting guidelines for loans and reducing lender risk. SBA loan programs provide financial support to small businesses by helping build capital, recover from disasters, purchase real estate, and more.
One of SBA’s most common loan programs is the 7(a) loan program, which includes financial assistance for businesses with special requirements.
Eligibility for this loan program is dependent on how the business receives its income, its ownership, and the location of operations. Unlike other loan programs, such as the SBA 504 that is specifically designed to provide financial assistance for purchasing property or equipment, the 7(a) loan program provides working capital for a broader category of expenses.
In this blog post, we’ll provide information about SBA 7(a) loan requirements, the types of 7(a) loan programs, and the beneficial business qualities that can increase your likelihood of loan approval.
Who Is Eligible for an SBA 7(a) Loan?
The U.S. Small Business Administration does not specify the types of businesses eligible for an 7(a) loan program. Instead, the agency details the businesses that are ineligible.
That being said, some universally applicable requirements exist. In order to qualify for assistance, businesses must align with the following eight requirements:
- Be for-profit
- Operate as small businesses, according to SBA
- Conduct, or plan to conduct, business in the U.S. or its territories
- Hold a reasonable amount of invested equity
- Have a record of using alternative financial resources, such as personal assets, prior to seeking financial assistance
- Demonstrate a need for the finances provided by the loan
- Use the funds for business purposes
- Not be delinquent on existing debt owed to the U.S. government
Additionally, a business must be engaged in a business activity that SBA determines as acceptable for federally funded financial assistance. This disqualifies a number of industries, many of which do not operate as small businesses, according to SBA.
What Are the Different Types of SBA 7(a) Loans?
Multiple SBA 7(a) loan programs exist for different types of small businesses. Depending on your plans to use the funds, one loan might work better for your goals. Here are three of the most common types of SBA 7(a) loans:
1. SBA 7(a) Standard Loan
A standard loan is commonly used for businesses that seek funding for large-scale projects. The maximum amount for a standard loan is $5 million.
Valid uses of the funds include:
- Expansion or renovation of business property
- Purchase of vacant land, buildings, equipment, or fixtures
- Start-up costs and working capital
- Funding inventory
- Supplying a seasonal line of credit
- Refinancing existing debt
Invalid uses of the funds include:
- Paying off debt owed to unsecured creditors
- Expenses for businesses that do not qualify for the loan
2. SBA 7(a) Small Loan
A small loan is similar to a standard loan. However, as the name suggests, the loan is smaller, with a maximum of $350,000. All valid and invalid uses are identical to a standard loan.
3. SBA 7(a) Express Loan
An express loan has a maximum of $500,000 and shares valid and invalid uses of the small and standard loans. This program features an accelerated review turnaround time of 36 hours.
How Do I Qualify for a SBA Association Loan?
In addition to meeting the requirements, there are a few qualities that can increase your likelihood of being approved for an SBA 7(a) loan, including:
- A good credit score (above 680)
- A financial history that is free from foreclosures, bankruptcies, and tax liens
- A history of conducting operations for at least two years
- Proof of your ability to provide collateral for loans requests over $25,000
- Funds for a down payment of 10 percent if the funds are used to purchase a business, commercial property, or equipment used for business purposes
- Proof of sufficient cash flow to meet debt obligations
- Proof of sufficient working capital
- Operating under “good character,” which is determined by the SBA based on your resource management track record and day-to-day business operations
Get Your Small Business Needs Met with Crews Banking Corporation
Navigating the SBA 7(a) loan requirements can be tricky. For nearly a century, the Crews family of banks have helped finance businesses with term loans and lines of credit in order to help businesses and communities grow.
If you think an SBA loan is right for you, our team can help find the right loan for your financial situation. We work directly with a third-party servicer to expedite and ensure accuracy of loan requests. If you’d like to know more about our other resources for small businesses, give us a call today. We’re here to help.
About the Author
Executive Vice President, Senior Loan Officer
Rob joined the Crews Banking family in 1996 after serving 10 years as an officer and Apache attack-helicopter pilot in the U.S. Army. He was born and raised in Hardee County with strong family ties to Florida’s Heartland for generations. Rob serves as Executive Vice President and Senior Loan Officer. He is proud to have helped begin the first Sebring branch of Wauchula State Bank in 2000 . A graduate of South Florida State College (SFSC), Embry-Riddle Aeronautical University and the Florida School of Banking, Rob has served in several nonprofit organizations over the years and currently serves on the SFSC Foundation Board. He enjoys flying, fishing, hunting and spending time with friends and family. He looks forward to working with you to “Grow Your Business” and meet your financial needs with honesty and integrity.