If you need money for your small business, the US Small Business Administration’s (7(a) loan program is one option to think about. What is a 7(a) loan, though, and how does it work?
Overview of 7(a) Loans
The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses. Here are some key things to know about 7(a) loans:
- Maximum Loan Amount: Up to $5 million
- Use of Funds: Can be used for a variety of business purposes including working capital, equipment, inventory, and real estate
- Term Lengths: Vary based on use of funds but can be up to 10 years for working capital and up to 25 years for real estate
- Interest Rates: Pegged to the prime rate, maximum rates set by SBA based on loan amount
- Guarantees: Loans backed by SBA guarantees up to 85% for loans up to $150,000 and 75% for loans above $150,000
So in short, 7(a) loans provide small businesses with low-interest loans of up to $5 million that can be used flexibly for business needs The loans are provided by SBA-approved lenders and partially guaranteed by the SBA
Benefits of 7(a) Loans
There are several advantages 7(a) loans offer compared to conventional small business financing:
- Lower Down Payments: Just 10-20% down payment required in most cases
- Longer Terms: SBA allows longer repayment periods than conventional business loans
- Flexible Use of Funds: Proceeds can be used for wide range of business purposes
- Easy to Qualify: Qualification is based on business finances rather than personal credit scores
For small businesses that struggle to get approved for a conventional loan, 7(a) loans provide an accessible source of financing. And the flexible terms and guarantee help make the loans less risky for lenders.
Eligibility Requirements
To qualify for a 7(a) loan, there are some requirements set by the SBA:
- In business for profit
- Located in the United States
- Meet SBA small business size standards
- Demonstrate need and ability to repay the loan
- Exhaust other financing options first
The lender will also have its own requirements that you must meet, such as a certain credit score, time in business, and financial situation.
How the 7(a) Loan Process Works
Here is an overview of the process to get a 7(a) loan:
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Find an SBA approved lender. Use the SBA Lender Match tool or contact lenders directly.
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Submit loan application and documentation. Provide financial statements, tax returns, business plan, and other documents required.
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Get SBA approval. The lender sends the application to SBA, who generally provides approval within 5-10 days.
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Undergo underwriting and closing. The lender will underwrite the loan and finalize the closing process.
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Receive funds. Once closed, the loan proceeds will be disbursed by the lender.
So even though the SBA backs the loans, you deal directly with the lender the whole time.
Types of 7(a) Loans
There are several different types of 7(a) loans available:
- Standard 7(a): Basic 7(a) loan up to $5 million.
- Express Loans: Faster turnaround but max loan amount of $500,000.
- Export Loans: For businesses exporting goods or services.
- Small Loans: Max loan amount of $350,000.
- Community Advantage: Targeted at underserved communities.
The different options allow businesses to find a 7(a) product fit for their particular needs.
Uses for 7(a) Loan Proceeds
7(a) loans are flexible and the proceeds can be used for a variety of business purposes, including:
- Purchasing inventory, supplies, equipment
- Acquiring real estate
- Renovations or new construction
- Refinancing existing debt
- Working capital
- Buying an existing business
Virtually anything that helps the business expand or operate can be funded with a 7(a) loan.
Pros and Cons of 7(a) Loans
Here are some of the key advantages and disadvantages to consider with SBA 7(a) financing:
Pros
- Low down payments
- Lenient qualification requirements
- Long repayment terms
- Guarantees lower lender risk
Cons
- High guarantee fees
- Extensive documentation required
- Slower application process
- Rigid use of funds
As with any financing option, there are tradeoffs to weigh when considering a 7(a) loan.
Alternatives to 7(a) Loans
If a 7(a) loan doesn’t work for your business, some alternative financing options include:
- SBA 504 loans for larger, long-term financing
- SBA microloans up to $50,000
- Online alternative lenders providing faster approvals
- Business lines of credit for working capital needs
- Merchant cash advance or business credit cards
You should weigh the pros and cons of each financing option. The best option for you will depend on your business and financial situation.
The Bottom Line
SBA 7(a) loans provide an accessible and flexible financing option for small business owners who struggle to qualify for conventional loans. With low down payments, attractive rates, and long repayment terms, they can be the right choice to help fund growth and expenses for eligible businesses. Just be sure to weigh the pros and cons against other financing alternatives. With the right 7(a) loan, you can get the funding you need to take your business to the next level.
Fees the lender pays SBA
Lenders must pay an Upfront Fee (also known as an SBA Guaranty Fee) for each loan guaranteed under the 7(a) program but are permitted to pass the cost of the fee on to the borrower.
Lenders must pay the Lender’s Annual Service Fee (also known as the SBA On-Going Guaranty Fee) based on the outstanding principal balance of the guaranteed portion of a loan at the time of SBA loan approval. This fee cannot be charged to the borrower.
SBA publishes the amount of the Upfront Fee and the Lender’s Annual Service Fee each fiscal year for all loans approved during that year through an Information Notice.
Use of loan proceeds
7(a) loans can be used for:
- Acquiring, refinancing, or improving real estate and/or buildings
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing and installation of machinery and equipment
- Purchasing furniture, fixtures, and supplies
- Changes of ownership (complete or partial)
- Multiple purpose loans, including any of the above
Most 7(a) loans have a maximum loan amount of $5 million. However, 7(a) loans made under the SBA Express and Export Express delivery methods have maximum loan amounts of $500,000.
SBAs maximum exposure (i.e., dollars guaranteed) is $3.75 million. However, 7(a) International Trade loans may receive a maximum guaranty of 90% or $4.5 million. The amount guaranteed for working capital for the International Trade loan combined with any other outstanding 7(a) loan for working capital cannot exceed $4 million.
For most 7(a) loan programs, SBA guarantees up to 85 percent of loans of $150,000 or less, and up to 75 percent of loans above $150,000. However, SBA provides a 50% guaranty on SBA Express loans. SBA provides a 90% guaranty for Export Express, Export Working Capital Program (EWCP), and International Trade loans.
The term of a 7(a) loan will be:
- The shortest appropriate term, depending upon the borrowers ability to repay;
- Ten years or less, unless it finances or refinances real estate or equipment with a useful life exceeding ten years. The term for a loan to finance equipment and/or leasehold improvements may include an additional reasonable period, not to exceed 12 months, when necessary to complete the installation of the equipment and/or complete the leasehold improvements.
- A maximum of 25 years, including extensions. (A portion of a loan used to acquire or improve real property may have a term of 25 years plus an additional period needed to complete the construction or improvements.).
Interest rates for 7(a) loans are negotiated between the borrower and the lender, but are subject to SBA maximums, which are pegged to the prime rate or an optional peg rate. Interest rates may be fixed or variable.
SBA publishes the maximum fixed interest rates on SBA’s FTA wiki.
The maximum interest rates for variable 7(a) loans are as follows:
| Loan amount | Max rate |
|---|---|
| $50,000 or less | Base rate plus 6.5% |
| $50,001 to $250,000 | Base rate plus 6.0% |
| $250,001 to $350,000 | Base rate plus 4.5% |
| Greater than $350,000 | Base rate plus 3.0% |
SBA Loans Explained: Types of Loans, Interest Rates, and What to Expect From the Process
FAQ
What is a 7(a) loan?
This is the SBA’s main business loan program. The 7(a) Loan Program gives lenders loan guarantees so they can give money to small businesses with special needs. 7 (a) loans can be used for: The maximum loan amount for a 7 (a) loan is $5 million.
What is an SBA 7(a) loan?
Read our guide. What is an SBA 7 (a) loan? An SBA 7 (a) loan is a small-business loan issued by a private lender and partially backed by the U. S. Small Business Administration. SBA 7 (a) loans are the most common type of SBA loan, and the SBA has guaranteed over 16,000 7 (a) loans, totaling over $6. 8 billion, so far in fiscal year 2025.
What is the interest rate on a SBA 7(a) loan?
Current interest rates on SBA 7 (a) loans range from 9. 75% to 15. 5%. However, your credit score will play a role in determining the rate you receive. How long does it take to get an SBA 7(a) loan approved? From the time all the necessary paperwork is turned in, the process usually takes seven to ten business days.
What is the maximum loan amount for a 7(a) loan?
The maximum loan amount for a 7 (a) loan is $5 million. An important part of being eligible is what the business does to make money, its credit history, and the place where it operates. Your lender will help you figure out which type of loan is best suited for your needs.
Do SBA 7(a) loans require collateral?
Yes, standard SBA 7 (a) loans may require collateral for any loan amount. However, you can get an SBA 7 (a) Small or Express loan without collateral for loans of $50,000 or less. However, businesses seeking SBA 7 (a) loans for greater than $50,000 will have to provide collateral.
Do you need a down payment for a SBA 7(a) loan?
For an SBA 7 (a) loan, borrowers typically need to put down 10% of the total loan amount as a down payment, though some lenders may require more depending on the business’s financial health and risk level. What are the current interest rates on SBA 7 (a) loans? Current interest rates on SBA 7 (a) loans range from 9.75% to 15.5%.
How does a 7A loan work?
The 7(a) Loan Program, SBA’s primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for: Acquiring, refinancing, or improving real estate and buildings.
Is it difficult to get a 7A loan?
7(a) loan process is like mortgage on steroids. It’s a months long process that is very tedious. It’s WAY more complicated than just a good business case and credit score. If the business you want to acquire is in good standing and making money, and you have a business plan to grow it, that will help.
Is a 7% loan good?
As far as personal loans go, 7-8% is generally a pretty great rate and very close to the lowest one can get.
How much do you have to put down on a 7a loan?
It depends on the borrower and the deal. Lenders will evaluate a number of factors to determine the minimum down-payment. Generally speaking, anticipate a 10% down payment for business with property. When the borrower is only acquiring the business, anticipate a 20% – 25% down payment.