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SBA's 7(a) Loan Program Explained

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SBA's 7(a) Loan Program Explained

By kmurray, Contributor and Moderator
Published: October 30, 2013

Obtaining financing for your business ventures is often challenging for entrepreneurs. From being in the startup phase to growing your business, you may face difficulties with the requirements of traditional bank loans. But the 7(a) Program may be able to help – it’s SBA’s primary and most popular program. Here’s some insight to see if this is the right option for you.

Am I eligible?

If you can demonstrate a need for funds and have a sound business purpose in mind, you’re on the right track. To be considered eligible for the SBA 7(a) Loan Program, your business must meet SBA’s size standards and be considered small within your particular industry, operate for profit and you must have reasonable equity to invest.

You’re also required to do, or propose to do business, in the United States or its possessions. Another eligibility requirement is that you must have tried to use other financial resources, including personal assets, before applying for a loan.

How can I use 7(a) funds?

The 7(a) Program lets you get loan amounts (up to $5 million) to fund startup costs, buy equipment and more. Here’s what else you can do with 7(a) funds:

  • Purchase new land (including construction costs)
  • Repair existing capital
  • Purchase or expand an existing business
  • Refinance existing debt
  • Purchase machinery, furniture, fixtures, supplies or materials

What are the benefits?

The 7(a) Program offers flexibility, longer terms and potentially lower down payments compared to other financing options. There are also specialized programs for individuals interested in exporting; those located in underserved communities; members of the military community; and small businesses owners looking to meet their short-term and cyclical working capital needs.

What are the repayment terms?

Most 7(a) term loans are repaid with monthly payments of principal and interest. For fixed-rate loans, the payments stay the same because the interest rate is constant. For variable-rate loans, the lender can require a different payment amount when the interest rate changes.  

What else should I know?

Keep in mind that SBA doesn’t fund these loans directly to small business owners, but banks receive a guarantee that the SBA will repay a portion of the loan if you default on payments. If you think you’re suited for a 7(a) loan, check out these resources and a checklist to help prepare your loan application.

 

Related Resources

About the Author:

Katie Murray

Contributor and Moderator

I am an author and moderator for the the SBA.gov Community. I'll share useful information for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. Our ongoing goal is to improve this site to meet your needs, so we're happy to receive your feedback and participation. Thanks for joining our online Community here at SBA.gov!

Comments:

New thing, SBA's 7(a) Loan Program. I hope this will be helped to people.
The SBA loan process has too many stringent requirements. Although, if you qualify and have the patience to deal with the number of relevant documents, which is a good thing. But we must be realistic! Most small businesses do not fully human and knowledge necessary to perform the necessary procedures to meet the requirements of SBA.
The SBA loan process could be quite cumbersome. Although, if you qualify and have the patience to deal with the amount of paperwork involved, it is WELL worth it. But we must be realistic! Most small business owners don't qualify for these programs because the guidelines are too rigid.
loan definitely seems promising from each and every angles, to let its user flourish. This loan has got the capability to kill the dire state on the businessmen financial state.The 7(a) System presents flexibility, longer terms and potentially reduced down payments in comparison to other financing options.
SBA always do a great job to help samll business.The 7(a) Program is really a good news for small business owners which need funds.
Great program from SBA. Friend of mine is actually going to try using it. Will keep you posted on the results!
The 7(a) program is an excellent small business loan program. However, it seems that the 504 program - especially with refinancing - has been the dominate program over the last few years - helping both small businesses renegotiate their debt and allowing banks and other financing companies get rid of bad debt. However, being a disabled veteran myself, I really like the Patriot Express program. But, what I don't understand and hope that they will change in the future is - if they can create an express program for veterans, why can't they create a similar express program for all small business owners? Great outline of the 7(a) loan program and in your prior post the 504 program - while many people might know that the SBA has these programs, they don't really understand them at all - nor do their local bankers. Want to really find out if you qualify and if any of these programs will work for you - call your local SBA, SCORE or SBDC offices.
Wow, I have never heard of a 7(a) loan. Surprising since it goes up to $5 million! I may have to look into refinancing some of my current business loans.
I am completely agree with 15mininsurance because I also head about 7(a) and got surprised about knowing it.
7(a) loan definitely seems promising from each and every angles, to let its user flourish. This loan has got the capability to kill the dire state on the businessmen financial state.The 7(a) System presents flexibility, longer terms and potentially reduced down payments in comparison to other financing options.

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