Frequently Asked Questions (FAQs) about the SBA 7(a) loan
Do you have some ideas about how to grow your business but you’re not sure how to fund them?
Maybe you’re researching loan options and you like the idea of a loan through the Small Business Administration. After all, it’s partially secured by the U.S. government and lenders find that attractive.
Finding a loan option that’s right for you and your business can be confusing. There are many options to choose from, each with varying qualifications and requirements. It’s best to turn to a trusted lender to help walk you through the process and pros and cons of each loan option. But let’s take a look at the popular SBA 7(a) loan and how it can benefit your business.
1. What is an SBA 7(a) loan?
The SBA 7(a) loan is considered a general-purpose loan. A business cannot apply for the loan directly and instead must go through an SBA partner lender. The partnership network is a nationwide network.
With these loans, a business can borrow up to $5 million dollars and the SBA guarantees up to a certain percentage of the loan. For loans up to $150,000, the SBA guarantees 75%. For loans greater than $150,000, the SBA guarantees 85%. This is important because it helps to minimize risk for the lenders.
The loan can be a short term or long term loan depending on how you plan to use the funds. Funds can be used to:
- purchase an existing business
- opening a new business location
- expanding or renovating your current location
- hiring and training new employees
- refinance existing higher-interest business debt
- purchase furniture, fixtures or supplies
This is the most popular SBA loan as it was designed to entice lenders to loan money to businesses that have weaknesses in their loan applications. For example, a typical situation would be for a start-up small business that has not raised substantial start-up capital.
2. How long does it take to get the loan?
The exact time it takes to be approved for an SBA 7(a) loan depends greatly on you and your lender. The process generally lasts two to three months. If you choose to work with an SBA approved lender, the process can be faster. A lender like Affinity Beyond Capital can quickly conduct an eligibility review to help expedite the process. Additionally, if the borrower submits paperwork as soon as possible this will also help expedite the process.
3. What is the maximum loan amount?
The loan amount can be between $50,000 and $5 Million. If using the loan to purchase real estate, the term can last as long as 25 years. Loans to purchase a business or business equipment can have a term of up to 20 years. Loans for working capital can have terms from 5 – 7 years.
4. What is the loan interest rate?
An SBA 7 loan can be a fixed rate or variable and is predominantly variable. For variable rates, the lender can use the maximum base rate + 4.75%. For fixed-rate loans, the lender uses the Prime rate + 6% plus 2%. Your lender can walk you through the details of the rate. There is also a guarantee fee required which is between 2% – 3.5% of the loan and is based on the full loan amount. With Affinity Beyond Capital, the interest rates can be as low as MPR + 2.5%.
5. Is collateral required for the loan?
Yes, the SBA does require collateral for loans exceeding $25,000. For loans higher than $150,000 borrowers are required to fully secure the loan with fixed assets, up to 10% of trading assets and/or available equity in personal real estate.
6. What are the fees associated with the loan?
Many common loan fees are prohibited with the SBA loan. These include processing fees, origination fees, application fees, points, brokerage fees, bonus points, and other fees. However, prepayment penalties may apply. There is also a personal guarantee required of anyone with more than 20% ownership in the business.
7. What are the eligibility requirements?
The SBA states lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. For 2020, the requirements for the loan include:
- Must be a for-profit business in the United States
- Business owner must have a personal credit score of 680 or higher
- Business must be 6 months or older
- Monthly revenue must be $8,000 or greater
- Business cannot get funds from any other financial lender
- Owner must have equity invested in the business
If you are ready to explore SBA loans, contact Affinity Beyond Capital. We can help you navigate the loan process and get your loan approved quickly. Apply Now!