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What is an SBA 7(a) Loan? Getting a 7(a) Loan For Your Small Business

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What is an SBA 7(a) Loan and How Do I Get One for My Small Business?

The Small Business Administration (SBA) 7(a) Loan Guarantee program is one of the most popular loan programs offered by the agency and is the basic SBA loan program. A 7(a) loan guarantee is provided to lenders to make them more willing to lend money to small businesses with "weaknesses" in their loan applications. For example, a business startup would not have cash flow history to provide a lender with assurance of continued ability to pay back a loan, so the SBA 7(a) loan would serve to provide the lender with an increased guaranty against default. The SBA warns, though, that lenders do not have to accept 7(a) loans.

SBA 7(a) loans are for a a maximum of $2 million, with SBA loan guarantee of no more than $1.5 million (75 percent). The terms of SBA 7(a) loans are 25 years for real estate and equipment and 7 years for working capital. Interest rates are based on the prime rate, the size of the loan, and the maturity of the loan.

The qualifications for eligibility for 7(a) loans include:

  • Size
    7(a) loans are provided to smaller companies.

  • Eligible and Ineligible Types of Businesses
    Most types of businesses are eligible, except for real estate and other speculative businesses, lending companies, pyramid sales companies, companies that engage in illegal activities, and those which are non-profit in nature.

  • Eligible Business Purposes
    7(a) loans may be used for such business purposes as purchasing land or buildings, equipment, machinery or supplies; for long-term or short-term working capital; for refinancing; or for purchase of an existing business.

  • Funds Available from Other Sources
    If the borrower has funds available from other sources, an SBA loan may not be granted.

Back to SBA Loan Programs Overview

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