Lower interest rates, longer repayment terms and a high loan ceiling – it’s no wonder SBA 7(a) loans are the most popular type of SBA loan in the market. Despite its perks, qualifying for an SBA 7(a) loan is not that easy.
Business financing, in general, can be confusing. However, unfortunately most small business owners do not qualify for traditional bank loans. The Small Business Administration (SBA) is aware of these concerns, which is why they created a variety of loan programs that enable small businesses to secure funding.
Benefits of SBA Loans in General
Most people think that the SBA is the agency that lends money to aspiring entrepreneurs. This is a common misconception because the SBA is not responsible for lending you the money. The SBA merely guarantees up to 85% of the loan amount provided by SBA-approved lenders. This encourages lenders to approve small business owners for lower-rate financing because there’s a lesser risk on their part.
The perks of SBA loans don’t end there. You can use an SBA 7(a) loan for just about any business-related purpose, including:
- Debt refinancing
- Equipment purchases
- Real estate purchases
- Business expansion
- Additional working capital
- Unforeseen business expenses
Interest Rates and Repayment Terms
As mentioned, the SBA 7(a) loans offer flexibility, longer repayment terms, and lower down payments compared to other small business loans in the market. The interest rates set by lenders depend on the size of the loan, the repayment terms, the daily prime rate as well as the fixed base rate.
The maximum interest rate currently ranges from 7.5% to 10%, depending on the amount of your loan. If you have an excellent credit rating, you might be able to secure a lower rate of interest. Some lenders charge an origination fee or a loan packaging fee, so best to ask potential lenders regarding their fees (if any) before finalizing your transactions.
SBA 7(a) loans offer one of the longest repayment terms in the market. The terms can be up to seven years for working capital, ten years for equipment and machinery, and up to 25 years for properties.
SBA 7(a) loans require borrowers to pay a 10% down payment before they are granted a loan. If you plan to borrow $350,000 or more, you may also be asked to provide collateral to secure the loan. However, if your business doesn’t have the necessary assets to secure the loan, personal collateral may be acceptable.
Apply for SBA Loans Today!
Each type of SBA loan comes with its own individual list of requirements. In regards to qualifying for a loan, no two are alike. Lenders consider multiple factors before approving your application. If you would like the exact details as they relate to a specific type of SBA loan, the experts at SMB Compass’ will be glad to answer your questions and steer you in the right direction. We have funded over 1,000 small businesses all over the United States, and we’re confident we can acquire the funding you need as well.