A Beginner’s Guide to SBA 7(a) Loans

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. Plus, most small business owners don’t have what it takes to qualify for traditional bank loans. The Small Business Administration (SBA) is aware of these concerns, and 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 SBA 7(a) loans 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 and the fixed base rate.

The maximum interest rate currently ranges from 7.5% to 10%, depending on the size of your loan. If you have a great credit rating, you might be able to agree to a lower interest rate. Some lenders charge an origination fee or a loan packaging fee, so make sure you ask potential lenders of their fees before finalizing your transactions.

SBA 7(a) loans offer one of the longest repayment terms in the market. The terms can go up to seven years for working capital, ten years for equipment and machinery, and up to 25 years for properties.

Down Payment

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 can help.

Apply for SBA Loans Today!

Keep in mind that there is no one-size-fits-all when applying for a small business loan. Lenders consider multiple factors before approving your application. If you want to know more about the SBA loan application process, you can talk to SMB Compass’ lending experts today! We have funded over 1,000 small businesses all over the United States, and we can help yours as well. Don’t hesitate to give us a call at (888) 853-8922 or email us at info@smbcompass.com. We’d love to hear from you!