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September 8, 2019 / By Jared Cohen

A Quick Overview of SBA 7(a) Loans

SBA 7(a) loans are one of the most popular business funding options today, which feature low rates and longer terms. The US Small Business Administration partially guarantees the loan amount, which can be availed by a small business to fulfill their financial needs. Usually, businesses choose SBA 7(a) loans to manage their cash flow challenges or use the funding as short-term or long-term working capital, to buy a new property or equipment, or to acquire an existing business.

SBA 7(a) loan can be a great option for businesses that cannot provide robust credit history to the lenders to avail of any other type of funding. As the loan is partly guaranteed by the SBA here, lenders can be more flexible to approve the loan applications. However, the SBA warns lenders not to be too casual in approving the loan without assessing the credibility and financial history of the borrower.

Eligibility

A business can avail up to $2 million under the SBA 7(a) loan program, while the SBA loan guarantee always stays at 75% of the total capital borrowed. The terms for the funding can be 25 years for buying equipment and property, while it is 7 years for working capital. The interest rates of SBA 7(a) loans are determined based on the loan amount, the term, and the prime rate.

To be qualified for an SBA 7(a) loan, the company should be defined as a “small business” by the agency, and it should be operating for profit within the United States and its possessions. Apart from that, the business should also show proof of having the resources to fund the assets of the company. Most of the time, lenders also require businesses to submit a sound business plan, detailing the purpose of the funding.

Note that real estate businesses and other speculative businesses are not deemed eligible to apply for SBA 7(a) loans. In addition, lending institutions, pyramid sales companies, non-profit organizations, as well as those that engage in illegal activities cannot apply for SBA 7(a) loans. Besides, the borrower should not have any existing debt obligations to the US government either to apply for the funding.

The borrower would also need to submit all the typically required documents for availing a business loan, such as personal financial statements, business plans, and statements, details of tax returns, etc. It usually takes a few days to get the loan approved, however that would depend upon the size of the loan as well as the terms and conditions of the lender.

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