What Is An SBA 7(a) Loan?
The SBA 7(a) Loan is the most common when it comes to SBA financing, they are offered in amounts of up to $5 million. This type of loan can be used for working capital, refinancing debt, or purchasing a business, real estate or equipment. Within the 7(a) loan, there are two popular subprogram options which are the SBA express loan, & the SBA Advantage loan.
We’ve put together a detailed summary of an SBA 7(a) loan program with pros & cons so you can make the best decision possible before committing to these types of loans.
7(a) Loan breakdown
|Interest Rates||7.50% to 10.00%|
|Loan Amounts||Up to $5 million|
|Repayment Terms||Up to 10 years for working capital loans, up to 25 years for commercial real estate loans|
|Minimum Requirements||680 credit score10% to 20% down payment, some collateral (loan doesn’t have to be fully collateralized)|
|Use of Loan Proceeds||Working CapitalEquipment purchases|
SBA 7(a) Loan rates
We’ve also provided a more in-depth look at the typical SBA 7(a) loan interest rates & fees:
- Interest rates: 2.00% to 4.75% + prime rate, which is typically around 5% to 10%.
- Origination fee: 0.5% to 3.5%
- loan packaging fee: $2,000 to $4,000
- SBA guarantee fee: 2% to 3.5%
SBA 7(a) loan rates rely on many different factors, like your fico score & length of the repayment term, and it could be a variable or fixed. The Small Business Administration limits the rates that lenders charge for the SBA 7(a), with a max rate of 2.00% to 4.75% over a prime rate.
SBA 7(a) Loan Terms
In this section we’ll go over the different terms a typical SBA 7(a) loan offers:
- Loan amount: Up to $5 million
- Repayment terms: Up to 10 – 25 years for commercial real estate
- Repayment Cycle: Monthly
- Time to funding: 30 – 90 days or more
Even though the SBA hasn’t set any minimum loan amounts, most lenders won’t consider funding your file if its less than $30k. That being said there are loan calculators out there that can help estimate what your monthly payments would be, based on the loan amount and repayment term you’re going after.
SBA 7(a) Loan Requirements
To be eligible for an SBA 7(a) Loan you would need to meet the following requirements:
- Minimum fico score: 680
- No recent bankruptcies, foreclosures, or tax liens
- Collateral: although the SBA won’t refuse to guarantee your loan due to insufficient collateral, a lender will less likely approve a loan that isn’t backed by some the minimum collateral needed, so loans that are less than $25k doesn’t have to be collateralized.
- Down payment: you will need at least a 10% down payment if you’re going to be using a loan to acquire a business, commercial property, or equipment.
There are six types of SBA loans that are issued by approved lenders through the Small Business Administration, The six types of SBA loans are 7(a) loans, community development corporation (CDC)/504 loans, CAPLines, export loans, microloans, and disaster loans. Although they are difficult to qualify for, they do carry low-interest rates up to 11% with terms up to 25 years. To read more on these types of loans check out our blogs at Uplyftcapital.com/blog