The Ins and Outs of SBA 7(a) Loans: What You Need To Know

SBA loans offer a practical method of small business financing for entrepreneurs looking to start, buy or expand a business. Whether you need money to buy real estate, cover construction costs or to use as working capital until you start making a profit, SBA loans offer attractive repayment terms.

While several types of SBA loans exist to meet the needs of a wide variety of entrepreneurs, the most common is the 7(a) loan. This type of loan boasts low interest rates, longer repayment terms and no ballooning costs for small business owners. On top of that, the government will also repay lenders up to a certain amount if the loan goes into default.

SBA 7(a) loans offer up to $5 million in small business financing, which can be used for the following:

  • Short- or long-term working capital
  • Revolving funds
  • Purchase of equipment, furniture, office supplies and materials, etc.
  • Purchase of real estate, including land and buildings
  • Construction of a new building or renovation of an existing one
  • Acquisition or expansion of an existing business

When reviewing eligibility for SBA 7(a) loans, lenders want to ensure you and your business are a smart investment. As such, you’ll be asked to provide information on your personal background, business experiences, business model, etc. Specifically, lenders look for “yes” answers to the following questions:

  • Do you have enough available cash to cover a down payment (20 percent for an existing business; 30 percent for a start-up)?
  • Is your credit score 640 or above?
  • Do have the means to make monthly loan payments? (Banks favor proof of secondary income.)
  • Do you have prior business experience? (At least three years is preferred.)
  • Do you have personal collateral to back the loan?

While SBA 7(a) loans can take 120 days or more to finalize, their enticing repayments terms are often worth it for small business owners. On top of that, SBA loans can be used in combination with other forms of small business financing. For example, if you qualify for a Rollover for Business Start-up arrangement, you could use money from your eligible retirement account to cover part or all of your down payment.

If you’re interested in an SBA loan, consider employing the services of a qualified small business financing firm. They’ll help you gather the needed documentation and can match you with the SBA lender that best meets your needs, taking the guesswork out of the process.

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