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For small businesses looking for help to get started or grow, an SBA loan can be a good option for financing. SBA loans are small business loans provided by private lenders and backed by the U.S. Small Business Administration. As of July 2023, the SBA has approved over 40,000 SBA loans worth more than $19 billion.
The most common type of loan the Small Business Administration grants is the 7(a) loan. While the requirements to qualify for it can be difficult to meet, the loan terms are typically favorable — making it a desirable way for small business owners to receive financial support.
Key takeaways
- SBA 7(a) loans are the most common type of loan issued by the Small Business Administration
- SBA 7(a) loans offer favorable terms for qualified small businesses
- Qualifying for an SBA 7(a) loan requires meeting strict standards
- Several types of SBA 7(a) loans can be used for numerous purposes, from working capital to purchasing equipment and supplies
What is an SBA 7(a) loan?
An SBA 7(a) loan is a small business loan issued as part of the Small Business Administration’s 7(a) Loan Program. It is the most common loan offered by the agency and grants small businesses access to capital needed for a number of different purposes. SBA 7(a) loans can be used for short- and long-term working capital, refinancing existing business debts, purchasing new machinery and equipment, acquiring supplies or other purposes to improve business operations.
SBA 7(a) loans have a maximum lending amount of $5 million. Lenders that work with the SBA help businesses apply for a loan with the terms that best meet their needs.
Types of SBA loans
| Loan type | Maximum loan amount | Maximum guarantee | SBA turnaround time | Purpose |
|---|---|---|---|---|
| 7(a) loan | $5 million | 85% for loans $150,000 or less, 75% for $150,000 or more | 5 to 10 business days | Working capital, equipment, supplies purchases, real estate, business expansion |
| 7(a) small loan | $350,000 | 85% for loans $150,000 or less, 75% for $150,000 or more | 5 to 10 business days | Small projects and financial needs |
| Express loan | $500,000 | 50% | 36 hours | Expedited funding |
| Export Express loan | $500,000 | 90% for loans of $350,000 or less, 75% for loans over $350,000. | 24 hours | Expedited funding for export development |
| Export Working Capital loan | $5 million | 90% | 5 to 10 business days | Working capital for export sales |
| International Trade loan | $5 million | 90% | 5 to 10 business days | Long-term funding for export sales and compete with foreign competitors |
| CAPLines | $5 million | 85% for loans $150,000 or less, 75% for $150,000 or more | 5 to 10 business days | Short-term and seasonal needs |
SBA 7(a) loan requirements
While SBA 7(a) loans offer businesses access to capital with favorable terms, they have a relatively strict set of requirements that applicants must meet to qualify for a loan. According to the SBA, businesses that apply for SBA 7(a) loans must meet the following criteria:
- Operate for profit
- Meet the SBA definition of a small business
- Do business in the United States or its territories
- Demonstrate a need for a loan
- Demonstrate that the funds will support a sound business
- Up to date on any existing U.S. government debt obligations
- Be creditworthy and reasonably assure repayment of the loan
Bankrate insight To be considered creditworthy, the SBA typically requires a credit score of 690 or above and prefers owners over more than 20 percent of the business provide a personal guarantee.
Typically, the SBA will require businesses to explore other financing options before pursuing an SBA 7(a) loan. The agency also typically requires businesses to be in operation for two years before applying and show annual revenue to ensure funds are available to pay back the loan.
How to apply for SBA 7(a) loans
Applying for an SBA 7(a) loan requires working with an SBA lending partner. You will go through a multi-step process that will take you from application to, if approved, securing the loan.
Find a lender
Many financial institutions offer SBA 7(a) loans, from banks to credit unions. While you can work with a local lender, you can also find national institutions that offer financing options, including Chase and Bank of America.
The SBA offers an online tool that helps match businesses with lenders. Finding the right lender for your situation is key, as they’ll have experience navigating the application process. It can help you apply and ultimately give you the best odds of getting approved for a loan.
Submit an application
Once you have selected your lender, you can begin the application process. This will require gathering the necessary documents and filling out the proper application to be considered for approval.
There are several documents that you may be required to submit in order to be approved for an SBA 7(a) loan. While your lender will help you submit the proper forms, like SBA Form 1920, you may need the following:
- SBA Form 1919 (Borrower Information Form)
- SBA Forms 912 and 413 (Personal background and financial statement)
- Business financial statements, like balance sheets and profit and loss statements
- Projected financial statements
- Business certificate or license
- Prior loan applications
- Income tax returns
- Information on each business owner
- Business overview and history
- Business lease
Await approval
Once you submit your SBA 7(a) loan application, you will have to wait for the SBA to review it and make a decision. The timeline for this can vary depending on the loan type and amount.
SBA Preferred Lenders may approve loans faster than non-preferred lenders. The SBA states its turnaround time is five to 10 business days for 7(a) loans, but any missing documentation, application errors or other lender requirements could delay the process. Once approved, funding is usually issued within 30 to 90 days.
SBA 7(a) loan alternatives
SBA 7(a) loans aren’t necessarily the best option for every business. If these loans don’t quite fit your business needs, if your business doesn’t qualify, or if you are denied an SBA loan, you can consider the following alternatives:
- SBA microloans: If you are looking for a smaller amount of funding to fuel your operation, consider an SBA microloan. These are available for up to $50,000 and have more flexible requirements to accommodate businesses.
- Online lenders: Online lenders offer faster funding than traditional lenders and the SBA. Loan amounts vary, but online lenders typically have less strict requirements. These lenders are a good option for those who may not meet the SBA’s credit score requirements.
- Business credit cards: Business credit cards offer a revolving line of credit catered to business owners. Credit limits will be lower than SBA loans, but business credit cards often come with perks, like travel or cash-back rewards or introductory APRs. Additionally, if you pay the balance in full every month, it won’t accrue interest.
- Grants: Although grants are competitive, they offer small businesses — including those from underserved and minority communities — the opportunity for financing that doesn’t require repayment.
Bankrate insight
There are pros and cons to all business financing, including SBA loans. Before signing a loan agreement, be sure to review all financing options, like:
- Crowdfunding
- Term loans
- Business lines of credit
- Merchant cash advances
The bottom line
SBA 7(a) loans are a great option for small businesses that meet the SBA’s requirements, as they offer flexible loans that can be used for a number of purposes and have favorable interest rates for businesses. While there alternatives are available for businesses that do not meet the SBA’s criteria, it’s a great financing option for businesses that qualify and are looking to grow.
Frequently asked questions
SBA 7(a) loans have strict requirements that businesses must meet, including ensuring that the business owner is in good financial standing and that the business does not have any outstanding debt from other government-issued loans.
Businesses seeking SBA 7(a) loans for greater than $25,000 will have to provide collateral.
SBA 7(a) loans require a business to operate for at least two years in most cases, and applicants must provide a plan for how funds will be utilized if a loan is granted.
