Do you think you need a lot of money to get a small business loan? Not so with an SBA 7(a) loan. In this post, we’ll explain what this SBA loan is, who qualifies for it, and how to get one. Ready to learn more? Let’s get started!
What is an SBA 7(a) loan?
The SBA 7(a) loan program is the most popular of the SBA loans offered by the Small Business Administration and offered by SBA lenders such as banks, credit unions and online lenders. It’s available to businesses of all sizes and can be used for a variety of purposes, including working capital and cash flow, inventory, equipment and real estate.
Why you should consider an SBA 7(a) loan for your small business
As a business owner, you’re always looking for ways to get financing and use loan proceeds to grow your business. Here are five reasons why you should consider this type of loan:
- You don’t need perfect credit to qualify. The SBA does not lend money directly to small businesses. Rather, it partners with approved lenders, such as banks and credit unions, to offer financing and loan terms. This means that small business owners can still qualify for the loan even if they don’t have perfect credit.
- You can use the loan for multiple purposes. As we mentioned above, SBA 7(a) loans can be used for a variety of purposes, including working capital, inventory, equipment, and commercial real estate.
- You may qualify for a lower interest rate. Interest rates on loans from an SBA lending partner are typically lower than interest rates on loans from traditional bank loans. This is because the SBA guarantees a portion of the loan, reducing the risk for the lender.
- You may have a longer repayment period. SBA 7(a) loans typically have an amortization period of up to 25 years. This gives you more time to pay off the loan and frees up cash flow in the meantime.
- You may be able to get a partially forgivable loan. If you use your business loan to buy equipment or real estate, you may be able to have part of the loan forgiven if you create jobs or meet other requirements. This can save you a significant amount of money in the long run.
SBA 7(a) Loan Requirements
To be approved for this type of loan, your small business must meet the following loan requirements:
- At least two years of commercial operations. To qualify for an SBA 7(a) loan, your business must have been in business for at least two years.
- Minimum credit score requirements. While you don’t need perfect credit to qualify for an SBA loan, you will need a personal credit score of at least 640. Business credit is not a requirement, but it can be helpful in the application process.
- Annual income. Your business must also have annual revenue of at least $120,000. If you don’t meet this requirement, you may still be eligible for other SBA small business financing.
- Debt/income ratio. In addition to the above requirements, you must also have a debt-to-income ratio of 50% or less, meaning that your company’s debts must not exceed 50% of your company’s total revenue.
Small Business Administration Loan Type 7(a).
There are many SBA loan programs available, but the 7(a) loan program is the most popular. Here are some different types of SBA 7(a) business loan programs:
Standard 7(a) loan.
The standard 7(a) loan is the most common type of SBA loan. It’s available to businesses of all sizes and can be used for a variety of purposes, including working capital, inventory, equipment and real estate. You can apply for a loan of up to $5 million.
7(a) Small Loan
The 7(a) small loan is designed for businesses that need smaller loans, with a maximum loan amount of up to $350,000. It is a good option for companies that do not have a lot of collateral to offer as collateral for the loan.
Express loan
An express loan is a 7(a) loan that is processed and approved more quickly than other types of SBA loans. You can usually get an express loan in less than 36 hours, making it a good option for businesses that need quick access to funding.
Export working capital
This type of 7(a) loan is specific to companies that export goods or services. If you export goods or services, you can get a loan of up to $5 million.
Veterans advantage
The Veterans Advantage program is designed to help veterans and their spouses access small business financing. If you are a veteran or the spouse of a veteran, you may qualify for a reduced interest rate on an SBA 7(a) loan.
How to Apply for SBA 7(a) Business Loans.
Applying for this type of loan is a simple process. Let’s see the necessary steps for the loan application process:
- Choose an SBA lender. You’ll choose a bank or credit union that offers SBA-backed loans. Be sure to shop around and compare rates, terms and conditions before choosing a lender.
- Fill out the application. Each SBA Preferred Lender has its own application that you will need to complete. Gather the necessary documents, such as business tax returns, before you start applying for the loan.
- Submit your request. Once you’ve completed your application from one of the available SBA Preferred Lenders, you’ll send it to your chosen lender for review.
- Get approved and access your funds. If your loan is approved, you will receive the funds in a lump sum. You can then use the funds for the intended purpose.
How hard is it to get an SBA 7(a) loan?
It’s not difficult to get an SBA 7(a) loan such as loans from California financial lenders if you meet the eligibility requirements and have a solid application. However, it is important to remember that this is a competitive program. There are more businesses applying for SBA 7(a) loans than there are funds available.
How much can you get from an SBA 7(a) loan?
The maximum loan amount for an SBA 7(a) loan is $5 million. The interest rate is variable, repayment terms are flexible and collateral requirements are relatively lenient. Overall, the SBA 7(a) loan program is a very attractive option for small businesses.
Are SBA Loans Forgivable?
SBA loans, like SBA 7(a) loans, are not automatically forgiven, but there are programs that could forgive part or all of your loan. To be eligible for forgiveness, you must use the loan proceeds for eligible expenses, such as payroll costs, rent and utilities. You must also meet certain other conditions, such as maintaining or restoring the workforce and wages of your employees.
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