June 21, 2021 By SmartBiz Team

Are you looking for a low-cost loan with affordable payments? The Small Business Administration’s “flagship” program, the 7(a) loan, is one of the most affordable and secure funding options for entrepreneurs. Learn all about how they work so you can better understand your choices when it comes to business financing. One of the draws of this type of loan is the wide use of proceeds. Borrowers can use funds for small business working capital, debt refinance, and commercial real estate purchase or refinance. Here’s what you need to know about rates, terms, amounts, and maturity.

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What is an SBA Loan?

The Small Business Administration (SBA) is a government agency founded in 1953 and created to support hard-working entrepreneurs and small business owners in the United States.

The mission of the Small Business Administration is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.”

One of the ways they help is to provide business capital. If you’re looking for a way to finance your small business, SBA loans are the best bet with low rates and long terms. The SBA doesn’t actually make the loans but they guarantee a percentage of each loan made by partner lenders like SmartBiz. This guarantee reduces risk for partners who are more likely to help small businesses that can’t get access to conventional loans.

The requirements of eligibility for SBA loans are based on specific aspects of the business and its principals and vary from lender to lender. Key factors outlined by the SBA include what the business does to receive its income, the business owners' credit score, the character of its ownership and where the business operates.

SBA 7(a) Loan Basics

If you’re ready to take your business to the next level, here’s what you need to know about SBA 7(a) loans.

The SBA does not extend any directing financing, and instead guarantees a hefty percentage of the loan amount so that lenders are not making as risky an offer to the borrower. As a result, the bank can offer a lower interest rate than they would otherwise. Because of the long terms and low rates, banks look for financially healthy borrowers who can demonstrate that they’re able to repay the loan. Once you’re funded, you can apply your proceeds to expansion, equipment purchases, hiring, marketing, debt refinancing, and other business needs.


“Loan terms” refers to the terms and conditions of a loan or other lending product. In this instance, it’s referring to the loan's repayment period. The interest rate and fees associated with the loan, penalty fees borrowers might be charged, and any other special conditions that may apply can also impact the cost of the loan.

The longer the terms, the lower the monthly payments will be. For working capital or debt refinance purposes, SBA 7(a) loans have a 10-year term. For example, a 10-year SBA 7(a0 loan from a bank in the SmartBiz network would have a monthly payment of $2,220.00

Commercial real estate (CRE) purchases can be financed with an SBA 7(a) loan that lasts up to 25 years.


Interest is what a lender charges you for the service of borrowing money from them, whether it be for short-term or long-term financing. Interest rates are usually set as annual percentages for as long as it takes to repay the loan. If the repayment term of your loan indicates a fixed rate (a rate that won’t change over the course of your payment schedule), your monthly payments should remain consistent.

The SBA sets a cap on the interest rates that lenders can charge. It breaks down into a base rate plus an additional percentage based on the loan amount and the repayment term. Many lenders use the Prime Rate as the base, which is set quarterly by the Federal Reserve.

7(a) loan interest rates can also be fixed or variable. Fixed means that the rate remains unchanged throughout the life of the loan. A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest rates change. As a result, your payments will vary.

Loan maturity

The loan maturity date refers to the date on which a borrower's final loan payment is due. Once that payment is made and all repayment terms have been met, the promissory note that is a record of the original debt is retired. In the case of a secured loan, the lender no longer has a claim to any of the borrower's assets.



Any fee that you're charged for borrowing money through a loan or credit card, that isn't the interest rate, is considered a loan fee. Even with the fees and other costs outlined below, SBA 7(a) loans are still a better deal than most small business loans. For SBA 7(a) loans, fees can include charges such as:

Guarantee fee

A guarantee fee helps the issuer pay for administrative costs and other expenses and also reduces the risk and potential for loss in the event of default. You’ll probably be responsible for a guaranty fee when you receive an SBA loan.

Origination fee

This is a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.

Packaging fees

Lenders can charge “packaging fees” but the fees must be reasonable and customary for the services actually performed and must be consistent with those fees charged on the lender’s similarly-sized non-SBA guaranteed commercial loans. Fees charged an SBA borrower must be documented on SBA Form 159 (7a).

Closing costs

Closing costs may include fees related to the origination and underwriting of a mortgage loan, real estate commissions, taxes, insurance premiums, title, and record filing.

Personal Guarantee

SBA loans require a personal guarantee from anyone who owns 20% or more of the business applying for the loan. When you sign an SBA loan personal guarantee, you authorize the lender to seize any of your personal assets to repay the loan, if your business assets aren’t sufficient to cover loan payments.

SBA 7(a) Loans through SmartBiz

At SmartBiz®, we provide small business owners with an easy, transparent application process for an SBA 7(a) loan. After you easily upload documents to our secure platform, you’ll be matched with the lender who can provide the best fit for your business. Once your application is complete, you can receive your funds in as fast as 7 days. Rates and fees specific to SmartBiz Loans can be found here.

Learn more about where your small business stands in terms of being SBA loan ready even before you apply by signing up for SmartBiz Advisor™*. You can assess key criteria banks consider and how your business might be evaluated on each. Learn more about SmartBiz Advisor here.

*The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.