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.
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.
For working capital purposes, SBA 7(a) loans have a 10-year term. When it comes to machinery and equipment specifically, the term is up to 10 years or the amount of time that the product will be used. Finally, commercial real estate purchases can be financed with an SBA 7(a) loan that lasts up to 25 years.
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.
|Loan Size||Repayment Term under 7 years||Repayment Term 7 years and over|
|Less than $25,000||Base Rate + 4.25% max||Base Rate + 4.75% max|
|$25,000 to $50,000||Base Rate + 3.25% max||Base Rate + 3.75% max|
|Over $50,000||Base Rate + 2.25% max||Base Rate + 2.75% max|
7(a) loan interest rates can also be fixed or variable. Fixed means that the rate remains unchanged throughout the life of the loan, while a variable rate can be updated regularly.
The interest rate is not the only charge associated with 7(a) loans, which is why it’s helpful to check the APR (Annual Percentage Rate) as well. You’ll probably be responsible for a guaranty fee in exchange for the SBA backing up to 85% of 7(a) loans $150,000 and under, and up to 75% for loans above $150,000. In addition, you might encounter origination fees, packaging fees, and other closing costs. Even with these fees and other costs, SBA 7(a) loans are still a better deal than most small business loans.
SBA 7(a) Loans through SmartBiz
At SmartBiz®, we’re proud to 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.
An SBA loan through SmartBiz can range from $30,000 to $5 million. Depending on the loan amount and use of proceeds, they can have a repayment term of either 10 or 25 years. Loans available through SmartBiz have a variable interest rate of Prime Rate plus 1.50% to 3.75% depending on the size of the loan. In addition to SBA and bank fees, SmartBiz also charges a one-time referral fee of no more than 2% of the SBA loan amount and a one-time packaging fee of no more than 2% of the SBA loan amount for working capital and debt refinance loans. Learn more about our rates and fees 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.