About SBA 7A Loans

SBA 7(a) loans represent the historical backbone of the U.S. government guaranteed loan programs, carrying government guarantees of between 50% and 85% of the loan balance. These loans have a legislative limit of $2 million for the total loan and $1.5 million for the guaranteed portion.  7(a) loans are made for business use, including financing of inventory or accounts receivable, business expansion, acquisition of a business, purchase of machinery and equipment, and purchase or refinancing of commercial real estate.  In order to be eligible for a 7(a) loan, the business must be for-profit, the funds may not be re-lent, and, in the case of real estate, the property must be at least 51% occupied by the borrower; unless it is a new construction project, in which case the property must be at least 60% occupied by the borrower.

Historically, a large portion of SBA 7(a) loans involved real estate construction, improvement, or purchase.  Now, these needs are primarily handled under the SBA 504 loan program (discussed below), which generally contains more favorable terms than those found under the 7(a) program.  Accordingly, real estate related funding as a component of a 7(a) loan is often the result of refinancing of existing real estate debt (as these are ineligible for 504 program), although real estate remains a source of collateral. 

7(a) loans made for working capital or business acquisition carry maturities of seven to ten years.  Machinery and equipment loans have ten year maturities.  Real estate refinancing loans have 25 year maturities.  When there are multiple uses of proceeds, a weighted average maturity is used.   The loans are amortized with even payments and carry variable interest rates based on the Prime Rate plus some percent up to 2.75%, adjusted on a monthly or quarterly basis. 

The advantages of the 7(a) program are as follows:

• Relative simplicity and speed of approval. 

Related Loan Programs (New)

The SBA has three new loan types under the 7(a) program, which are intended to improve capital access for small businesses.  These include: 

• SBAExpress loans carry 50% guarantees for loans up to $350,000.  The participating lender closes the loans on its own documents and the SBA review is brief with the turn-around time often being within a day.  The lender can charge interest rates up to prime +6.5% on loans under $50,000 and prime +4.5% on loans between $50,000 and $350,000.  All other aspects of the 7(a) program apply, such as eligibility and term.

• Patriot Express loans carry guarantees of 85% for loans up to $150,000 and 75% for loans between $150,000 and the maximum of $500,000.  These loans are dedicated to veterans and their relatives.  The participating lender closes the loans on its own documents and the SBA review is brief.  The turn-around time is often just one day.

• Community Express loans carry guarantees of 85% for loans up to $150,000 and 75% for loans between $150,000 and the maximum of $250,000.  These loans require that the borrower obtain technical assistance for functions such as marketing, financial management, and planning.  In turn, the lender is required to monitor the assistance obtained.