7a Small Business Loans: What Are They and How to Get One

Lauren WardUpdated April 24, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

There are several different types of small business loans backed by the U.S. Small Business Administration (SBA). The most popular option is the 7(a) loan. As you learn more about this loan program, it’s easy to see why: The 7(a) provides financing with favorable rates and terms up to 25 years to businesses that have had trouble getting funding elsewhere. What’s more, you can use the proceeds to cover a wide range of business expenses, including working capital, operating costs, real estate, and equipment. Read on for a closer look at how the SBA 7(a) loan works and how to qualify.

What Is an SBA 7(a) Loan?

By definition, the SBA 7(a) loan is a small business loan that is offered through private lenders but partially guaranteed by the SBA. The 7(a) is generally the best SBA loan option if you are looking to purchase real estate. However, this loan can also be used for:

Short- and long-term working capital
Refinancing a business loan you already have
Purchasing furniture, fixtures, or supplies

The maximum loan amount for a 7(a) loan is $5 million.You’ll actually find several types of loans and lines of credit in the 7(a) program. Each of them is designed to meet different needs. Some target specific industries, some are for the smallest of small businesses, and others focus on a quick turnaround time.

How an SBA 7(a) Loan Works

Although 7(a) loans are backed by the government, the SBA does not actually make any direct loans. Instead, you apply for these small business loans through a regular lender that is approved to make SBA loans. At a minimum, the lender must require that you meet the SBA’s requirements, but it may also add some of its own criteria, such as requiring the owner to have a certain minimum credit score.You can expedite the loan approval process by working with an SBA Preferred Lender. They have a positive track record with SBA loans, giving them more authority to process SBA financing. Each type of 7(a) loan comes with a maximum loan amount (or line of credit limit), along with a set repayment term. Typically, you’ll have longer to repay the loan if you’re approved to purchase commercial real estate with your loan funds. Additionally, the larger the loan amount, the longer you typically have to pay back the loan. Recommended: Guide to Crowdfunding for Commercial Real Estate

Eligibility for an SBA 7(a) Loan

Here are the minimum eligibility requirements for an SBA 7(a) set forth by the SBA. But remember that individual lenders may also have additional (or stricter) criteria of their own.To be eligible, potential borrowers must:

Be a for-profit business
Meet the SBA’s size requirements
Do business in the U.S.
Have equity invested in the business
Use other resources (including personal assets) before turning to SBA 7(a) loans
Have a need for the loan funds and use the money for sound business purposes
Have no outstanding or delinquent debts to the U.S. government

There are also some types of businesses that the SBA will not approve, including real estate investment firms, pyramid sales plans, businesses that involve gambling activities, and non-profit organizations.

How to Get an SBA 7(a) Loan

Like applying for any small business loan, you’ll need to provide a number of documents to apply for an SBA 7(a) loan. This may include:

A personal background and financial statement
Business financial statements
Business certification and/or license
Loan application history
Income tax returns
Résumés
Business overview and history
Business lease

You may also need some additional documents if you’re purchasing an existing business.

Types of SBA 7(a) Loans

There are several types of financing options available through the SBA 7(a) loan program.

Type of loan	Special features	Maximum loan amount
Standard 7(a)	Can be used for a variety of business purposes	$5 million
7(a) Small Loan	Works in the same way as a standard 7(a) loan	$350,000
SBA Express	Fast turnaround time (within 36 hours)	$350,000
Export Express	Loans and lines of credit designed for exporters	$500,000
Export Working Capital	Capital available to help with export sales	$5 million
International Trade	Another option for export sales, either to fuel growth or to better compete in international sphere	$5 million

Standard 7(a)

The Standard 7(a) Loan program lets businesses borrow up to $5 million. These loans can be used for a variety of purposes, including working capital, business expansions, or purchasing equipment and supplies. The SBA guarantees 85% of the loans up to $150,000 and 75% for loans larger than that amount. Lenders are required to obtain collateral from borrowers on loans greater than $25,000. Collateral can be in the form of the business’s fixed assets, trading assets, or the principal's personal real estate equity. You can get a funding decision for your 7(a) small business loan application from the SBA in 5 to ten business days.

7(a) Small Loan

A 7(a) Small Loan offers financing up to $350,000. The collateral requirements vary by lender, but must be in line with whatever the lender requires for non-SBA loans. Lenders are required by the SBA to place a lien on any assets purchased with the loan funds, as well as a lien on any of the business’s fixed assets. That includes real estate, unless the applicant’s equity is less than 25% of the property’s market value. Additionally, the real estate lien can’t exceed the loan amount.

SBA Express

If you’re interested in SBA 7(a) loans with a fast turnaround time, you may want to take a look at the SBA Express program. Instead of a five- to 10-day review period, the SBA commits to processing applications within 36 hours. Loans go up to $350,000 with a 50% guarantee by the SBA. As with other 7(a) small business loans, each lender has its own eligibility requirements. Lenders also have their own collateral policies for any Express Loan over $25,000.

Export Express

The Export Express program is designed specifically for businesses that have been (or plan to become) involved in exporting and allows you to choose between a loan or line of credit. The maximum financing amount is $500,000. Loans are guaranteed 90% for loan amounts up to $350,000, and 75% for amounts over that amount. This program is ideal for exporters looking for a fast turnaround time. The SBA processes applications within 24 hours.

Export Working Capital

Export Working Capital loans are available through the U.S. Export Assistance Center for companies that need capital for their export sales. Look for the location that services your region — there are locations nationwide. Loans go as high as $5 million with a 90% SBA guarantee. Inventory is used as collateral and everyone with at least 20% ownership in the company must provide a personal guarantee for the funds.

International Trade

International trade is a type of long-term SBA financing up to $5 million. It helps businesses in two potential scenarios. The first is to help fuel the growth of export sales and the second is to help businesses make improvements in order to better compete with foreign companies. Funds used for permanent working capital, machinery, and equipment may be financed for 10 years, while real estate can be financed for 25 years.

CAPLines

CAPLines are designed for small businesses to meet their short-term and cyclical needs for working capital. There are four options, depending on your specific needs:

Seasonal CAPLine This is used to finance increased seasonal inventory needs
Contract CAPLine This is used to finance costs of labor and materials for performing assignable contracts
Builders CAPLine This is used to finance small builder or general contractor projects, including the construction and renovation of both residential and commercial properties
Working CAPLine This is used for businesses that give credit to other businesses. It’s an asset-based line of credit that requires short-term payments.

Recommended: Understanding Working Capital Lines of Credit

SBA 7(a) Fees

SBA 7(a) loans typically come with a guarantee fee, which ranges from 0.25% to 3.75% based on the size of the loan. Veterans and service members who qualify for the Veterans Advantage program (including Reservists and National Guard) can typically get the guarantee fee reduced. The SBA does not allow lenders to charge prepayment penalties, origination fees, application fees, or similar extraneous fees. However, lenders are allowed to charge packaging and service fees involved in processing the loan.

Pros and cons

A 7(a) small business loan comes with both benefits and drawbacks. Here are some you may want to consider.Pros:

Broad eligibility requirements
Competitive interest rates that are capped by the SBA
Funds may be used for a wide variety of purposes
Multiple options for loans of different sizes

Cons:

Slower funding timeframes compared to online small business loans
Personal assets often required as collateral
Down payment often required
Extensive application checklist

The Takeaway

The SBA 7(a) loan is popular, thanks to the loan’s large amounts, low rates, and long repayment terms. But there is actually more than one type of loan within the 7(a) loan program. If you are thinking about applying for a 7(a) loan, you’ll want to consider how you plan to use the loan funds and which 7(a) loan is best suited to your company’s size and industry.If you’re interested in exploring both SBA and other small business loan options, Lantern by SoFi can help. With our lending marketplace, it’s easy to search for different types of financing all in one place. You only fill out one short application and don’t need to make any type of commitment.Let Lantern match you with the right financing solution for your small business.

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About the Author

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.

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