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

Lauren WardUpdated July 9, 2021

Share this article:

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.

When you need financing for your company, there are many types of small business loans to consider. Which might be good options for you depends on a lot of different factors, like your company’s size and business model. For businesses having trouble borrowing money from traditional lenders, SBA 7(a) loans could be a solution.

What Is an SBA 7(a) Loan?

The SBA 7(a) loan definition refers to a loan backed by the US Small Business Administration (SBA). There are many types of SBA loans, but the 7(a) program is the most commonly used kind. 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 meet the SBA’s requirements, but it may also add some of its own criteria, like perhaps requiring the owner to have a personal FICO® score of 690 or more.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: What Are Common Small Business Loan Terms?

Eligibility for an SBA 7(a) Loan

If you’re wondering how difficult it is to get a business loan, it’s good to understand the basic eligibility requirements for SBA 7(a) loans. Here are the minimum requirements 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 US
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 US 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

The SBA offers an application checklist to help you prepare for applying with a lender. It outlines all of the documents you’ll need to send your lender, including things like:

A personal background and financial statement
Business financial statements
Business certification and/or license
Loan application history
Income tax returns
Resumes
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)	Use for operational expenses or commercial real estate	$5 million
7(a) Small Loan	Works the same as a standard 7(a) loan	350000
SBA Express	Fast turnaround time (within 36 hours)	350000
Export Express	Loans and lines of credit designed for exporters	500000
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 for operational expenses and commercial real estate purchases. 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 in between five and 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, take a look at the SBA Express program. Instead of a five to 10-day review period, lenders commit 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 exporter businesses, which can choose between a loan or line of credit. The maximum financing amount is $500,000. Loans are guaranteed 90% for loans up to $350,000, and 75% for loans over that amount. This program is ideal for exporters looking for a fast turnaround time. The SBA should process 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: Used to finance increased seasonal inventory needs
Contract CAPLine: Used to finance costs of labor and materials for performing assignable contracts
Builders CAPLine: Used to finance small builder or general contractor projects, including the construction and renovation of both residential and commercial properties
Working CAPLine: Used for businesses that give credit to other businesses. It’s an asset-based line of credit that requires short-term payments.

SBA 7(a) Fees

There are fees associated with the 7(a) loan program. Here is an overview of what you can expect:

Guaranty Fee: Ranges from 0.25% to 3.75% of the guaranteed portion of the loan, depending on the size of your loan
Packaging Fee: Lenders can’t charge an origination fee, but they can charge for the services performed in processing the loan.

Veterans and service members who qualify for the Veterans Advantage program (including Reservists and National Guard) can get the guaranty fee reduced.

Pros and cons

A 7(a) small business loan can help take your company to the next level. Think about the advantages and disadvantages to see if it’s a good choice for you.Pros:

Easier eligibility requirements compared to many other loans
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
Usually need good credit to qualify

The Takeaway

With several different types of financing options available in the SBA 7(a) loan program, it’s important to understand which ones you’re eligible for. If you are thinking about obtaining an SBA 7(a) loan, you may need to consider how you plan to use the loan funds and which SBA 7(a) loan is best suited to your size and industry.For help in finding the best loan for your business, explore personalized offers from multiple lenders through Lantern by SoFi.

SOLC0521090

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.

Share this article: