Does SBA Do Equipment Loans?

If you’re a small business, up until this point you may have funded everything yourself...real estate, construction, renovation, but kitting your new establishment out with quality equipment might be stretching your personal account too thin.

In this situation, you’ll be looking to take out an equipment-specific loan. This sort of finance is out there, offered by a number of companies, but unfortunately, the SBA does not have a loan that’s meant for equipment acquisition exclusively. However, that’s not to say they can’t help you.

The loan you’ll need to look into is the 7(a). It may not be tailor-made for business equipment acquisition, but this application does fall well within its remit.

What is an SBA 7(a) Loan?

The 7(a) is the most popular loan option that the SBA has to offer, and that’s largely due to its breadth. It can be used for a myriad of different business-based purposes, one of which is, you’ve guessed it…buying equipment.

The primary application of a 7(a) SBA loan is real estate acquisition for business purposes, but you’re also permitted to use the funds for anything that rests under the following umbrella applications.

  • Short- and Long-Term Working Capital - Working capital funds are usually allocated to buying equipment, covering payroll, boosting inventory, advertising, and many more general operating expenses.
  • Refinance Current Business Debt - In refinancing current business debt, you can consolidate multiple loans into one entity to streamline the repayment process, or simply switch out an expensive loan for one with more agreeable terms. This is done to free up some funds for working capital and day-to-day operations.
  • Purchase Furniture, Fixtures, and Supplies - This also applies to your situation. You can use a 7(a) loan to purchase pretty much anything you need to improve or simply get your business in working condition.

The SBA’s 7(a) lending format is a typical term loan that you receive as one lump sum payment, sort of like a mortgage. Possible terms are as follows:

Loan Amount - Technically, there’s no minimum 7(a) loan amount set in stone, but it’s usually no less than $25,000, which will be the perfect amount for a small business to purchase some essential equipment.

However, if you’re in an expensive industry, you can go big with your 7(a) loan.

How big? How does $5,000,000 sound? That’s the maximum amount the 7(a) format has to offer. Seems large, doesn’t it? But it’s sometimes what’s required for small businesses to get a foothold in much larger industries.

Repayment - Your 7(a) debt is normally repaid via equal monthly installments over a 7 to 25-year course. Should you settle on a variable APR, monthly payments may fluctuate slightly as interest rates rise and fall.

Interest - As touched upon above, the interest rate of a 7(a) loan can be fixed, meaning you’ll always pay the exact same amount each month, but generally speaking, they tend to be variable rate agreements. Base rates used by the SBA include:

  • Prime Rates
  • London Interbank One Month Prime Plus 3%
  • SBA Peg Rate

To put these rates into some real-world figures, here are some typical 7(a) interest rates based on the loan amount and the payment schedule in 2021.

  • $25,000 paid back in under 7 years = 7.5%
  • $25,000 paid back in over 7 years = 8%
  • $25,001 - $50,000 paid back in under 7 years = 6.5%
  • $25,001 - $50,000 paid back in over 7 years = 7.5%
  • $50,000 + paid back in under 7 years = 5.5%
  • $50,000 + paid back in over 7 years = 6%

Guaranty - One of the best aspects of SBA 7(a) business loans is that the SBA themselves act as a guarantor, meaning if you can’t foot the debt for whatever reason, they will cover most of the costs.

That’s not to say you’ll be off scot-free should you be unable to make the repayments, as you’ll then be indebted to the SBA.

What it does mean is that the 3rd party lenders are offered a sufficient amount of security, and so are more likely to offer you a loan.

However, it’s important to note that the SBA is unable to guarantee 100% of the borrowed amount. If the 7(a) sum offered to you is $150,000 or less, the SBA will guarantee 85%, so if you had the full 150K, it amounts to $127,500.

If you received more than $150,000 from the lender, the SBA guarantees 75% of the loan amount.

- The 7(a) is a secured loan, which means the money is secured against your business and personal assets.

In fact, it may be that everything your business owns, should it be worth less or up to the amount you borrowed, will be considered collateral to secure the 7(a) loan.

This might include commercial real estate, machinery, inventory, equipment, accounts receivable, and so on.


If the 7(a) sounds good to you so far, the next question is, are you eligible to apply for one? Here are the fundamental conditions for 7(a) eligibility:

  • Must be a small business in the eyes of the SBA - The SBA uses a sliding definition of “small businesses” so that organizations in all industries can benefit from their loans. For example, a small manufacturing plant will be much larger than a small coffee house business. In light of this, your business must qualify as small within the context of its industry. The SBA uses two metrics to determine business “size”. These are staff numbers and receipts.
  • Must operate for profit - The 7(a) is designed to help out for-profit businesses only, so if you’re a non-profit, you cannot apply.
  • Must currently be doing, or plan to do, business in the United States - If your business expansion plans cross international borders, you will not be eligible for a 7(a) SBA loan.
  • Must have been in business for at least 2 years and have reasonable invested equity - The SBA needs to see that your business is profitable and has potential.
  • Must have tried alternative means of financing - This basically means that you’re not allowed to be able to come by the money in other ways, say, by selling off personal assets. You should have already invested fully in your business.
  • Must be able to demonstrate a need for the loan - Similar to the stipulation above, you must show that you cannot acquire the funds in other ways and that they would be essential to well-thought-out expansion plans or general operation.
  • Must need the funds for genuine business purposes - You cannot under any circumstances secure a 7(a) loan and then go on a huge personal shopping spree. It’s just not allowed. The 7(a) a business loan, for sound business applications.
  • Must not be delinquent on any existing debt - Delinquency in this scenario means that one or more of your monthly payments of an existing loan were late. It’s also important to bear in mind that even if you’ve completely repaid your delinquent debts, a record of delinquency haunts your credit score for 7 years.

On top of these standard applicant requirements, some organizations are not entitled to financial aid from the SBA due to the nature of their business.

Other money lending outfits or any business whose chief stock trade is money aren’t allowed to apply for the 7(a). This includes gambling businesses and banks.

Investment and speculative businesses are also denied access to the 7(a), as are any organizations engaged in illegal activities of any kind.

How to Get the Ball Rolling on a 7(a) SBA Loan

If you believe the 7(a) is the best option for you to purchase equipment for your business, the best way to get things moving is to contact your local lender who will guide you on the application process as per SBA guidelines.

You’ll need to start collecting all appropriate documents to create your application.

To make the application process more user-friendly, the SBA has composed an in-depth application checklist, which you can download here: 7(a) Loan Application Checklist.

Before you conclusively settle on the SBA 7(a) loan, it’s important that you consider your other options from alternative lending agencies.

As the 7(a) is a very general loan, there may be something out there more specific that you can tailor to your needs.

On the other hand, if you need to make a sequence of small yet essential equipment purchases, it might be in your best interests to take out a business LOC SBA loan.

You can find more information about them in our What is a business line of credit for? FAQ article.