When taking out a business loan, you need to know whether the lender requires a down payment as part of the deal. However, this usually depends on a range of different factors such as the purpose of the loan, how much you want to borrow, and your personal credit history.
When it comes to SBA 7(a) loans, there is some good news. These loans often allow borrowers to arrange lower down payments than what they would need when taking out a standard business loan.
In today’s article, we are going to find out how much a down payment is when taking out a SBA 7(a) loan. We will discuss the basics of these loans so you can understand the regulations behind them before you go ahead and take one out.
What is an SBA 7(a) loan?
The 7(a) loan program is the number one method of helping small businesses in the U.S. Set up by SBA (Small Business Administration), these loans have helped small businesses start off and grow into larger, more lucrative companies.
When applying for an SBA 7(a) loan, you will have to work with a lender. The SBA then participates by guaranteeing a section of the loan amount. Having this guaranteed sum from a government agency helps many businesses acquire funds, even when they may not have qualified for a business loan elsewhere.
Running any business is tough but small businesses are the most difficult. When in times of uncertainty, it can be a very risky job, especially when there is a loss of revenue on top. However, that is where the SBA loans come in and generally help a business stay afloat.
In times of hardship, an SBA 7(a) loan can do just about everything to help a business get back on its feet. This loan, and other SBA loans, can be used to acquire business essentials such as real estate, working capital, inventory, and different pieces of equipment.
The name ‘7(a) loan’ is a catch-all term. It simply refers to more than half a dozen different kinds of SBA 7(a) loans. Each loan sets out to meet a different need and purpose. Because they address certain needs and different kinds of businesses, 7(a) loans vary with their loan amounts, SBA guarantees, and other term details.
Requirements for some SBA 7(a) loans are not as stringent as standard business loans. These loans also allow business owners to borrow smaller amounts than banks would usually be willing to lend.
Under the 7(a) loan program, the SBA does not lend money to business owners directly. Alternatively, these loans help business owners prepare loan applications for lenders who are at the front end of different loan applications.
The SBA can also guarantee loans up to different maximums. These help entrepreneurs receive enough financial support to start new businesses or expand their existing ones.
SBA 7(a) Loan Guarantees
The business loans offered by the SBA have guarantees. These are as follows:
- Five million dollars or 75% of the total loan amount (whichever amount is the lowest).
- Smaller loans of less than $150,000 are guaranteed up to 85% of the total loan amount. This is $127,500.
With this additional layer of protection in case of default, it means the rules and regulations around the SBA 7(a) down payments, as well as other SBA loan terms, are more relaxed. This is especially true when you compare them to other types of business loans.
The Minimum SBA 7(a) Down Payment Amounts
One of the main advantages of applying and getting this kind of business financing is the low down payment requirement.
With many commercial business loans, it is possible to arrange a commercial business loan with only a 5% downpayment. With an SBA 7(a) loan, a 10% down payment is much more common for borrowers.
How to Qualify for the Lowest SBA 7(a) Downpayment
When you need to approach a bank for a bank loan for your business, you will need to be fully prepared for anything. You must ensure that your application is complete. Even if one document is missing, you could see long delays in your application.
The documents required when applying for a business loan are quite varied. However, some lenders require more documents than others so we highly recommend checking with your lender to find out if anything else is needed for your SBA loan application.
Here are some of the most general documents required for an SBA loan application:
- Your federal tax returns from the past three years
- Personal income tax returns of you and your partner from the past three years
- Financial statements from year-end to year-to-date
- A full and comprehensive business plan
Some aspects of the loan application are long-winded and not too favorable. Unfortunately, these can not be changed such as any blemishes on your credit history. However, you can be very direct about your situations in the past and tell your potential lender how you learned from different experiences and what your plans are moving forward.
How long does it take to get an SBA loan?
You will be pleased to know that the turnaround time for most 7(a) loans is very fast. In general, you can expect feedback and a result from 5 to 10 days. However, each case is unique so some may take significantly longer.
If you are in a hurry for the loan, SBA Express loans are available with an accelerated turnaround time of only 36 hours.
SBA 7(a) loans are very useful when starting a business or helping a business get back on its feet after a difficult time. With many businesses struggling in the past year or so, these loans have become saviors for many people. Coupling the amounts available to be loaned with the lower down payments, SBA 7(a) loans make the impossible possible for many entrepreneurs.