There is no denying that when it comes to small business loans, the SBA 7(a) is one of the most popular.
It is by far the most popular of the loans that the Small Business Administration (SBA) offer, and more and more businesses are applying for this specific loan with every single year that passes.
But, even though the SBA 7(a) loan is one of the most popular loans to apply for, it is actually rather difficult to be accepted for this loan. This is because it is issued by different banks, so these banks are able to enforce stricter regulations for whom they accept and decline.
However, the terms of an SBA 7(a) loan are outlined by the SBA themselves, and these cannot change. So, what are the terms of an SBA 7(a) loan? Let’s take a look.
What is an SBA 7(a) Loan?
Before we get into the specific terms of an SBA 7(a) loan, let’s take a look at exactly what this type of loan is.
As we have mentioned, the SBA 7(a) loan is one that is offered by the Small Business Administration. This is a government agency that was set up in the early 1950s to help support small businesses and the self-employed.
They offer lots of different types of loans, but the SBA 7(a) is the most popular. They also offer support in terms of counselling and advice to those who run their own businesses.
But, let’s take a more specific look at what the SBA 7(a) loan is, and what makes it so popular. The main reason that so many people like the SBA 7(a) loan is because it is very flexible.
There are lots of small business loans available that are very restrictive on what you can spend the money on. But, the SBA 7(a) isn’t one of these loans.
Whether you want to spend the money on equipment to help your business, a full office renovation, or even to cover the payroll on a slow business month, this loan has you covered.
While the requirements to be accepted for this type of loan are quite strict, once you get the money it is essentially yours to spend how you see fit. So, this is the main reason why so many people apply for this type of loan.
This is also a popular choice of loan as you have a higher chance of getting accepted on it than you do with some other loans.
Of course, whether you will meet the necessary criteria depends on your own personal and business situation. But, as this loan is guaranteed by the SBA, which is a government agency, lenders will offer more of these loans than they will other types.
Now that we’ve covered that, let’s take a look at the terms of the SBA 7(a) loan.
What are the terms of an SBA 7(a) Loan?
When we talk about terms for loans, the main terms that matter are the maturity terms. There are generally two types of business loans, short-term and long-term.
The majority of SBA loan programs, the SBA 7(a) included, are designed as a source of long-term funding, allowing business owners a longer period of time to repay the money they borrowed.
However, the repayment schedule for your SBA 7(a) loan will depend entirely on your situation. If you have only borrowed a small amount, you might be able to repay your loan quicker, and this will be decided and agreed upon by you and your lender.
But, to protect the integrity of the SBA loan schemes, there are maximum maturities for every loan.
This maximum maturity term depends mainly on what you borrowed the money for. Even though there is a lot of freedom with the SBA 7(a) loan, you will still need to tell your lender what you plan on spending the money on.
You will need to do this so that the maximum maturity can be set, and your repayment terms can be agreed.
So what are the maximum maturities for SBA loans? These are:
- 10 years for equipment
- 10 years for inventory loan, or working capital
- 25 years for real estate
These maximum maturities are set based on the economic life of the fixed assets. Equipment generally will not last longer than 10 years, hence why the maximum maturity is capped at this date range.
Similarly, the 25-year cap for real estate is set as this is the usual term for mortgages, meaning that within this time the business should attain full ownership of their new real estate.
The only time that the 25-year maximum maturity can be exceeded is if the new real estate was being built from scratch. In this situation, the 25 years will not begin until construction is complete.
After reading that, you might be wondering ‘what happens if my loan was granted for a mixture of these purposes?’. In this situation, the maximum maturity terms of the loan will be blended based on what the purposes were, and will usually fall towards the higher end of the scale.
How do I get an SBA 7(a) Loan?
If you need money for your small business, there is no denying that an SBA 7(a) loan is a great option.
As we have said before, these loans are offered by most lenders, so it is rather easy to apply for one. However, while applying is easy, meeting the qualifications for this loan can be a little tricky.
The SBA 7(a) loan has a rather long list of qualification criteria which you will have to meet before a lender can offer you a loan. These criteria include:
- You must be officially and legally registered as a for-profit business
- You must have less than 500 employees and an annual revenue of less than $7.5 millions for the past 3 years
- You (the owner) cannot have criminal charges or be on parole
- Your personal income must be less than $5 million (after taxes), and your tangible net-worth must be less than $15 million
- Your business must be registered in the USA and physically trade there
If you want to be accepted for an SBA 7(a) loan, you will also need to provide proof of a number of things. These include:
- Proof that you are an SBA-eligible business
- Proof that you are investing your own time and money into this business - you must be invested
- Proof that you have sound business purpose, in particular a business plan for how you will spend the loan if it is accepted
- Proof that you have tried and failed to get funds from other financial lenders and institutions
- Proof that you can be trusted with the money that the lender is offering - personal and business credit rating, proof of taxes, etc.
- Proof that you do not owe any money to the U.S. government - this will include failure to pay taxes, or any student loans that have not yet been repaid
If you meet all of these criteria, and have all the necessary documents required for your loan application to be considered, then you simply apply with a lender. Most lenders offer the SBA 7(a) loan, so there will be lots of places where you can get this loan.
What might prevent me from getting an SBA 7(a) Loan?
We said earlier that it is actually quite difficult to be accepted for an SBA 7(a) loan. This is mainly because of the strict criteria that you have to meet. You only need to look at the lists that we outlined above to see how tricky it could be to be accepted.
Generally speaking, however, you have a greater chance of being accepted for an SBA 7(a) loan than other bank loans. This is because there is less financial risk associated with the SBA 7(a) loan as it is supported by the government.
The main thing that will prevent you from getting an SBA 7(a) loan is if you do not fit all the necessary criteria, or your financial situation is bad. But, you can reapply in the future once your situation has improved.
In short, the maturity terms for the SBA 7(a) loan are the same as all SBA loans, and they will depend on what you are borrowing the money for. So, the specific terms for your loan will be agreed upon by you and your lender before you receive the money.