SBA 7A Loans

Requirements

Many small businesses from a broad range of industries can be approved for an SBA 7(a) loan. Rather than listing what businesses are considered for approval, the Small Business Administration lists those industries that are excluded, such as:

  • Gambling
  • Life insurance
  • Religious teaching
  • Primarily political and lobbying activities
  • Oil wildcatting
  • Mining
  • Mortgage servicing
  • Real estate development
  • Bail bond
  • Pawn or private clubs

For the detailed list of ineligible businesses, head to the SBA’s website to learn more.

If your business does not fall under one of the excluded categories, the next step is to meet the following common eligibility requirements for an SBA loan.

These are the eligibility requirements to apply for a $30,000 to $350,000 SBA 7(a) Working Capital or Debt Refinance Loan.

  • Time in business must be above 2 years
  • Business owner’s personal credit score must be above 650
  • The business must be U.S. based and owned by US citizen or Lawful Permanent Resident who is at least 21-years old
  • No outstanding tax liens
  • No bankruptcies or foreclosures in the past 3 years
  • No recent charge-offs or settlements
  • Current on government-related loans

The eligibility requirements to apply for a $500,000 to $5,000,000 SBA 7(a) Commercial Real Estate Loan are:

  • Time in business must be above 2 years
  • The business owner’s personal credit score must be above 675
  • The real estate must be majority owner-occupied
  • This means that at least 51% of the square footage of the property you’re buying must be occupied by and used by your business.
  • Sufficient business and personal cash flow to service all debt payments, demonstrated by 3 years of tax returns and interim financial data
  • No delinquencies and/or defaults on government loans
  • If considering our rent replacement option, this requires a loan payment that does not exceed the current monthly lease expense

Typically, businesses approved for an SBA loan have $50,000 to $5 million in annual revenues and 1 to 40 employees. Most are profitable and cash flow positive. All can provide proof that they are able to make the monthly loan payment.

SBA 7(a) Loan – Uses of Proceeds

Depending on the amount you want to borrow, you can use the funds from an SBA 7(a) loan for a variety of purposes like refinancing high-cost debt, hiring, inventory, marketing, or purchasing commercial real estate.

  • $30,000 to $350,000: Loans of this amount can be used for working capital (such as operational expenses, marketing, hiring, etc.), new equipment purchases, and refinancing existing business debt not secured by real estate (such as cash advances, business loans, and equipment leases).
  • $500,000 – $5 million: Loans of this amount can be used for the purchase or refinance of commercial real estate that is 51% owner-occupied.

Not eligible for an SBA loan?

If you don’t meet the requirements to qualify for an SBA loan right now, we won’t leave you hanging! Instead, we’ll work with you to help you improve the critical factors of your business, like credit scores or cash flow, that can help you to qualify in the near future.

SBA Loan Guidelines

Contrary to what many people think, the Small Business Administration (SBA) does not make loans directly to small business borrowers. Instead, it guarantees up to 90% of these loans to the lending banks that make them in order to reduce the bank’s risk in providing low-cost capital to small businesses. In turn, the SBA requires small businesses to provide a comprehensive application package to demonstrate their ability to repay the loan.

The SBA provides an 11-item checklist of documentation required to package the application for an SBA loan. It includes statements of personal history and financials, business financials, ownership and affiliations, business licenses, as well as several other documents. For the full list, head to the SBA’s website to learn more.

To secure an SBA-guaranteed loan, the best strategy in approaching the application is to be well-prepared. The more readily available your relevant documentation is, the faster you can complete the application.

Following are some of the most commonly requested documents:

  • Personal & Business Tax Returns
  • Personal Financial Statements, required from each individual owning 20% or more of the company
  • Profit and Loss Statement
  • Balance Sheet
  • Collateral

Other documents, such as business licenses, Articles of Incorporation, commercial leases, or franchise agreements, may be requested depending on the particular loan application. An accountant or tax preparer may be able to help gather and file the relevant information.

SBA Loan Interest Rates

Loans offered have a variable interest rate based on the Prime Rate, plus 2.75% to 3.75% depending on the size of the loan.

  • Working Capital and Debt Refinance loans between $30,000 and $50,000 have a variable interest rate currently at 8.25% (Prime Rate + 3.75%)
  • Working Capital and Debt Refinance loans between $50,000 and $350,000 have a variable interest rate currently at 7.25% (Prime Rate + 2.75%)
  • Commercial Real Estate loans between $500,000 and $5,000,000 have a variable interest rate currently at 6.00% (Prime Rate + 1.50%)

The current Prime Rate, determined by market conditions and set by the Federal Reserve Board, is 4.50%. On top of this base rate, lenders can charge additional interest rates, subject to the caps set by the SBA.

SBA Loan Fees

There are also several fees associated with SBA loans: some are charged directly by the SBA, while others are charged by lenders or agents to cover the costs of making and processing the loans. Like the interest rate, the SBA regulates what is the maximum that can be charged.

When you choose to apply for an SBA loan, you appoint us as your referral and packaging agent. This means we can help you assemble and complete all the appropriate documents to apply for these loans and then refer your application to one of our preferred SBA lending banks who is most likely to approve your particular business.

Fees for Working Capital and Debt Refinance Loans

  • The SBA guarantee fee is waived for all 7(a) loans in the amount of $125,000 or less.
  • For SBA working capital loans between $125,001 to $150,000 the SBA fee is 2% of the guaranteed portion of the loan OR 1.7% of the loan balance.
  • For loans of $150,001 to $700,000, the fee is 3% of the guaranteed portion OR 2.25% of loan balance.
  • For loans of $700,001 to $5,000,000, the fee is 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% of the guaranteed portion over $1,000,000.
  • The SBA offers veterans a 50% discount on guarantee fees.

For our services, Loans charges a one-time referral fee of no more than 2% of the loan amount and a one-time packaging fee of no more than 2% of the loan amount for working capital and debt refinance loans.

Bank closing costs for these types of SBA loans typically add about another $450 and include standard bank fees though additional 3rd-party report charges may apply.

Working Capital and Debt Refinance loans have no prepayment penalties. You can pay off your loan anytime with no additional cost.

Fees for Commercial Real Estate Loans

SBA 7(a) commercial real estate loans up to $5 million have a guarantee fee paid to the SBA between 3% and 3.75% depending on the loan amount.

  • For loans of $500,000 to $700,000 the fees are 3% of the guaranteed portion OR 2.25% of loan balance.
  • For loans of $700,001 to $5,000,000: 3.5% of the guaranteed portion up to $1,000,000 plus 3.75% of the guaranteed portion over $1,000,000.
  • The SBA offers veterans a 50% discount on guarantee fees.

Bank closing costs also typically add about $5,000 and include standard bank fees, appraisal, and title fees.

Additional 3rd-party report charges may apply.

After the third year, there are no prepayment penalties for the remaining life of the loan. There is a 5% prepayment penalty if the loan is paid off in first year, 3% in second year, and 1% if paid off in third year.

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