Basic 7a Loan Guarantee
This startup loan is designed to help fund your business and it is the SBA's most popular loan as it covers almost any type of business and the loan is guaranteed through the SBA. Funds are obtained and distributed through an SBA approved lender. The SBA does not fund the loans; only guarantees them. Loan proceeds can be used for almost anything such as working capital, equipment needs including office equipment, and machinery. It even covers land and building purchases or renovations to buildings. It is attractive to business owners who lease their buildings as well; it can cover leasehold improvements.
Loan terms are ten years if you use the 7a loan for working capital and can be up to twenty-five years for loans when fixed assets are purchased. Fixed assets include equipment, machinery, land and building and leasehold improvements. The 7a loan is a great option for both startup and existing businesses and funded through commercial lending institutions.
To apply for an SBA Loan, visit an SBA approved lender first. The SBA 7a loan maximum is $2 million and the SBA will guarantee $1.5 million or 75% of the loan amount. The approved lender assumes the guarantee for the remaining amount. Although they are considered SBA loans, the approved lender is responsible for structuring the loan amount, terms, and interest rates. SBA 7a loans are attractive to approved lenders in the case of default. The SBA guarantees if the loan is not repaid, the lender will receive at the very least, 75% of the loan proceeds paid by the SBA.
Interest rates vary by amount and term of the SBA 7a loan. Although the lender negotiates the interest rate, there are some guidelines they must follow. For loans of $50,000 or more, the interest rate must not be higher than prime plus 2.25% but only if the loan term is less than seven years. If the loan term is more than seven years, the interest rate must not be higher than prime plus 2.75%. Loans that are between $25,000 and $50,000 and have a loan term of less than seven years, must hold an interest rate of prime plus 3.25%. For loans seven years or more, the interest rate is prime plus 3.75%. Loans that are under $25,000 have similar interest rates of prime plus 4.25% for loans under seven years, and 4.75 for loan terms that are seven or more years.
As with any business loan, the approved lender will require certain items:
- Business Plan
- Tax Returns (both personal and business if available)
- Cash Flow Forecasting
Balance sheet showing assets and liabilities
- Character Statements
- Other funding sources
- Amount of loan needed
- Purpose of loan and repayment plan
- Other additional information may be required depending upon loan terms and amount of loan.