No personal guarantee & no collateral required
Past credit issues may NOT be a problem
Get funded within a few business days
Within 24 hours of application
The SBA 7(a) Loan Program derives from section 7(a) of the Small Business Act of 1953, which allows the U.S. Small Business Administration to provide loan guarantees to bank and non-bank lenders that finance U.S Small and Mid-Sized Businesses.
The partial loan guarantees can range from 50% to 85% of the loan amount, depending on the debtor’s qualifications and size of the loan.
The SBA 7(a) loan program may be used for such business purposes as short term working capital, long term financing, purchasing land or commercial real estate, equipment, machinery, the purchase of an existing business and for refinancing existing debts The SBA 7(a) loan program is the most popular of all the SBA loan guaranty programs.
The majority of for-profit businesses could utilize the SBA 7(a) Loan program except for companies that engage in illegal activities or gambling, lending companies, pyramid sales companies, non-profit organizations and speculative businesses (i.e., real estate investment firms and cryptocurrency/rare coins/stamp dealers)
As mentioned earlier, SBA 7(a) Loans are funded by a bank or Non-Bank Lender. Once a business loan of up to $5 million is approved, the SBA 7(a) loans program applies a partial guarantee that ranges from 50% to 85% of the loan amount. The exact percentage will depend on the size of the loan and the borrower’s qualifications.
The maximum loan guarantee allowed under the program is 85% for loans up to $150,000 and 75% for loans greater than $150,000. Interest rates on loans in the 7(a) program are based on the prime rate, the size of the loan, and the maturity of the loan.
The SBA sets a maximum interest rate for the program of 11%, but business and their lender can negotiate within that limit. The average SBA (7a) loan program interest rate in recent years was the market prime rate plus 2.25%. The loans come with some of the most extended terms in the commercial loans market.
For loans in the SBA 7(a) program, lenders aren’t required to take collateral for loans below $25,000. For loans above $25,000, the SBA generally requires 20% collateral. The terms for loans for working capital, purchase of equipment, or for inventory can go up to 10 years. The terms on loans to purchase commercial real estate can go all the way up to 25 years.
Upon funding, generally, the lender collects any required collateral and will work along the side of the SBA to service the financing. The payments for the SBA 7(a) loan will be monthly for the set term.
The SBA 7(a) loan guarantees 50% to up 85% of the loan amount, ultimately motivating banks to extend lending to small businesses, riskier companies, or start-ups. By lowering the lender’s risk in case of a risky borrower for one reason or another default on loan.
The SBA 7(a) loans can be combined with other forms of small business financing to help you reach your funding needs. For example, company owners could use the 401(k) business funding program to pull money from their retirement accounts to cover a down payment of the requirement of the 7(a) loan program.
Collateral Requirements Are Not Very Strict Depending on Loan size.
SBA does not usually decline applications solely based on insufficient collateral since the Banks and non-bank lenders do not always require collateral on SBA 7(a) Loan Program.
Longer payment terms conventional loans max out at five years in term. SBA 7(a) Loan terms can go up to 10 years for working capital and equipment and up to 25 years for the purchase of the commercial real estate.
In addition to the eligibility requirements, there are also collateral requirements for the SBA 7(a) loan program
While the SBA guarantees a large percentage of an SBA 7(a) loan, a lender is still on the line for the remaining percent. Offering collateral for the loan instills confidence with the lender of the chances to recoup the capital. In the event, a borrower defaults on the funding. Generally, a lender prefers that the owners offer something like equipment, real estate, or other high-value assets as collateral if needed. If the business has sufficient cash flow, the SBA won’t be as concerned with collateral requirements. The collateral provided is split between the SBA and the lender.
Up to 25 years
Up to $5,000,000
May be required
0.25 – 3.75%
Prime +2.25% to 4.75%
Up to 3 years
Up to $150,000
2.00% – 3.75%
The SBA CAPLines program provides a loan guarantee of up to 85% to a bank or non-bank lender that funds U.S. Companies a fixed or revolving Business Line of Credit. SBA CAPLines of Credit can be used for meeting short-term working capital needs and long term growth ideas.
SBA CAPLines of Credit is secured, meaning the line of credit must be fully collateralized by borrower or company assets. Including but not limited to accounts receivable, purchase orders, inventory, property liens, and other assets. If company assets don’t fully collateralize the loan, this is when the owner(s) will be required to pledge their assets, including up to placing a lien on residential or commercial real estate.
Funding of up to $5 million is available with maximum repayment terms of 10 years. There are four different lines of credit open under this program. Seasonal CAPLines is used for accounts receivable and inventory that increase seasonally. Repayment terms for CAPLines average at five years.
A maximum interest rate of 11% has been set by the SBA. On average, interest rates on SBA CAPLines range from the prime rate plus 2.25% to 4.75%. A one-time guarantee fee between 2% and 3.75% will also be charged, as well as additional expenses similar to other SBA loan programs.