SBA 7(a) Loan: Rates, Terms & Requirements

Small Business Administration (SBA) 7(a) loans provide up to $5 million in financing to small, United States-based, for-profit businesses. They feature relatively low-interest rates ranging from 7.75% to 10.25%. SBA 7(a) loans are good for businesses needing long-term capital to fund working capital, equipment purchase, or commercial real estate acquisition.

If the COVID-19 pandemic has impacted your business, you may qualify for relief under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 28, 2020. The legislation created the SBA 7(a) Paycheck Protection Program Loan, designed to offer loans of up to $10 million to small business owners. Those loans could be forgivable if the financing is used for payroll.  Congress also authorized other aid in the relief package, such as Economic Injury Disaster Loans.

Most SBA 7(a) loans are for less than $350,000. If that’s you, we recommend SmartBiz. With SmartBiz, you can get SBA working capital loans up to $350,000 and commercial real estate loans up to $5 million, with loan terms of 10 to 25 years and rates starting at 5.75%. SmartBiz can have you prequalified online in minutes and funded in weeks.

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What Is an SBA 7(a) Loan?

It can be difficult for businesses to get traditional loans, making SBA loans advantageous to small businesses. The SBA 7(a) loan program provides up to $5 million in financing, with repayment terms up to 10 years for working capital and 25 years for real estate. However, the funding process can take 90 days or more.

Celcin Ortega, a commercial loan specialist at Celtic Bank, further explains that:

“An SBA loan is a small business loan backed by the U.S. Small Business Administration. By ‘backed,’ we mean that the SBA ensures or guarantees some portion of that loan. By ensuring SBA loans, the government gives lenders a stronger incentive to loan money to small businesses.”

The general qualifications required for an SBA 7(a) loan are:

• Credit score: At least 680 for all primary business owners
• Debt-to-equity: No more than 3.0x to 4.0x, meaning you can’t have more than $3 to $4 of debt for every $1 of equity
• Ability to repay: Debt service coverage ratio (DSCR) of at least 1.25x
• Collateral & guarantees: Some collateral, both personal and business, plus a personal guarantee from all owners who have at least 20%

While these are the general qualification requirements for an SBA 7(a) loan, other types of SBA loans may have slightly different qualification parameters. In addition to the financial qualification requirements, you will also need to meet the SBA 7(a) loan eligibility requirements.

SBA 7(a) Loan Requirements

Since the SBA is promising to cover some of your lender’s losses—75% to 85%—if you don’t pay, the SBA 7(a) loan requirements specify that only some businesses qualify for financing. The SBA 7(a) loan requirements focus on your business location, the characteristics of your business and owners, and the creditworthiness of your business and its owners.

SBA 7(a) Loan Eligibility Requirements

The SBA has a prescribed list of requirements your business must meet to be eligible to receive SBA funding. These requirements pertain to the size, management, and organizational structure of your business as well as citizenship status and financing need.

The six primary SBA 7(a) loan eligibility requirements are:

• Management: Your business generally needs to be actively managed and operated, and you need to have experience owning and/or managing the business type.
• Organizational structure: Businesses need to have a for-profit organizational structure
• Location: Only businesses located in the U.S. and its territories are eligible for SBA 7(a) loans
• U.S. citizenship status: Business owners need to be U.S. citizens, legal permanent residents or meet other citizenship requirements to be eligible for SBA 7(a) loan financing
• Small business size: Your business needs to be a small business, as defined by the SBA; while it varies by industry, a business is generally considered small if it has $750,000 to $38.5 million or less in annual revenue and fewer than 150 employees
• Financing must be needed: You can only get approved for an SBA 7(a) loan if you can’t get financing from another source without it causing your business an undue hardship

While these are the basic eligibility requirements a business must meet, the SBA does have a list of businesses that are ineligible for SBA 7(a) loans. Knowing if you meet the basic SBA 7(a) loan eligibility requirements is an important place to start when considering an SBA loan.

SBA 7(a) Loan Qualification Requirements

Similar to a traditional bank loan, the SBA 7(a) loan qualifications are focused on evaluating the creditworthiness of your business and its owners. To qualify for an SBA 7(a) loan up to $5 million, you generally need good credit (680+ credit score), low debt-to-equity (3x to 4x maximum), good cash flow (1.25x+ DSCR), management experience, and some collateral (personal or business).

When evaluating if you qualify for an SBA 7(a) loan, your lender will typically consider your:

• Credit score: At least 680 for all primary business owners (check your score for free).
• Time in business: At least two years is typically required; business and management experience plus other requirements are needed for startup businesses. You need to show that you can manage and operate your business successfully.
• Sufficient equity: Typically, a maximum debt-to-equity ratio of 3x for new businesses or 4x for established businesses are acceptable. In other words, you need to have $1 in cash invested in your company for every $3 to $4 in loan funds.
• Ability to repay: A debt service coverage ratio (DSCR) on your business of 1.25x of better is generally considered sufficient to demonstrate your ability to repay your debt obligations. On a case-by-case basis, a DSCR as low as 1.15x may be considered.
• Collateral & guarantees: While SBA 7(a) loans do not necessarily need to be collateralized fully, it is easier to obtain financing with more collateral―personal and business. The SBA will also require a personal guarantee from all owners who have at least 20%.

Sound like you? SmartBiz is our recommendation for the quickest and most streamlined SBA loan process. SmartBiz offers SBA 7(a) working capital loans up to $350,000. SmartBiz’s online loan application can have you prequalified in minutes and funded in 30 days or less.

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Common Uses for SBA 7(a) Loans

SBA 7(a) loans are great for prime borrowers with long-term working capital needs. SBA 7(a) loans are also good for prime borrowers who need long-term financing for fixed assets like equipment or machinery or owner-occupied commercial real estate. The SBA 7(a) loan program can provide financing for these loan purposes up to $5 million.

The financing needs SBA 7(a) loans are best for addressing are:

• Acquire land: Businesses can use SBA 7(a) loan proceeds to purchase land
• Make site improvements: Some examples of site improvements are site prep like grading, parking lots and landscaping; you can also use up to 5% of your SBA 7(a) loan proceeds to make improvements that are shared by the community like sidewalks
• Purchase or rehabilitate existing buildings: Your business can permanently lease up to 49% of the rentable square footage of existing buildings to unrelated third-party tenants as long as you will permanently use and occupy at least 51% of the rentable square footage
• Purchase or construct new buildings: You need to occupy 60% of the rentable square footage right away; you can lease 20% of the square footage permanently to unrelated, third-party tenants; you can also temporarily sublease 20% of the square footage, so long as you fully occupy the subleased space within 10 years and occupy some of the space within three years
• Purchase fixed assets or leasehold improvements: SBA 7(a) proceeds can be used to purchase equipment, machinery, leasehold improvements, and other fixed assets
• Purchase inventory, supplies or raw materials: Businesses can use an SBA 7(a) line of credit to buy inventory, supplies, and raw materials
• Finance working capital: SBA 7(a) proceeds can be used to finance temporary or permanent working capital
• Refinance existing debt when there is a compelling reason: You can’t use SBA 7(a) loan proceeds to refinance unsecured or under-secured loans, where the risk of loss is shifted to the SBA; you also can’t use SBA 7(a) loan proceeds refinance debt that was originally ineligible for SBA financing and currently remains ineligible

SBA 7(a) loans are versatile and can be used for most small business financing needs. This flexibility makes them an attractive loan option for many small businesses. In addition to the many allowable uses of the loan funds, borrowers also enjoy the comparatively low interest rates that come with SBA 7(a) loans.

SBA 7(a) Loan Rates & Fees

The maximum SBA 7(a) loan rates your lender can charge are set by the SBA. The SBA 7(a) loan rates are fixed or variable and tied to base rates like the prime rate. The base rates rise and fall with market conditions. Base rates have ranged between 3.25% to 8.25% during the past 10 years. SBA 7(a) loan rates typically charged fall in between traditional and online loans.

The current SBA 7(a) loan rates you can expect to pay as of May 1, 2019, vs alternatives are:

• SBA 7(a) loan rates: 7.75% to 10.25%
• Traditional loans: Approximately 5% to 7%
• Online loans: 10% to 30% or greater

SBA 7(a) Loan Fees

As with SBA 7(a) loan rates, the SBA also establishes the maximum amounts your lender can charge in fees. One of the biggest fees you can be charged is an SBA guarantee fee of 2% to 3.5%. This is essentially the fee paid to the SBA in exchange for a promise or guarantee by the SBA to cover a portion of your lender’s losses―up to 85% depending on the amount of the guarantee―in the event you default on your loan.

You can also be charged other SBA 7(a) loan fees, such as:

• Packaging fee: Up to $4,000, varies by lender, and cannot exceed the amount charged for similarly sized non-SBA-guaranteed loans
• Extraordinary servicing fee: Not to exceed 2%; may be charged if your account will require extra work on the part of the lender, such as monitoring a construction project
• Third-party expense reimbursement: All direct costs related to the loan like title fees, appraisal fees, environmental report fees, attorney fees, and business valuation fees
• Prepayment fee: On SBA 7(a) loans with terms of 15 years or greater, your lender can charge you a prepayment fee if you prepay more than 25% of your loan in the first three years; the fee is charged against the amount you prepaid and is 5% for prepayments in the first year, 3% for prepayments in the second year, and 1% for prepayments in the third year

With the exception of the guarantee fee, the typical SBA 7(a) loan fees are similar to what you would pay with a traditional loan. The guarantee fee is essentially the price you pay to get a loan that your lender wouldn’t otherwise be willing to make. For most of the other fees, the SBA is clear that your lender can’t charge you more than what they charge for traditional loans.

SBA 7(a) Loan Repayment Terms

The maximum SBA 7(a) loan repayment terms are primarily based on the type of collateral and are designed to match the expected useful life of that collateral type. This means you’ll get longer to repay a loan secured by commercial real estate (up to 25 years) than you will a loan secured by equipment or machinery (5 to 10 years).

SBA 7(a) loans typically offer longer repayment terms than traditional loans. The payments for a traditional loan might be based on a 25-year term, but your loan might be due in full in 10 years. At that time, you’ll have to get reapproved and pay for many of the fees all over again, like appraisal fees and origination fees. With SBA 7(a) loans, you won’t have to deal with this hassle.

The maximum SBA 7(a) loan repayment terms and maturities are:

• Inventory or working capital: Up to 10 years
• Equipment, fixtures or furniture: Greater of 10 years or the useful life of the collateral, not to exceed 25 years
• Leasehold improvements: Generally up to 10 years; you might get longer on a case-by-case basis if the leasehold improvements require significant construction
• Real estate term loans: Up to 25 years, plus any amount of time that’s needed to complete construction or make improvements

When determining the maximum SBA 7(a) loan repayment terms to offer you, your lender will consider your ability to repay, how you’re planning to use the funds, and the useful life of the asset that’s being financed. Unlike a traditional loan, your repayment term and maturity will match. This means you won’t have to deal with refinancing your loan in five to 10 years. You can use our SBA loan calculator to help determine what your monthly payments would look like for an SBA 7(a) loan.

Ready to get started with an SBA 7(a) loan? With SmartBiz, you can get an SBA 7(a) working capital loan of up to $350,000. After you complete a simple online loan application, SmartBiz can have you prequalified in minutes and funded in 30 days or less.

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Where to Get an SBA 7(a) Loan

SBA 7(a) loans are issued by traditional banks, credit unions, community development organizations, nonprofit institutions, and online lenders. Working with an experienced SBA lender can make getting an SBA 7(a) loan much easier. Some of the best SBA lenders process hundreds, or even thousands, of SBA loans annually.

Some of the best SBA 7(a) loan providers are Wells Fargo Bank, Huntington National Bank, Chase Bank, Live Oak Banking Company, Celtic Bank, and SmartBiz.

1. Wells Fargo Bank

Wells Fargo is a good option for most small businesses, as it offers SBA 7(a) loans nationally to a wide range of borrowers. Wells Fargo Bank consistently approves some of the most SBA 7(a) loans, both in terms of loan numbers and amounts. Because Wells Fargo has offices in so many locations, finding a loan officer should be easy. It can be great to have someone local to help.

To apply for an SBA 7(a) loan with Wells Fargo, you’ll need to go into a branch and talk to a business banker. Wells Fargo will collect documentation from you to determine if you meet the SBA’s eligibility and qualification requirements. The process typically takes between 30 to 60 days, if all documentation is accurate and provided upfront.

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2. Huntington National Bank

Huntington National Bank is best for small businesses operating in the upper Midwest as it consistently approves some of the most SBA loans. Huntington offers SBA loans in eight states—Florida, Indiana, Illinois, Kentucky, Michigan, Ohio, Western Pennsylvania, and Wisconsin. Having a local and experienced lender to guide you can make the SBA 7(a) loan process easier.

To apply for an SBA 7(a) loan with Huntington National Bank, you’ll begin by reaching out to an SBA specialist in your area. Huntington did not provide any details on the application process and funding time other than to say it’s in line with standard SBA loan timelines and will generally fund within 60 days.

3. Chase Bank

Chase Bank is a great option for startups and newer businesses. While many SBA lenders require at least two years of business history to make an SBA loan, Chase offers SBA 7(a) loans regardless of how long you’ve been operating. If your business is a startup, it probably makes a lot of sense to consider Chase Bank for an SBA 7(a) loan.

To apply for Chase SBA 7(a) loans, you’ll need to meet with a business banker at your local Chase Bank branch. The funding speed for Chase SBA 7(a) loans varies by the branch at which you apply and is sometimes delayed at busier branches. You can expect Chase SBA 7(a) loans to close in about 45 to 60 days.

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4. Live Oak Banking Company

Live Oak Banking Company provides SBA 7(a) loans nationally. Live Oak Bank is also known for having specific industry expertise and offering an efficient process. As a business owner, it can be much easier to qualify for an SBA loan—particularly larger loans—if you work with a lender who specializes in and is familiar with your industry.

You’ll apply for an SBA 7(a) loan with Live Oak Banking Company online. Live Oak has a team of SBA lending experts available to provide guidance and support, should you need it. You’ll often get a loan proposal within 24 hours of submitting all the necessary documentation. While specific funding speeds aren’t available, 45 to 90 days is likely a reasonable expectation.

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5. Celtic Bank

Celtic Bank is a national SBA 7(a) lender. While Celtic offers SBA 7(a) loans to a wide range of industries, it also has specific industry expertise. Some of its areas of expertise include healthcare and car washes. That said, Celtic Bank could be the best SBA 7(a) loan provider for your business if it has the expertise and specializes in your industry.

To apply for an SBA 7(a) loan with Celtic Bank, you’ll start by completing an online application. You’ll specify the amount you want to borrow and for what purpose, along with basic information about your business, such as how long you’ve been operating and your estimated credit score. Celtic Bank says its process is quick, but there aren’t any details on just how quick. An estimate of 45 to 60 days to fund is likely.

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6. SmartBiz

SmartBiz is unique in that it works with a marketplace of preferred SBA lenders. When you apply for an SBA loan with SmartBiz, your business will be matched with the SBA lender who is most likely to approve and fund your loan. SmartBiz is best if you want someone else to do most of the legwork in finding you the quickest SBA 7(a) loan, typically funding in 30 days.

SmartBiz streamlines the application and lending process by partnering with top SBA lenders. With SmartBiz, you don’t need to deal with any complicated SBA forms as they take care of that for you. The online prequalification process for SBA 7(a) loans up to $350,000 is quick and simple, taking only minutes to complete. Your SBA 7(a) loan can be funded in 30 days or less.

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How to Apply for an SBA 7(a) Loan

The process of applying for an SBA 7(a) loan will vary by lender, although there will be a lot of similarities. You’ll begin by completing an application and will then submit a lot of documentation regarding your business. The whole process typically takes 45 to 90 days or more. To make the application process easier, we’ve developed a free SBA loan documentation checklist.

We recommend SmartBiz for the most streamlined SBA loan process. SmartBiz eliminates the need to deal with complicated SBA forms. SmartBiz offers SBA 7(a) working capital loans up to $350 thousand, with loan terms of 10 to 25 years and rates starting at 5.75%. You can get prequalified online in minutes and funded in 30 days.

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Impact of SBA 7(a) Loans on Small Businesses

According to data from the SBA, the SBA has guaranteed more than 300,000 small business loans, with guaranteed loan amounts totaling more than $87 billion since 2014. This is impressive, especially given the requirement that a small business is unable to obtain credit elsewhere. Without SBA 7(a) loans, the small businesses that qualified may not have been able to acquire the affordable financing needed to keep their businesses operational.

Number of SBA 7(a) Loans Approved by Fiscal Year

Despite issuing fewer loans in 2017 and 2018 than in the prior two years, the total dollar value of the loans increased. In 2016, the SBA guaranteed roughly $17.9 billion through the SBA 7(a) program while, in 2017 and 2018, that number increased to $18.8 billion each year.

Pros & Cons of SBA 7(a) Loans

An SBA 7(a) loan is a great way for small, for-profit, U.S. businesses to get up to $5 million in financing to fund their long-term capital needs. However, as with any type of financing, there are pros and cons associated with getting an SBA 7(a) loan. We’ve addressed the biggest pros and cons to assist you in making an informed financing decision.

Pros of SBA 7(a) Loans

The pros of the SBA 7(a) loan program are:

• Up to $5 million in financing available: Small businesses can get up to $5 million in financing via an SBA 7(a) loan to help meet long-term capital needs; this amount is large enough to provide many businesses with enough capital to accomplish their business objectives.
• Relatively low interest rates: SBA 7(a) loan rates are lower than you’ll typically get for an online loan while traditional loans often feature lower rates. If you qualify for a traditional loan, your lender will need to offer it to you to meet the SBA’s credit elsewhere requirement.
• Long repayment terms: With an SBA 7(a) loan, your repayment terms and maturity will match, meaning you go through the financing process only one time. With a traditional loan, your payments might be based on a longer term than the loan maturity, meaning you will likely need to refinance the debt at the end of the term.

Cons of SBA 7(a) Loans

The cons to the SBA 7(a) loan program are:

• Qualifying is difficult: To qualify for an SBA 7(a) loan, you typically need good credit (680-plus credit score) low debt-to-equity (3x to 4x maximum), good cash flow (1.25x or more DSCR), management experience and some collateral (personal or business). If you have poor credit, there are other types of loans you can consider.
• Amount of paperwork can be daunting: Getting an SBA 7(a) loan requires completing a lot of paperwork. This can intimidate some applicants. To make the process easier, we’ve developed a free SBA loan documentation checklist.
• Approval & funding takes a long time: Since your lender is considering both its requirements as well as those of the SBA, the amount of time it takes to get an SBA 7(a) loan approved and funded can take up to 90 days; however, using an SBA loan provider like SmartBiz can speed up the approval and funding time to 30 days or less

SBA 7(a) Loans Frequently Asked Questions (FAQs)

This article has provided a lot of information about SBA 7(a) loan rates, terms, and requirements. However, some questions are asked more frequently than others, which we’ve tried to address here.

What is the maximum SBA 7(a) loan amount?

The maximum financing available via the SBA 7(a) loan program is $5 million. The SBA provides an 85% guarantee for amounts up to $150,000, and a 75% guarantee for amounts above $150,000. With the SBA 7(a) loan guarantee, businesses can get up to $5 million when they might not otherwise qualify.

What can an SBA 7(a) loan be used for?

You can use SBA 7(a) loan proceeds to acquire owner-occupied commercial real estate, purchase fixed assets like equipment, fund inventory and other working capital needs, and make leasehold improvements. With a compelling reason, and when risk isn’t transferred to the SBA, SBA 7(a) loans can also be used to refinance existing debt.

How long does it take for an SBA 7(a) loan to be approved?

It typically takes 45 to 90 days for SBA loans – even SBA 7(a) express loans – to be approved. Some of the reasons it can take this long are related to lender inefficiencies, and borrowers not providing the required documentation quickly. You can shorten the approval process by choosing one of the best SBA lenders and learning how to apply quickly.

Do I have to guarantee an SBA 7(a) loan personally?

SBA 7(a) loans require sole proprietors and anyone with 20% or greater ownership stake in the company to provide a personal guarantee. Typically, general partners, officers, directors, and managing members of limited liability companies will need to provide a personal guarantee. A personal guarantee is your promise to repay if the business cannot.

Bottom Line

Qualifying for an SBA 7(a) loan can be difficult and take 90 days or more. However, small businesses can get up to $5 million with low-interest rates—7.75% to 10.25%. SBA 7(a) loans are best for prime borrowers (680-plus credit score) with good repayment ability (1.25x or better DSCR) and management experience. However, if you don’t qualify, there are other options.

Our recommended SBA 7(a) loan provider is SmartBiz. SmartBiz offers up to $350,000 for working capital and up to $5 million for commercial real estate. If you’ve been in business two or more years, are profitable, and have a credit score above 680, you can prequalify online quickly and easily in just a few minutes and get funded in 30 days or less.

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