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As a small business owner, access to financing can make or break your ability to start, run, and grow your company. Whether you need a loan for payroll, equipment, inventory, expansion, or other needs, the right business loan can be a game changer. However, qualifying for traditional bank lending as a small or early-stage business can be challenging. This is where SBA 7(a) loans come in. 

SBA 7(a) loans are government-guaranteed loans specifically designed for small businesses that need support before qualifying for bank loans. Similarly, an SBA 7(a) loan can also make it possible for a business to qualify for a larger loan when a bank loan would be smaller. With flexible terms, affordable rates, and longer repayment periods, an SBA 7(a) loan can often provide affordable financing when other doors won’t open. 

If you are wondering whether an SBA 7(a) loan may be right for your business, read on. This guide breaks down everything you need to know about SBA 7(a) loans from start to finish, including how you can easily get started with Grow America.

Demystifying the SBA 7(a) loan 

Each year, more than 60,000 small business owners across the United States use SBA 7(a) loans to invest in their companies, making it the SBA’s most popular program. The 7(a) name comes from Section 7(a) of the Small Business Act that enables the SBA to guarantee loans, but don’t let the bureaucratic title scare you. The program is extremely flexible and can provide funding for nearly any business need—from hiring employees and purchasing equipment to acquiring real estate.

As with many SBA programs, the SBA guarantees a portion of each 7(a) loan to the lender, greatly decreasing the lender’s risk and allowing them to approve financing that they may not otherwise take on. This helps established businesses and startups gain access to funding that would likely be unavailable through traditional lending options, like banks.

What can you fund with an SBA 7(a) loan?

Every entrepreneur has a vision for growing their business, whether it’s hiring more staff, upgrading equipment, or expanding to a new location. But taking things to the next level requires money—and that’s where an SBA 7(a) loan can help. SBA 7(a) loans provide responsible financing that can help you turn your goals into reality. You can use a 7(a) loan for almost any business purpose. Here are some ideas to get you started:

  • Working capital to cover operating expenses, payroll, utilities, and more
  • Purchasing or upgrading equipment such as machinery, vehicles, furniture, and fixtures 
  • Buying, renovating, or building real estate for your business operations, including land and existing buildings
  • Improving rented business locations (leasehold improvements)
  • Refinancing existing business debt
  • Purchasing a business

SBA 7(a) loan benefits at a glance

Getting a traditional lender to say “yes” to a small business loan can be challenging, especially for startups and companies without lengthy credit histories. The most important benefit of an SBA 7(a) loan is that it offers more flexible qualifying standards that make it relatively easier for businesses to secure financing. Here are some other advantages that the program provides:

  • Flexible amounts: While you can borrow up to $5 million, no loan amount is too small, and the size of your loan can be tailored to meet your needs.
  • Competitive interest rates: 7(a) loans offer very competitive interest rates, even in today’s high rate environment. Your lender will discuss the option to lock in a low fixed rate or take advantage of a variable rate tied to the prime rate.
  • Longer repayment terms: 7(a) loans provide longer repayment periods than conventional business loans, which results in lower monthly payments. Importantly, your loan term will be structured to match the lifespan of what you are buying. For example, a piece of equipment that will last 15 years would be matched with a 15 year loan term.
  • No balloon payments: 7(a) loans do not have big lump sum payments due at the end of a loan, so you won’t get stuck needing to refinance or pay back a large sum.
  • Little or no prepayment penalties: There are no prepayment penalties for loans under 10 years, making 7(a) a great option for working capital. For loans with terms of 10 years or more, prepayment penalties are low and the penalty disappears after 3 years of repayment.
  • Free counseling/advice resources: Lenders, including Grow America, often offer free small business counseling and advice in addition to 7(a) loans. Ask about our Entrepreneur Academy and how it can help your business go even further.
RatesFixed or variable. Rates are custom and your loan officer will let you know a range early in the process. Variable rates range from Prime + 1-2.75%
Amounts$75,000 – $5 million. Grow America offers smaller amounts through other programs.
Terms10-25 years
FeesAt Grow America, fees are very transparent and will be itemized for you. Grow America does not charge fees, but we do pass on fees that are required for the loan to close, such as appraisals, liens, and required third-party reports.

Will I qualify for an SBA 7(a) loan?

7(a) loans can provide financing even when traditional lenders have turned you down. Remember: the SBA guarantee reduces risk to lenders and increases your chances of qualifying. Still, there is some risk to the lender and therefore some basic qualifications you’ll need to meet.

At Grow America, your lender will work with you one-on-one to discuss your business and financial situation and see if a 7(a) loan is a good fit. However, in general, if you answer “yes” to all or most of the following questions, your business is ready to take on debt and a 7(a) loan may be a great option:

  • Is your business profitable (and, if not, can you show how a loan will help to turn that around)? Or, is your business a start-up with strong projections?
  • Are you able to pay yourself a salary?
  • Are you current on all personal and business taxes?
  • Can you comfortably pay any existing business debt or other loans?

How do I apply for an SBA 7(a) loan?

If you’ve chatted with other business owners about SBA 7(a) loans, you may have heard that the process is more intensive than some other loan options. While the SBA does require more analysis and documentation than other loan types, applying will feel straightforward when you work with an experienced lender. At Grow America, we break it down for you step-by-step and guide you throughout the process. Here’s what to expect when you apply for a 7(a) loan with Grow America:

  • Step 1 – Intro conversation: You’ll meet one-on-one with the lender you’ll work with throughout the process. They’ll ask questions to get a sense of how you’ll use the money and the basics of your business’s financial situation.
  • Step 2 – Initial documents: Your lender will ask you to provide four basic documents to get started. These include your most recent business and personal tax returns, your business’s profit and loss statement (P&L) and a personal financial statement (PFS), which is a summary of your total assets and liabilities. Grow America can provide an template for the required PFS or can provide you with access to its easy-to-use online platform so that you can complete the form
  • Step 3 – Application and additional documents: Your lending manager will then put together a customized application and document list for you based on your needs, guiding you along the way as to what’s required.

The bottom line on SBA 7(a) loans   

To sum it all up, the SBA 7(a) loan offers the flexible requirements, longer terms, and affordable rates that many small business owners need to be successful. And, the government guarantee makes qualifying more likely for startup businesses and those that need to grow before qualifying for bank loans. 

Applying for an SBA loan is a lot like going to the gym—the hardest part is just getting started. But once you lace up your shoes and get started with an experienced lender by your side, you’ll quickly get into the flow. And just like going to the gym regularly makes you stronger and healthier, getting approved for an SBA loan will make your business more financially fit.

If you’re ready to get started, contact Grow America today to see if you’re a fit for an SBA 7(a) loan. We’re excited to work with you to see how the right financing can help you reach your goals.