What are the SBA 7a loan requirements?

For your small business to be eligible for an SBA 7a loan, you must:

• Operate for a profit. Nonprofits cannot apply.
• Qualify as a small business for your industry, as determined by the SBA.
• Operate in the United States or its territories.
• Have a reasonable amount of equity in the business. In other words, you already invested your own money in your business.
• Have tried to use alternative sources of financing, including your personal assets, before reaching out for help from the SBA 7a loan program.
• Demonstrate a need for the loan, as well as a reasonable business purpose for using the loan funds.
• Be current on the payments for any other government loans you have.
• Have never defaulted on any previous government-backed debt (including student loans).

The way the SBA defines a small business depends on the industry. They look at either total employees or total annual revenue, depending on the industry. For example, a gift/souvenir store would qualify if it had less than $8 million in annual revenue. A dog food manufacturing plant would qualify if it had fewer than 1,000 employees. You can see the standards here.

For SBA 7a loans that require a down payment, the requirement is typically 10 to 20 percent of the total funding need. Not all 7a loans require a down payment. In addition, expect the lender to pull your credit report. Your personal credit score should be at least 650.

Understanding the Credit Approval Process

When applying for an SBA 7a loan, it's important to understand how your credit will be evaluated. Initially, the lender conducts a soft credit pull to review your credit profile without impacting your credit score. This is part of the preliminary assessment.

After your application meets the basic qualifications, a more thorough examination is conducted through a hard credit pull. This step involves requesting your full credit report from one or more consumer reporting agencies, which may affect your credit score.

Remember, all loans are subject to credit approval and product requirements. It's crucial to be aware of these steps in the loan process to ensure you're prepared and informed about how your credit history will be assessed.

There are both fixed-rate SBA 7a loans, where the monthly payment does not change, and variable-rate SBA 7a loans, where your interest rate and payment changes based on market trends. For variable-rate loans, your interest rate will fluctuate along with a benchmark rate that the lender selects.

Whether fixed or variable, the lender ultimately sets the interest rate on your loan. However, the SBA sets limits on how much they can charge. The maximum interest rate depends on the loan amount and the number of years to maturity. Larger loans and shorter terms get the lowest rates.  

On fixed SBA 7a loans, the maximum interest rates can range from 5.5% to 8.0%. On variable SBA 7a loans, the maximum interest rate can range from “Base rate + 2.25%” to “Base rate + 4.75%.”

Besides the interest rate, SBA 7a loans have fees. You need to pay a one-time guaranty fee to the SBA. That helps fund the program and pay for losses when small business owners default on their loans. The guaranty fee ranges from 0.25% to 3.75%, depending on the size of your loan. The SBA guaranty fee is oftentimes built into the loan amount and does not need to be paid out of pocket by the Borrower.

If you’d like to apply for an SBA 7(a) business loan, you first need to find a lender who is part of this program. Many banks offer SBA loans, and you could try asking your existing bank to see if they participate. The SBA also provides a web service that can match you to a lender. For loans ranging from $10,000 to $500,000, applying online can make the process faster, easier, and more secure, thanks to partnerships with industry-leading technology providers.

Once you select a lender, you will need to submit a formal SBA loan application showing that you have the financial resources to repay the loan. Wait for the lender to tell you what forms it wants.

Expect to be asked for:

• SBA Forms 1919, 912, and 413: These forms provide your background information, personal financial statements, and permission for the SBA to conduct a background/credit check.
• Small business financial statements: These demonstrate that your business has the necessary cash flow to cover loan payments.
• A list of any other businesses you own and debt schedules: This helps assess other outstanding debt payments.
• Past loan application history: Previous applications can affect your current loan process.
• Personal and small business tax returns from the past three years: These are crucial for verifying your financial stability.
• A list of possible collateral: This may include real estate to support the loan.
• Resumes of all key principals/owners: These show the experience and credentials of those leading your business.
• An overview of your business: You should include its challenges and a plan detailing how you'll use the loan funds, potentially forecasting changes in cash flow after the loan is utilized.

The lender could have additional requirements, so it's important to be prepared for further documentation. Applying online not only streamlines the initial steps but can also provide a more efficient decision-making process. Depending on the program, the standard 7(a) loans take the SBA five to ten business days to process an application. This online capability, supported by advanced technology, ensures that small business owners can navigate the application process with ease and confidence, knowing that their financial needs are being addressed promptly.

With competitive interest rates and a wide range of possible uses, SBA 7a loans can be a valuable financing tool. The 7a loan is the most popular Small Business Administration program. If your business needs to borrow and hasn’t been able to qualify for conventional bank loans, an SBA 7a loan could be worth considering.

With that in-mind, other SBA loan programs can be a better fit in certain situations. For a large, long-term business investment that will also lead to community development goals, like job creation or improving your green infrastructure, you may qualify for a lower loan interest rate through the SBA CDC 504 loan program. For a smaller amount of money (under $100,000), it may make more sense to use an SBA Microloan.

For more information, reach out to one of our loan experts to discuss the details of your situation.

Preferred lenders are those to whom the SBA gives more authority and control over handling 7a loans. These lenders have greater flexibility to process, close, service and liquidate SBA-guaranteed loans without reaching out to the government first. Preferred lenders have this authority because of their satisfactory performance with SBA loans in the past.

An SBA lender that does not have preferred status will process your application hand-in-hand with the SBA.

For more information on these programs or any other SBA loan, please reach out to one of our specialists. They can further explain how to qualify for SBA loans. Speak with an SBA loan expert ->