There are a variety of different types of loans available to small and mid-sized business owners, and one of the most prominent is that of the SBA 7(a) Loan, administered by the U.S. Small Business Administration. Widely known as the “Growth Generator,” this loan program is designed to help an enterprise grow by offering needed capital that comes with low interest rates alongside a manageable down payment.
In this blog, the team at Filmore Capital will examine the SBA 7(a) Loan, explain how it can be used, outline the benefits, and address some frequently asked questions.
How Can an SBA 7(a) Loan Be Used?
The SBA 7(a) Loan is one of the most flexible loan options offered by the SBA and has the ability to be used for a variety of purposes—all designed, of course, with enabling a business to grow and move forward. This loan can be used in many ways, including to fund:
- Working capital
- Renovations
- Ground-up construction
- Business Acquisitions
- Equipment purchases
- Partner buyouts
- Business expansion
- Business debt consolidation & refinancing
- Commercial real estate
- Franchise purchases
- Startup projects
The maximum amount for a 7(a) loan is $5 million and eligibility factors are based on how a business generates income, the credit history of the organization, and where the business operates.
How Do I Determine if I am Eligible for an SBA 7(a) Loan?
The following factors are required in order for a business to be eligible for a 7(a) loan:
- For-profit, non-publicly traded businesses
- Business ownership must be comprised of 51% U.S. citizens or legal permanent residents
- $15 million max in tangible business net worth, including affiliates
- The average net income of the enterprise cannot exceed $5 million over the span of the previous two years of business
- Must not be delinquent on any existing debt obligation to the U.S. government
- Must be able to demonstrate the need for a loan and use the funds for a sound business purpose
Finally, all proceeds of the loan must benefit the business directly. They cannot be used for other businesses or for personal matters.
Additionally, there are many businesses that are not eligible for an SBA 7(a) Loan, including non-profit organizations, lending institutions, life insurance companies, businesses that are located in a foreign country, gambling enterprises, government-owned entities, political and lobbying organizations, and many more. If you have concerns over your eligibility, it is best to speak with a commercial loan broker to understand if you are qualified to apply for this type of loan.
What Are the Benefits of an SBA 7(a) Loan?
Because of the flexibility of this type of loan, the SBA 7(a) presents many benefits to a small or mid-sized business, including:
- This loan offers long-term financing when compared to conventional loans. Payback can span up to 25 years.
- The loan is fully-amortizing with no balloons. This removes the need to reapprove every few years or get new financing.
- The loan allows for a smaller down payment when compared to other forms of conventional financing, enabling a business to conserve its working capital.
- The loan is flexible when used on applicable business needs.
- There are no financial covenants with this loan. The application process only requires annual tax returns and financial statements for underwriting.
- The loan has a minimal or nonexistent prepayment penalty.
- As long as payments are made on time, they cannot be accelerated because of an economic downturn.
To summarize, an SBA 7(a) loan is often the lowest-cost credit that a small or mid-sized business can obtain. A business is able to preserve cash flow with longer terms, access a lot of capital, and use the loan proceeds largely on their own terms.
Filmore Capital Can Help You Obtain an SBA 7(a) Loan
At Filmore Capital, we have deep experience helping business owners obtain an SBA (a) Loan. We are skilled in guiding our clients through the process and would love the chance to help you take advantage of this very flexible form of financing.
If you require more information or if you would like to begin the SBA 7(a) loan approval process, please reach out to our team today to schedule a consultation. We would welcome the opportunity to assist you.
