SBA 7a Loan Program Will Lend Money for Many Business Purposes

The SBA 7a Loan Program is the most popular and basic loan program of the agency. More than 80% of all loans guaranteed by the SBA are through the 7(a) program. The SBA does not lend money directly to businesses through this program. Rather, after you submit a loan package to a lender and the lender determines that you and your business do not meet their criteria for a conventional loan, they may help you apply for a 7(a)loan. Not all banks and lenders participate in these SBA programs.

In brief, what happens is that the SBA, if it approves you for a loan, will guaranty a portion of the loan. The SBA will guaranty between 50%-75% of the loan. If you get the loan from the bank and default on it, the SBA will give the bank the agreed upon portion of the money guaranteed. The bottom line of the 7(a) loan is that it comes from a private lender not the government. The private lender that you approach for the loan may be unwilling to make the loan even with the SBA guaranty. The SBA cannot force the lender to make the loan, neither will the SBA loan money directly because it has not money to lend. Most banks but not all banks participate in this program.

Besides the credit standards, the SBA also demands a general eligibility for SBA 7a loans, which means that the business must be of a certain size and type. For example, wholesale businesses cannot have more than 100 employees and retail or service companies cannot have more than $21 million in annual revenues. Manufacturers cannot have more than 500 employees. For construction firms, average annual sales cannot exceed more than $17.5 million.

SBA will make loans under the 7(a) program for:

  • Purchase of land
  • Acquire equipment and machinery
  • Short or long-term working capital
  • Refinancing existing business indebtedness
  • Purchase of an existing business

The SBA says of these loans: "If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the agency cannot force the lender to change their mind...Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy."

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