SBA 7a Loan

The Small Business Administration (SBA) is a government agency whose purpose is to help promising small businesses reach their full potential. They accomplish this by offering guarantees for large portions of loans earmarked for business development. What this means is that the SBA's role is not to directly loan small business owners capital-rather it is to back these business owners when they apply for loans through local lenders.

Qualifying for an SBA loan is often different than qualifying for other loans. In particular, a greater emphasis is placed on factors such as a potential borrower's business plan and business history. The SBA does not back bailout loans, but rather focuses its efforts on helping businesses with proven success do any better. There are several different types of SBA loan programs, but the most common program offered is the 7(a) loan program.

Those seeking an SBA 7(a) loan must realize the role that the SBA plays in the loan process. Lenders prefer to loan to businesses with promising business plans and some record of success. Unfortunately that's not the whole story. Even if a lender thinks a business has a good chance of being able to repay a loan through future earnings, they may still be reluctant to issue the loan.

Loan officers are responsible for the security of the funds they control, and often think of business loans as a form of investment. Therefore, lenders are often placed in a position where they see a great business they'd like to help expand-but the collateral offered by the borrower doesn't offer sufficient security on their investment. This is where the SBA comes in. If a business meets the SBA's requirements they will guarantee a portion of the loan, meaning that they assume some of the risk that would normally fall to the lender.

The SBA 7(a) loan requires borrowers to meet reasonable, broad requirements before granting businesses eligibility. Applications from ineligible businesses are not considered. The requirements for the most common types of SBA 7(a) loans limit the size of business eligible, delineate the types of businesses that can qualify, establish guidelines for the use of the loan funds, and create some restrictions based on the borrower's eligibility for other types of financing.

Additionally, all businesses wishing to apply for this type of loan must be for profit and provide documentation and a business plan showing that they are likely to be able to repay the loan. The SBA favors borrowers who are law-abiding and have a good record of paying bills and paying off debts.

The SBA 7(a) loan program has an upper limit of $2.0 million for loans it will help guarantee. There are SBA regulations and restrictions regarding interest rates, time to pay off the loan, fees, and other aspects of financing.

All loans are negotiated through private lenders in accordance with SBA guidelines, and so specific terms of the loan will vary from case to case. The SBA operates the Certified Lenders Program. This program allows qualifying lenders to offer their clients expedited service, and certification is impossible without a good history of handling 7(a) loans; it is recommended that prospective borrowers seek out certified lenders.