Many small businesses are going through a hard time due to the pandemic.
If you are a small business owner struggling with cash flow issues and wondering how to keep your business going, SBA loans are a great solution.
SBA offers long-term loans at low-interest rates. The loans are ideal for anyone trying to finance their business due to challenges related to disasters such as the coronavirus pandemic.
What is an SBA 7A loan?
An SBA 7A loan is financial credit provided through the Small Business Administration (SBA) to small business owners.
It is the most common loan program, and it offers different types of SBA guaranteed 7A loans to business people.
Each loan has a maximum amount and negotiated interest rate, among other requirements.
Loans offered by the SBA are provided through its lending partners, which include micro-lending institutions and community development organizations.
The assistance provided by SBA helps small businesses get loans they would otherwise not qualify for through regular means, by guaranteeing part of the borrowed amount, limiting fees charged, and capping interest rates.
Different types of SBA loans
There are nine types of SBA 7A loans for entrepreneurs. Each of them is designed for a specific business or need. These are;
⦁ Standard 7A loans
⦁ 7A small loans
⦁ SBA Express loans
⦁ Export working capital loans
⦁ Export Express loans
⦁ Veteran Advantage loans
⦁ Preferred lenders loans
⦁ CAPLines loans
⦁ International trade loans
These loans differ in terms of amount, the percentage guaranteed by SBA, and other terms such as collateral required to secure them.
What can you use an SBA 7A loan for?
In 2020, SBA loans worth more than $22 billion were given to small businesses through the Paycheck Protection Program (PPP), to help them deal with the economic crisis triggered by Covid -19.
In 2021, the program was reopened to provide among other things, more funding and loan forgiveness to businesses already receiving PPP loans.
Therefore, SBA loans are giving a lot of relief to struggling small businesses.
If you are wondering what they can do for you, here are a few suggestions.
SBA 7A loans can be used to;
- Refinance current debts
- Provide short or long term working capital
- Purchase business essentials such as supplies
- Acquire real estate, construct, or renovate new buildings
- Create a new business or assist in the expansion or acquisition of another.
Are you eligible for an SBA 7A Loan?
If you are wondering whether you are eligible for an SBA 7A loan, your lender can help you figure that out.
They will look at factors such as what you do to make money, your credit history, and where you operate from and help you decide which loans are best for your business. However, we can give you an idea of what to expect.
Usually, for businesses to qualify for an SBA 7A loan, they must operate for profit and engage in or propose to do business in the U.S. or its territories.
The SBA should also consider them a small business based on their definition, which differ, depending on the industry. But, generally, only businesses with up to 1500 employees are considered.
Entrepreneurs applying for SBA loans should also have a reasonable amount of equity invested in their business and have used other sources of finance such as their personal assets to fund it before applying for the loans.
But most importantly, they should demonstrate that they will use the funds for a good business purpose and prove to lenders they are not delinquent on any existing loans acquired from the U.S. government.
Why should you apply for an SBA 7A loan?
SBA allows you to negotiate with your lender concerning your loan interest rates but sets a maximum rate for them. It also;
- Lends capital of up to $5 million to businesses and guarantees a large percentage of these loans
- Charges lower interest rates than other small business loans based on a business’s creditworthiness and qualifications.
- Offers favorable repayment plans and stress-free payment schedules (25 years for real estate loans, 10 years for working capital, and equipment loans) to loan beneficiaries
- Asks for little to no down payment requirements. The most you can expect is 20%
- Provides access to resources that will help you grow your businesses, such as business education and mentorship.
What do you need to apply for an SBA 7A loan?
If you are thinking of applying for an SBA 7A loan, ensure you have a credit score of at least 620 and make over $100,000 a year.
You should also prove your business has been in existence for at least 2 years, to prove you are worthy of a loan.
If you have a sound business that meets the above requirements but is only suffering a temporary financial challenge, an SBA 7A loan may suit you.
Some of the documents you should prepare for your application are a business plan, evidence of your business investments in the US, financial documents such as your bank statement, and a loan application among others on this checklist.
However, some businesses are ineligible for SBA 7(a) loans. They are ;
⦁ Illegal businesses
⦁ Loan packaging businesses
⦁ Investment businesses and those based on speculation
⦁ Rare coins, gambling, stamps, or multi-sales distribution businesses
⦁ Non-profit organizations such as churches and charities
Is it easy to get SBA 7A loans?
SBA 7A loans are some of the most popular loans on offer due to their flexibility and the business growth support offered by SBA to beneficiaries to help them repay loans.
Since SBA loans provide funding at such favorable terms, they are highly coveted by small businesses. Therefore, they are not easy to get and are primarily awarded to people with a good credit history and revenue.
Although applying for an SBA 7A loan is time-consuming and challenging, the terms are more favorable than those provided for regular loans. SBA loans;
⦁ Give you longer repayment periods of between 7 and 25 years
⦁ Ask for little or no collateral and offer you business support
⦁ Charge you low monthly payments on loans of up to $ 5 million,
Apply for an SBA 7A loan today!