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SBA 7(a) Loans: The Essential Guide

SBA 7(a) Loans - The Essential Guide

Small businesses often need financing to help invest in growth opportunities. The world of business financing has expanded dramatically over the last two decades with the advent of fintech companies and alternative lenders.

However, the most beneficial small business financing option remains the coveted SBA Loan. Backed by the Small Business Administration, SBA loans offer the highest borrowing amounts, lowest interest rates, and longest repayment terms of any lending product.

The drawback is that SBA loans also carry the steepest qualification requirements. That becomes even more muddled as there are no exact requirements, and each lender sets their own standards.

If you’re considering SBA 7(a) loans but aren’t sure if you qualify or how to qualify, we can help with this essential guide. Specifically, we will answer these questions and more:

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    What is the SBA 7(a) Loan?

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    The SBA in SBA loans stands for the Small Business Administration, a government agency devoted to promoting small businesses. The SBA loan program consists of various small business loans, and SBA 7(a) loans are the most common and most popular.

    The Small Business Administration does not lend to businesses. Small business owners still need to apply to one of three types of lending institutions: traditional banks, credit unions, or alternative lending facilitators like United Capital Source.

    Small Business Administration Guarantee

    While the Small Business Administration does not accept or approve applications and doesn’t provide funding, it partially guarantees SBA loans. The agency guarantees SBA loans anywhere from 50% to 90%, depending on the loan type and amount (more on that later).

    Because the agency partially backs the loans, lenders take less risk. Since the risk is lower, lenders can offer higher borrowing amounts at lower interest rates and longer repayment terms. The SBA also provides some regulation on interest rates, fees, and terms, which we will get into later.

    With the backing of a government agency, SBA loans are the most advantageous small business loans on the market. Let’s look at the different types of SBA 7(a) loans.

    What are the Borrowing Amounts & Terms for SBA 7(a) Loans?

    The SBA 7(a) loan program consists of several loan options.

    Standard 7(a) Loan

    • Maximum Loan Amount: $5 million.
    • SBA Guarantee: Up to 85%.
    • Terms: Up to 25 years for real estate; 10 years for other purposes.

    Small businesses can use the standard 7(a) for various business purposes, including purchasing equipment, funding working capital, purchasing commercial real estate, and business expansion. The SBA guarantees 85% for loans up to $150,000 and 75% for loans over $150,000.

    7(a) Small Loan

    • Maximum Loan Amount: $350,000.
    • SBA Guarantee: Up to 85%.
    • Terms: Up to 25 years for real estate; 10 years for other purposes.

    The 7(a) small loan is like the standard loan but with a lower cap. Businesses can still use the loan proceeds for the same purposes. Like the standard loan, the SBA guarantees 85% for loans up to $150,000 and 75% for loans over $150,000.

    Express Loan

    • Maximum Loan Amount: $500,000.
    • SBA Guarantee: 50%
    • Terms: Up to 7 years if used as a line of credit.

    The Express Loan was designed for businesses needing urgent funding. The average turnaround time on the express loan is within 36 hours. The expedited time means the SBA only guarantees 50% of the loan.

    Export Express Loan

    • Maximum Loan Amount: $500,000.
    • SBA Guarantee: Up to 90%.
    • Terms: Up to 7 years if used as a line of credit.

    The Export Express Loan provides expedited funding within 24 hours. The business must use the funds to establish or grow exports. The SBA guarantees 90% for loans up to $350,00 and 75% for loans over that amount.

    Export Working Capital Loan

    • Maximum Loan Amount: $5 million.
    • SBA Guarantee: 90%.
    • Terms: Up to 3 years.

    The Export Working Capital Loan provides funds for small businesses to support export sales. The SBA guarantees 90% of this loan type.

    International Trade Loan

    • Maximum Loan Amount: $5 million.
    • SBA Guarantee: 90%.
    • Terms: Up to 25 years.

    The International Trade Loan provides small businesses with long-term funding to support doing business outside the country. Companies can use the company to enhance their export sales, modernize their equipment and shipping, or contend with larger freight companies.

    CAPLines of Credit

    • Maximum Loan Amount: $5 million.
    • SBA Guarantee: Up to 85%.
    • Terms: Up to 10 years.

    CAPLines of credit provide short-term and seasonal funding for small businesses. The SBA guarantees 85% for loans up $150,000 and 75% for loans over that amount. There are four types of CAPLines of credit: Seasonal, Working Capital, Contract Loan, and Builders Lines of Credit. The Builders line has a maximum term of 5 years, while the rest can go up to 10 years.

    Pilot Loan Program: SBA Community Advantage

    • Maximum Loan Amount: $250,000.
    • SBA Guarantee: 85%.
    • Terms: Up to 25 years.

    The SBA will occasionally run a pilot or temporary loan structure in the 7(a) program. The Community Advantage loan is scheduled to run through September 30, 2024. The program provides funding to small businesses in underserved communities.

    What is the Interest Rate for SBA 7(a) Loans?

    SBA interest rates are tied to the prime rate; a borrowing benchmark banks use to set rates on consumer loans. The prime rate changes based on actions by the Federal Reserve Board.

    Borrowers get either a variable interest rate, which fluctuates with the prime rate or a fixed rate, where you’re locked into the prime rate at the time when the loan was funded.

    As of December 2022, the current prime rate is 7%. Each lender will charge additional interest over the prime rate, sometimes called the “spread.” However, the SBA sets maximum interest rates that lenders cannot exceed

    Let’s look at the maximum interest rates for variable and fixed interest rates.

    Variable Interest Rates

    For loans with a maturity under 7 years:

    • $0-$25,000: Prime rate + 4.25%
    • $25,001-$50,000: Prime rate + 3.25%
    • $50,001 or above: Prime rate + 2.25%

    For loans with a maturity over 7 years:

    • $0-$25,000: Prime rate + 4.75%.
    • $25,0001-$50,000: Prime rate + 3.75%.
    • $50,0001 or above: Prime rate + 2.75%.

    Fixed Interest Rates

    • $0-$25,000: Prime rate + 8%.
    • $25,001-$50,000: Prime rate + 7%.
    • $50,001-$250,000: Prime rate + 6%.
    • Over $250,000: Prime rate + 5%.

    What are the Other Costs of SBA 7(a) Loans?

    In addition to the interest, SBA 7(a) loans often carry additional fees and usually require a down payment.


    Most SBA loans include a guarantee fee, which ranges from 0.25% to 3.75%, depending on the loan type, amount, and lender. The fee only applies to the percentage of the loan the SBA guarantees, not the total loan amount.

    Lenders have the discretion to charge some additional loan fees, such as:

    • Credit check fee.
    • Packaging fee.
    • Closing cost.
    • Appraisal fees.
    • Late payment fees.

    However, the SBA does not allow businesses to charge extraneous loan fees such as application fees and origination fees. Lenders can only charge prepayment fees on SBA Loans with terms of 15 years or more.

    Down Payment

    While down payments are not an expense over and beyond the borrowing amount, it is an expense you must account for when applying for an SBA Loan. The SBA prefers to work with business owners willing and able to invest equity in their company.

    Most lenders require a down payment between 10%-20%. In addition, the SBA also requires the lender to put up capital in the loan. In this way, all three parties – the borrower, the SBA, and the lender – share some risk with the loan.

    This completes the three components of the loan as defined by the SBA:

    • The Equity Injection: What the SBA calls the down payment.
    • The SBA-Guaranteed Loan Portion: Anywhere from 50%-90% of the loan.
    • The Bank Loan: The portion of the loan that SBA doesn’t guarantee.

    What are the Requirements for an SBA 7(a) Loan?

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    The SBA sets specific requirements for borrowers, and each lender might include additional requirements. In general, businesses need good to excellent credit, healthy cash flow, two years in business, and substantial annual revenue.

    Approved businesses that UCS works with generally meet these minimum requirements:

    • A credit score of 650+ (some lenders say 680+).
    • $360k in annual revenue.
    • Two+ years in business.

    Credit Scores

    The SBA doesn’t set a specific credit score but prefers higher credit scores. Each lender will set its own credit score cutoff.

    In addition, the SBA uses the FICO® Small Business Scoring Service™ (SBSS) to analyze a company’s credit. The SBSS aggregates the personal credit scores of up to five business owners (each at least 20%), the business credit score of the company, and financial data provided on forms 1919 and 1920. SBSS scores range from 0-300, and most businesses need a score of 155 to qualify.

    Cash Flow

    In its guidelines, the SBA states:

    “The cash flow of the Applicant is the primary source of repayment, not any expected recovery from the liquidation of collateral… If the Lender’s financial analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely manner from the business’s cash flow, the loan request must be declined, regardless of the collateral available or outside sources of repayment.”

    Simply put: You must have the cash flow to support the payments on the loan.

    Specific Conditions

    In addition, the SBA requires applicant businesses to:

    • Be a for-profit business.
    • Do business and be physically located in the US or its territories.
    • Have invested personal time and money in the business.
    • Exhaust all other financing options (SBA loans are “last resort financing.”)

    There are some nuances and exceptions to these rules. For example, a for-profit subsidiary of a nonprofit would be eligible.

    The best way to determine if you’re business is qualified is to speak with an SBA lender. Our loan experts and account executives can help determine eligibility for your business.

    Restricted Industries

    The SBA excludes businesses in specific industries. Those include:

    • Real estate investment firms.
    • Companies engaged in speculation.
    • Gambling businesses such as casinos.
    • Rare coin and stamp dealers.
    • Multilevel marketing (pyramid scheme) businesses.
    • Religious companies, charities, and other nonprofits.
    • Government agencies.
    • Lending institutions.

    How to Apply for an SBA 7(a) Loan:

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    United Capital Source can help you apply to an SBA-approved lender following these steps.

    Step 1: Ensure You Qualify

    You’ll need a credit score between 650-700 and a healthy, consistent cash flow. How you intend to use the money plays a significant role as well. You’ll need a detailed plan of how the funds will help you invest in and grow the business.

    Step 2: Gather Your Documents

    Be prepared to provide:

    • Driver’s License.
    • Business license or certificate.
    • Voided Business Check (for business bank account information).
    • Bank Statements.
    • Credit Report/Statement of Personal Credit History.
    • Business Tax Returns.
    • Credit Card Processing Statements.
    • Personal Tax Returns – 3 Years.
    • Business Tax Returns – 3 Years.
    • Business Plan (Not in all cases).
    • Personal Financial Statement.
    • List of Real Estate Owned or Business Leases if applicable.
    • Debt Schedule/Loan/Rent/Lease Documentation
    • Deeds/Title/Ownership documentation for any collateral/Security
    • Current Profit & Loss Statements and Balance Sheet Year-to-Date
    • A/R and A/P Reports
    • United Capital Source 1 Page Application

    Step 3: Fill Out the Application

    You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.

    Step 4: Speak to a Representative

    Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.

    Step 5: Receive Approval

    SBA Loans through our network generally take 3-5 weeks to process. Once approved and your file is closed, funds should appear in your bank account in a few business days.

    What are the Advantages of SBA 7(a) Loans?

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    SBA loans are often considered the gold standard of small business financing. There are numerous advantages, but the biggest ones are the large borrowing amounts, low interest rates, and extended repayment terms.

    On-time SBA loan payments are reported to the major credit bureaus. Successfully paying your loan will help build your business credit, making it easier to secure financing in the future.

    The low interest rate and long repayment terms mean your monthly payments are lower than most loan structures. This helps ensure you maintain strong cash flow during the life of the loan.

    The high borrowing amounts allow businesses to invest significantly in their future prospects. You can use the funds to acquire commercial real estate, hire more staff, purchase equipment and supplies, and more.

    What are the Disadvantages of 7(a) Loans?

    The most significant disadvantage is the difficulty in getting approved. While you might assume that partially guaranteed loans are easier to qualify for, and it’s a logical assumption, the truth is often the opposite.

    Since the SBA doesn’t provide concrete qualifications, lenders can set their own standards, and some are more stringent than others. For example, commercial banks are more biased toward established companies.

    The loan application process also requires a lot of patience and having enough runway to wait for the approval. Aspiring applicants might wait weeks to get a determination on if the SBA will guarantee the loan.

    It’s not uncommon to meet with several different lenders and submit multiple applications. Some lenders will tell applicants to try again in a year when finances have improved.

    Pros & Cons


    • High borrowing amounts up to $5 million.
    • Low interest rates and long repayment terms.
    • You can use the funds for a variety of business purposes.


    • Lengthy application and approval process.
    • Large amounts of paperwork.
    • It might require collateral.
    • It almost always requires a personal guarantee & down payment.
    • Requires good to excellent credit.

    Frequently Asked Questions

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    Here are the most common questions about the SBA 7(a) Loan Program.

    Is It Hard to Get an SBA 7(a) Loan?

    We won’t sugarcoat it – SBA 7(a) loans are challenging to obtain. You must meet both the requirements of the SBA and the private lender that funds the loan. SBA loans are exclusively for established businesses.

    How Long Does It Take to Get an SBA 7(a) Loan?

    The process to get an SBA loan can take anywhere from a few days to several months, depending on the type of loan and lending institution. As their name suggests, Express loans typically only take a few days, whereas a standard loan can take several weeks or even months if you work with a commercial bank.

    Alternative lending platforms and fintech companies, like UCS or SmartBiz, try to streamline the process as much as possible for applicants. In addition, an SBA-preferred lender might be able to expedite the process But remember, you’re dealing with a government agency, and that’s always going to take a little bit longer.

    What Collateral is Required?

    SBA loans for $25,000 or less generally don’t require collateral. Loans over $350,000 may require collateral of equal value to the loan amount. Collateral requirements for loans between $25,000-$350,000 depend on the individual lender, loan type, financial health, and how you intend to use the funds. In addition, each business owner with a 20% or greater claim needs to sign a personal guarantee.

    Are the Other Types of SBA Loans?

    Yes, while 7(a) loans are the most common, other SBA loan programs include:

    Can I Get an SBA 7(a) Loan with Bad Credit?

    No, SBA loans are not available to borrowers with bad credit. If you need financing now, you could consider bad credit business loans. While these loan structures typically have higher interest rates, you could use them as bridge financing while you repair or build your credit enough to qualify for an SBA Loan.

    What are My Alternatives if I’m Declined for an SBA 7(a) Loan?

    While SBA Loans are the most advantageous small business loans, they are far from your only options. Many alternative lending platforms provide various loans with much looser requirements and significantly faster funding times.

    Small Business Loans

    You could consider any of the financing options:

    SBA 7(a) Loan Final Thoughts

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    After reading the guide, you can hopefully see why SBA loans are so advantageous but also why there are so many misconceptions surrounding them. Small business owners can get large amounts at low interest rates and extended repayment terms. But those businesses need to meet stringent requirements to qualify.

    Contact us if you want to see if your business is eligible and start the application process. We can help you determine if SBA 7(a) loans are indeed suitable for your business or help you find the right financing product if they are not.

    We will help you grow your small business.

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        At UCS, we understand the value of your time and want to ensure that your application has a great chance of approval. Please take note of the following details before applying:
        • To be eligible, it’s necessary to have a business bank account with a well-established U.S. bank such as Chase, Wells Fargo, Bank of America, Citibank, or other major banks. Unfortunately, online-based bank accounts like PayPal, Chime, CashApp, etc., are not permitted.
        • When describing your current average monthly sales deposits to your business bank account, please provide accurate information. Our approval process is based on your current business performance, and it’s essential to provide accurate details about your current sales in the first question on the application form. We cannot approve applications based on projected revenues after receiving funding.
        We appreciate your understanding and cooperation in ensuring a smooth and successful application process.
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