SBA 7(a) Loan

SBA 7(a) loans have a wide array of uses. Common uses for SBA 7(a) loans include: • Real estate purchase • Business purchase (full or partial) • Construction • Loan refinance • Working capital • Equipment/machinery purchase • Furniture, fixture, and supply purchase • Multiple purpose loans, including any of the above == Eligibility ==

Business To be eligible to receive an SBA 7(a) loan, a business must: • Be an operating, for-profit business • Be located in the U.S. (including territories) • Be a small business, per SBA size requirements • Be creditworthy and demonstrate a reasonable ability to repay the loan • Not be a type of ineligible business • Not be able to obtain the desired capital from a conventional loan Notably, investment businesses (any business where the majority of revenue is from rent, such as multifamily housing, strip malls, etc.) are ineligible for SBA 7(a) loans. • Be a US citizen or US national All owners of 20% or more of the business must: • Not be currently incarcerated or under indictment • Not have a previous failed government-backed loan == Terms ==

Maximum loan value $5,000,000 Interest rate Based on the prime rate. Amortization Fully amortized. Prepayment penalty Decreasing over a three-year period, 5%-3%-1%, with no penalty in years 4+. == Process ==

The SBA 7(a) loan process is typically longer than that of conventional loans. The process differs depending on the size and complexity of the loan, but usually takes 60-90 days. The SBA 7(a) loan process can be broken down into four phases and 16 steps: Phase 1: Choosing a Lender Step 1: Finding a lender Step 2: Initial consultation with lender Phase 2: Pre-Qualification Step 3: Initial document request Step 4: Initial document gathering and preparation Step 5: Initial document submission Step 6: Preliminary underwriting Step 7: Prequalification Phase 3: Underwriting and Approval Step 8: Full underwriting Step 9: Loan approval/commitment letter Phase 4: Closing Step 10: Deposits Step 11: Third party reports Step 12: Closing document request Step 13: Closing document gathering and preparation Step 14: Closing document submission Step 15: Review and approval of closing documents Step 16: Loan closing and disbursal == Lenders ==

SBA 7(a) lenders include banks, credit unions, and non-bank lenders, including small business lending companies (SBLCs). Banks and credit unions can earn Preferred Lender program (PLP) lender status, which allows them to handle the entire loan process themselves without extensive SBA review and approval. Without PLP status, a lender must send their loans through SBA general processing (GP), a longer and more cumbersome process. In FY2024, 23,848 lenders completed at least 1 SBA 7(a) loan, and 393 completed at least 10 SBA 7(a) loans. == Documents ==

Lenders require many documents to complete an SBA 7(a) loan, and the gathering/preparation of such documents is the primary focus of the effort and time spent on the loan process by the borrower. Exactly what documents are required for a loan will differ based on the lender and details of the loan. Personal The following are personal documents that are typically required from each owner of over 20% of the business: • 1040 personal tax returns • Personal financial statement • SBA Form 1919 (Borrower Information) • Resume • Signed Credit Authorization • Driver's license/ID Business The following are documents that are typically required from the business: • Tax returns (past three years) • Profit and loss statements (past three years) • Current (year-to-date) profit and loss statement • Current (year-to-date) interim financial statement • Current balance sheet • Business entity documents • Insurance policies • Equipment list Conditional The following are documents that are typically required if applicable to the particular business/loan: • Purchase and sale agreement • Affiliate business financials • Lease(s) • Franchise agreement • Additional collateral documents == History ==

The SBA 7(a) program was established in 1953 along with the SBA itself. ==References==