What is an SBA 7(a) Loan
• 7(a) loans are the most basic and most used type loan of SBA’s business loan programs.
• All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. Not all lenders choose to participate but most American banks do. There are also some non-bank lenders who participate with the SBA in the 7(a) program which expands the availability of lenders making the loans under SBA guidelines.
• 7(a) loans are only available on a guaranty basis. This means that they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty form the SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.
Use of proceeds for 7(a) Loan:
• To buy an existing business
• Startup capital for a new business
• Working capital
• To refinance existing debt
• To purchase new or used equipment
• To purchase real estate for business purposes
• To finance accounts receivable
Ineligible Business:
Businesses cannot be engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole
• Real Estate Investment
• Lending Activities, include banks, finance companies, factors, leasing companies, insurance companies (not agents), and any other firm whose stock in trade is money
• Pyramid Sales Plans
• Illegal Activities
• Gambling Activities
• Charitable, Religious, or Other Non-Profit organizations
• Speculative Activities, including rare coin and stamp dealers, derivative and futures traders, etc.
SBA 7(a) Loan Amount:
• SBA’s 7(a) Loan Program has a maximum loan amount of $2 million. SBA’s maximum exposure is $1.5 million.
• Thus, if a business receives an SBA guaranteed loan for $2 million, the maximum guaranty to the lender will be $1.5 million or 75 percent.
