About 7(a) Loans
7(a) Loans are the most basic and flexible SBA financing option for small businesses. Loan proceeds can be used for working capital, equipment purchases, refinance of eligible existing debt and more.
7(a) Loans
All 7(a) Loans are provided by lenders who participate with SBA in the 7(a) Loan Guaranty Program.
7(a) Loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from 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 guarantee against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.
Under the guaranty concept, commercial lenders make and administer the loans.
The business applies to a lender for their financing. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for its loss, up to the percentage of SBA’s guaranty. Under this program, the borrower remains obligated for the full amount due.
A key concept of the 7(a) Guaranty Loan Program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the SBA can not force the lender to provide funding.
In order to get a 7(a) Loan, the applicant must first be eligible. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner’s equity contribution are also important considerations. All owners of 20% or more are required to personally guarantee SBA loans.
All applicants must be eligible to be considered for a 7(a) Loan. The eligibility requirements are designed to be as broad as possible to accommodate the most diverse variety of small business financing needs.
Eligibility factors for all 7(a) Loans include: size, type of business, use of proceeds, character considerations, availability of funds from other sources (business or personal), and repayment ability.
Please contact our staff if you have questions regarding the eligibility criteria.
SBA’s 7(a) Loan Program has a maximum loan amount of $5.0 million dollars. SBA’s maximum exposure is $3.75 million. Thus, if a business receives an SBA guaranteed loan for $5.0 million, the maximum guaranty to the lender will be $3.75 million or 75%.
SBA loan programs are generally intended to encourage longer term small business financing but actual loan maturities are based on: the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: twenty-five (25) years for real estate and equipment; and, loans for working capital purposes will not exceed seven (7) years, except when a longer maturity (up to 10 years) may be needed to ensure repayment.
The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets.
Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged to the Prime Rate.
Guaranty percentages are based on the loan amount. The SBA will guarantee up to 85% of a loan for $150,000 or less and up to 75% of a loan greater than $150,000.
To offset the costs of the SBA’s loan programs to the taxpayer, the Agency charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees is based on the guaranty portion of the loans.
Wakarusa Valley Development will package the loan guaranty application and will work directly with the SBA through the approval process. Once approved, the participating lender will close, disperse and service the loan.
Frequently Asked Questions
Please visit our forms page for a list of information we will need from you to get started on your project.
No, the SBA does not lend directly to the borrower. A participating bank lends the funds and the loan is backed by an SBA guaranty.
Yes, the SBA charges a guaranty fee that is a set percentage based on the amount of the project. The guaranty fee subsidizes the program. Wakarusa Valley Development charges a packaging fee based on the loan amount and complexity of the project.
All servicing after approval is by the bank or non-bank lender that dispersed funds.
