A 7(a) loan is a type of loan backed by the Small Business Administration. Only banks authorized by the SBA are eligible to offer SBA loans. The 7(a) is easier to qualify for than traditional business loans, which makes it an excellent option for many businesses that may not qualify for traditional loans. It can be used for real estate financing but is primarily utilized for working capital (covering the costs of day-to-day operations), startup costs, tenant improvements, purchasing an existing business, consolidating debt, and more.

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How Does an SBA 7(a) Loan Work?

When applying for a 7(a) loan, you’ll work directly with the bank through the entire application process. If the bank is unable to approve your application on reasonable terms without SBA support, the bank can obtain a partial guaranty from the SBA to help secure your loan approval. The guaranty addresses things like collateral shortfalls or a relatively new business.

What are Typical Terms for an SBA 7(a) Loan?

Generally, non-real estate 7(a) loans have a 10-year term, and real estate loans can have terms up to 25 years. Both can have a variable rate or a fixed rate. If it has a fixed rate, it is fully amortized over the term in the loan agreement to give you the same payment for the life of the loan. All 7(a) rates are tied to Prime plus a spread as determined by the bank. The SBA has a cap on the allowable spreads, which varies depending on the type and size of the request. This means interest rates will vary a bit.

What is the Maximum Amount You Can Get from an SBA 7(a) Loan?

SBA 7(a) loans cap out at $5,000,000. Check with your lender to determine the qualifications for the amount you're seeking.

Do SBA 7(a) Loans Require a Down Payment?

Yes. While the Small Business Administration leaves the amount of the down payment, or equity, up to the lender in most cases, it does require at least 10% for any startup, business acquisition, or partner buyout purposes.

Do You Have to Pay Back an SBA 7(a) Loan?

Yes, a 7(a) loan must be repaid according to the terms of the loan agreement. It’s not a grant and is not forgivable like a PPP (Paycheck Protection Program) loan.

What Does the SBA 7(a) Loan Have to be Used For?

If approved, the 7(a) loan must be used for the reasons below, among others.

  • Short or long-term working capital
  • Buying, refinancing, or improving real estate and/or buildings
  • Purchasing a business or buying out a partner in an existing business
  • Refinancing current business debt
  • Buying and installing machinery and equipment
  • Purchasing furniture, fixtures, and supplies

To learn more about SBA 7(a) loan requirements, check out our article 8 Ways You Can Use an SBA 7(a) Loan for Your Business.

SBA 7(a) Loan Requirements

While requirements can vary depending on several factors, generally, the following will need to be met:

  • Operate a for-profit business in the United States
  • Meet SBA size standards (under 500 employees for most industries or under $7.5 million annual revenue)
  • Be an eligible business type
    • Ineligible business types include non-profits, financial businesses that engage in lending, life insurance, and passive businesses such as landlords and life insurance, among others.
  • You are not able to obtain loans on reasonable terms from other sources
  • Good personal credit history
  • Show a reasonable ability to repay the loan with revenues from your business

More information can be found in our article How to Qualify for an SBA 7(a) Loan.

WaFd Bank is an SBA 7(a) Loan Lender

Our knowledgeable business bankers are available to help you manage success and have the expertise to become a trusted advisor to you and your team. With products that grow with your business and comprehensive tools to seamlessly manage it all, WaFd Bank is built for business. After over 100 years, we know what it takes to help you succeed, from start to legacy. Visit your local branch or give us a call at 800-324-9375 to experience the difference WaFd Bank can make for you.

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Loans subject to credit approval, terms and conditions may apply.