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For all intents and purposes, SBA 7(a) loans are viewed as the go-to programs for helping existing companies get financing and smaller businesses get off the ground when they are unable to qualify for traditional loans through banks and other lenders. The 7(a) loan is more attractive to 3rd party lenders because it reduces their risk when loaning the money to these parties, even if the borrower defaults on the loan.
Benefits of 7(a) Loans:
- competitive interest rates
- declining prepayment fees
- easier to obtain compared to traditional loans
- flexible terms
- longer loan terms
- lower interest rates
- NO balloon payments
Additionally, the flexibility of this program enables the borrower to use the funding they obtain for a number of purposes such as:
- buildings and land including new construction, purchase, and renovation
- debt refinancing (special conditions only)
- equipment and machinery
- fixtures and furniture
- leasehold improvements
- working capital
The average maturity of these loans is typically 10 years. However, those terms can be extended up to 25 years when borrowing money for fixed assets.
What the SBA Looks For:
There are certain requirements that you must meet in order to qualify for an SBA loan. For instance, as a business you must:
Conduct business (or propose to do so) in the US or one of its territorial possessions
Be of good character – the principals of each firm that applies for an SBA 7(a) loans must fill out a “Statement of Personal History.” This helps the SBA to determine if the business has a history of abiding by their community’s laws and paying off their debts.
- Has developed a feasible business plan.
- Have the ability to pay off the loan by using the projected operating capital of the business to ensure that it is repaid on time.
- Have the commitment and management skills necessary for success.
- Meet SBA Size Standards.
- Not have received funding from other sources – assistance will not be extended to those businesses if the company’s or the owner’s financial strength is sufficient enough to provide the entire amount of the financing needed or a portion of it. This is reviewed during the eligibility process. The business will need to these personal resources instead of a portion or all of the loan proceeds if they are deemed to be excessive.
- Operate a for-profit business.
- Own and operate an eligible business (check the list of Eligible and Ineligible Types of Businesses to see if your company qualifies).
- Use the proceeds of your loan for approved purposes only – this includes acquiring or expanding an existing business, assisting in business operations, establishing a new business (see Eligible and Ineligible Use of Proceeds).
Source: Standard 7a Evaluation Criteria