SBA 7(a) loans are the most popular type of SBA loan, issued by lending partners and partially guaranteed by the U.S. Small Business Administration (SBA). These small business loans can be used for a wide range of purposes, including working capital, business expansions, real estate purchases, equipment purchases, and more.
SBA 7(a) loans offer low interest rates and long terms, making them an ideal form of financing for those who can qualify.
SBA 7(a) loans are business loans available in amounts up to $5 million with term lengths up to 25 years. Interest rates can come in as low as the market prime rate plus 2.25%.
These SBA loans are issued by certified lending partners—typically banks and credit unions—and partially guaranteed by the SBA. The partial guarantee ranges from 50% to 90% of the loan amount depending on the type of 7(a) loan, size of the loan, and the borrower’s qualifications.
The government guarantee makes lending to a small business less risky for banks or credit unions who might not otherwise lend to these borrowers. If the business defaults on the loan, the SBA guarantee ensures that the lender will get 50% to 90% of the loan back.
Although the guarantee incentives lenders to work with small businesses, it can still be hard to qualify for SBA 7(a) loans. Lenders generally require a good personal credit score (690+), two or more years in business, and strong annual revenue for 7(a) loan applications.
Use our guide to learn more about SBA Express loans.
Use our guide to learn more about these SBA lines of credit.
Regardless of the type of 7(a) loan, the SBA sets standard rates and terms that lenders must follow.
Overall, the interest rates you receive on your SBA 7(a) loan will vary based on the size of your loan, the loan term, as well as your business’s qualifications.
That said, the maximum SBA loan rates are set based on the market prime rate, or MPR, which is a benchmark interest rate that affects the cost of home loans, student loans, and other types of consumer loans.
Here are the maximum SBA 7(a) loan rates:
|Loan Maturity Under 7 Years||Loan Maturity Over 7 Years|
Loan amount under $25,000: Prime rate + 4.25%
Loan amount under $25,000: Prime rate + 4.75%
Loan amount of $25,001 to $50,000: Prime rate + 3.25%
Loan amount of $25,001 to $50,000: Prime rate + 3.75%
Loan amount over $50,000: Prime rate + 2.25%
Loan amount over $50,000: Prime rate + 2.75%
As of May 2021, the market prime rate is 3.25%.
When evaluating the total cost of a 7(a) loan, it’s important to keep in mind that fees are not included in the maximum rates set by the SBA.
Common SBA 7(a) loan fees include:
Although some fees will vary based on your lender, you’ll likely have to pay the SBA guarantee fee. This is the fee that the SBA charges your lender to guarantee the loan, which is typically passed on to the borrower.
The guarantee fee ranges from 0.25% to 3.75% depending on the size and term of the loan. The key thing to remember is that the fee is calculated on the guaranteed loan amount, not on the total loan amount. Due to the COVID-19 pandemic, the SBA is currently waiving all guarantee fees through September 30, 2021.
The term lengths you’ll receive for an SBA 7(a) loan will depend on what you plan on using the funding for. Similar to 7(a) interest rates, the SBA sets maximum terms that lenders must abide by:
SBA CAPLines of credit have different guidelines for term lengths. These lines of credit have maximum terms of 10 years and the Builders line of credit has a maximum term of five years.
Your SBA 7(a) lender will determine your specific repayment schedule, but in most cases, you’ll pay back your loan with a fully amortized monthly payment schedule.
If your loan has fixed interest rates, then the monthly installments will remain the same throughout the life of the loan. If your loan has variable interest rates, on the other hand, the monthly payments will change as market rates change.
To qualify for an SBA 7(a) loan, you’ll have to meet requirements from the SBA and your lender. Although some requirements vary from lender to lender, there are general eligibility criteria that apply across the board:
In addition to these standard SBA requirements, there are also common criteria that lenders use to evaluate your ability to repay a loan:
Use our guide to learn more about SBA loan requirements.
The competitive rates and terms of SBA 7(a) loans make them one of the best options for small business financing. If you think you can qualify for a 7(a) loan, you can follow these steps to apply:
Many national, regional, and local banks and credit unions offer SBA 7(a) loans. You’ll want to look for an SBA 7(a) lender that has experience issuing these loans and can most effectively help you through the application process.
You might start by contacting a bank you have a relationship with, or use the Lender Match tool on the SBA website to get connected with lenders in your area. You can also check out our list of the best SBA lenders.
After you’ve found the right lender for your business, you’ll want to gather all the documents you’ll need to submit your SBA 7(a) loan application. This can be one of the most time-consuming parts of the application process, so you’ll want to stay organized and make sure you understand exactly what your lender requires.
Once again, some of the documents you’ll need to provide are required by the SBA, while others will vary from lender to lender. With that in mind, here are some of the documents you’ll likely need to provide:
With all of your documents ready, you can complete and submit your 7(a) loan application to your lender. Once your application has been submitted, you’ll need to wait for approval.
If your lender is an SBA preferred lender, they will be able to make a final credit decision without sending the application to the SBA—meaning you’re likely to get a much faster approval. Non-preferred lenders, on the other hand, will have to get SBA approval first, meaning a slower timeline.
Generally, from the beginning of the application process to closing, the SBA loan timeline takes anywhere from 60 to 90 days.
After you receive approval from your SBA 7(a) lender, you’ll be able to review your loan agreement—which includes the rates, terms, repayment schedule, and all other details of your loan. If you have any questions about the agreement, you’ll want to be sure to ask your lender, or even review the agreement with a business lawyer or advisor.
Once you’ve signed the agreement, the lender can start the closing process. Then, you’ll receive your loan funds and start your repayments based on the schedule indicated in your loan agreement.
The SBA 7(a) loan program offers some of the best rates and terms for small business financing.
If you need funding for long-term development or business expansion, and have the qualifications and time needed to secure an SBA 7(a) loan, then our advice is to go for it.
Of course, not all businesses will be able to qualify for SBA financing—so if you want or need to explore alternative options, you might start with our guide to online business loans.
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.