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SBA Information

Small Business Administration
7A Guaranty Loan Program


The SBA 7(a) Loan Guaranty Program provides private banks and other lending institutions with up to 85 percent guaranty on loans of $150,00 and less and up to 75 percent of loans above $150,000 (generally up to a maximum guaranty amount of $1,000,000).


7(a) loan proceeds may be used to establish a new business or to assist in the operation, acquisition or expansion of an existing business. These may include (non-exclusive):

  1. To purchase land or buildings, to cover new construction as well as expansion or conversion of existing facilities;
  2. To acquire equipment, machinery, furniture, fixtures, supplies, or materials;
  3. For long term working capital including the payment of accounts payable and/or for the purchase of inventory;
  4. To refinance existing business indebtedness which is not already structured with reasonable terms and conditions;
  5. For short term working capital needs including: seasonal financing, contract performance, construction financing, export production, and for financing against existing inventory and receivable under special conditions; or
  6. To purchase an existing business.


There are certain restrictions for the use of SBA loans. The following is a list of purposes which SBA loans can not finance:

  1. To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing;
  2. To effect a partial change of business ownership or a change that will not benefit the business;
  3. To permit the reimbursements of funds owed to any owner. This includes any equity injection, or injection of capital for the purposes of the businesses continuance until the loan supported by SBA is disbursed;
  4. To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow; and
  5. For a non sound business purpose.


7(a) loans are the most basic and most used type loan of SBA's business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American small businesses.

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 SBA in the 7(a) program which expands the availability of lenders making loans under SBA guidelines.

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 guaranty 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 which SBA provides is only available to the lender. It 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.

All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets a loan from its lender with a 7(a) structure and the lender gets an SBA guaranty on a portion or percentage of this loan. Hence the primary business loan assistance program available to small business from the SBA is called the 7(a) guaranty loan program .

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 Agency can not force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.


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 percent 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 in order that this lending program can accommodate the most diverse variety of small business financing needs. All businesses that are considered for financing under SBA’s 7(a) loan program must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Eligibility factors for all 7(a) loans include: size, type of business, use of proceeds, and the availability of funds from other sources. The following link will provide more detailed information on these eligibility issues.



SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a "Statement of Personal History" is obtained from each principal.


In addition to credit and eligibility criteria, an applicant should be aware of the general types of terms and conditions they can expect if SBA is involved in the financial assistance. The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a) loans. However, certain Loan Programs or Lender Programs vary from these standards. These variations are indicated for each program.

Maximum Loan Amounts
Maturity Terms For 7(A) Loans
Interest Rates Applicable to 7(A) Loans
Percentage of Guaranty on 7(A) Loans
SBA Fees for 7(A) Loans
Prepayment Penalties for SBA 7(A) Loans



For profit corporations, limited liability corporations, partnerships, franchises and sole proprietorships.
Business in existence for minimum of two years.

Target Loan Size:
Minimum loan of $150,000.
Maximum loan of $2,000,000. Could be exceptions so it might pay to ask

Loan Structure:
Up to 25 year financing for real estate acquisitions, real estate refinances land purchases or construction loan take-outs.
Up to 10 year financing for the purchase of an existing business.
Up to 10 year financing for the purchase of machinery and equipment.
Up to 7 year financing on working capital, and closing costs.

Interest Rates:
Loans will be priced on a variable basis, tied to the Prime Rate and will be adjusted quarterly.
Minimum pricing will be at prime + 1.50%
Maximum pricing will be at prime + 2.75%

Qualifying Criteria:
Owner must be actively involved in the business operations.
Business must have adequate debt service coverage based on historical earnings.
Business must have an adequate debt to worth based on the adjustments to the pro forma balance sheet using the benefits of the new loan.
Borrower's business must occupy no less than 51% of an existing building and no less than 67% of the "to be built" facility.
Alter Ego Ownership of the company's real estate is allowed.

No unsecured loans are available under this program.
Goodwill is considered to be an asset when a business is being purchased.
The Federal Government does not extend credit to businesses where the financial strength of the individual owners or the company itself is sufficient to provide all or part of the financing. Therefore, the utilization of both the business and personal financial resources is reviewed as part of the eligibility criteria. If business and personal resources are found to be excessive, the business will be required to be use those resources in lieu of part or all of the requested loan proceeds.

The SBA does not allow the bank to charge the borrower points on a 7A guaranteed loan, unless it involves a construction loan. The SBA charges a fee, which is based on the size of the loan guarantee.
The bank will charge a packaging fee of $1,500 on all loans.

Please contact-us for more information about financing programs.



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