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What are the Pros and Cons of SBA 7(a) Loans?
SBA 7(a) loans are some of the most small business popular loan products in the U.S, with a total loan volume of almost $26 billion in 2017 alone. And, while these loans can provide businesses with the capital they need at extremely affordable rates, they aren’t without their disadvantages. In this
SBA 7(a) loans are some of the most popular small business loan products in the U.S, with a total loan volume of almost $26 billion in 2017 alone. And, while these loans can provide businesses with the capital they need at extremely affordable rates, they aren’t without their disadvantages. In this easy-to-read article, we’ll review some of the pros and cons of SBA 7(a) loans in order to help you determine whether they’re a good funding option for your business.
What are the Advantages of SBA 7(a) Loans?
SBA 7(a) loan advantages include:
Highly competitive, low interest rates
Long loan terms, up to 25 years
Fixed and variable-rate options are available
A variety of businesses are eligible
Low down payments, typically around 10-20%
Variety of loan options, including SBA 7(a) express loans, SBA 7(a) CAPLines
Most SBA loans, including 7(a) loans are fully amortizing, meaning borrowers don’t have to worry about balloon payments
Lengthy approval times (for standard SBA 7(a) loans)
Lots of documentation
Collateral is often required
Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
High credit scores are typically required (typically 680+)
May be restrictions on supplemental/additional financing
What are the advantages of SBA 7(a) loans?
SBA 7(a) loan advantages include:
- Low interest rates
- Long loan terms, up to 25 years
- Fixed and variable-rate options are available
- A variety of businesses are eligible
- Low down payments, typically around 10-20%
- Variety of loan options, including SBA 7(a) express loans, SBA 7(a) CAPLines
- Most SBA loans, including 7(a) loans are fully amortizing, meaning borrowers don’t have to worry about balloon payments
What are the disadvantages of SBA 7(a) loans?
SBA 7(a) loan disadvantages include:
- Lengthy approval times (for standard SBA 7(a) loans)
- Lots of documentation
- Collateral is often required
- Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
- High credit scores are typically required (typically 680+)
- May be restrictions on supplemental/additional financing
Source: www.sba7a.loans/sba-7a-loans-small-business-blog/pros-and-cons
Source: www.commercialrealestate.loans/blog/difference-between-sba-7a-and-sba-504-in-cre
What are the eligibility requirements for SBA 7(a) loans?
The eligibility requirements for SBA 7(a) loans include:
- A maximum loan amount of $5 million with no minimum loan amount (most loans, however, are $30,000 or more).
- The business must meet the SBA's size standards for its particular industry.
- The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
- The business must physically be based in the U.S. and operate within the U.S. and its territories.
- The business must operate for profit.
- Business owners must first have used other sources of financing, including personal funds, in order to qualify.
- Businesses must not be involved in lending, real estate, or speculation.
Additionally, there are some basic eligibility requirements for the SBA 7(a) loan:
- Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
- You must also have some equity in the business — this could mean you already have a profitable business, or you could use your own personal equity as collateral.
- If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
- The business owner cannot be on parole.
- You must be doing business in the U.S. or its territories.
What types of businesses are eligible for SBA 7(a) loans?
The Small Business Administration (SBA) 7(a) loan program is designed to help small businesses access capital for their operations. The program is open to businesses in a variety of industries, including business services and office-based companies. Eligible businesses include those with fewer than 500 employees, as well as female-owned businesses. The SBA 7(a) loan can be used for a variety of purposes, such as buying or leasing office space, purchasing equipment, and meeting payroll expenses.
Eligible business types for SBA 7(a) loans include:
- Retail
- Manufacturing
- Wholesale
- Service
- Restaurants
- Franchises
- Agriculture
- Construction
- Transportation
- Hotels and Motels
- Non-profits
Ineligible businesses include:
- Gambling
- Lending
- Speculative Ventures
- Pyramid Sales
- Illegal Activities
- Non-profit Organizations with Political or Lobbying Activities
For more information on SBA 7(a) loans, please visit www.sba7a.loans.
What are the repayment terms for SBA 7(a) loans?
The repayment terms for SBA 7(a) loans vary depending on the type of loan. For commercial real estate loans, the loan term is up to 25 years. For equipment loans, the loan term is up to 10 years. For working capital loans, the loan term is also up to 10 years.
You can learn more about understanding how the SBA guarantees loans here.
What are the Disadvantages of SBA 7(a) Loans?
SBA 7(a) loan disadvantages include:
Is an SBA 7(a) Loan a Good Choice for My Business?
Well, that depends. If you want to be approved for an SBA 7(a) loan, it may require a little more effort on your part, as well as a certain amount of collateral. So, if you need a large amount of financing extremely quickly, your credit isn’t good, or your business isn’t in one of the SBA’s approved industries, non-SBA financing may be your best bet. However, if you have good credit, are in an approved industry, and can wait a bit for your funding, a 7(a) loan could be a great choice. Keep in mind, though, that SBA Express Loans can be approved in as little as 36 hours, so if your business needs up to $350,000, you may be able to get it more quickly than a Standard SBA 7(a) Loan, which may take between 30 and 90 days to be approved.