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Steps to Getting an SBA 7(a) Loan to Open a Retail Store
The SBA backs loans for retail businesses for a variety of uses. Find out how you can grab one to take your store to the next level.
Opening a retail store takes a lot of hard work, planning, and funding. You’re determined to put in the hard work and realize your dream, but the money is a bit more elusive.
In 2022, retail and food services sales accounted for $7.1 trillion in total sales. This means that the retail sector is flourishing, and that funding is available for retail store owners.
What are your options for funding?
Options for Seeking Funding for Your Retail Store
A great place to start seeking funding is right at your front door. Self funding can be risky, but it can get you to where you want to be. Conventional loans can also be a good option for retail business owners. Another financing option available to small business owners is government-backed loans, like the SBA 7(a) loan.
Self Funding
Many small business owners are forced to fund themselves, and some choose self funding as a viable option. But the risks of putting your own money into your business are clear: If your business isn’t successful, you’re out the money that you put in the business.
To get started, tally up anything extra you have that could be used for capital. Boats and extra houses or cars are the obvious things, but anything else that you can call “extra” could be used to help you fund your business. You’ll be living lean for a while, so you must pay special attention to your personal and business finances to come out on top.
Conventional Loans
You can also get a loan for a retail shop from a lender like a bank or credit union. To help ensure your success when speaking to a lender, bring along a solid business plan that includes growth and earnings projections. Keep accurate financial records, and bring those too. Banks are more willing to lend to a business owner who can prove that they make money and repay debts.
SBA 7(a) Loan
The SBA 7(a) loan is a government-backed loan that’s offered through traditional lending institutions such as banks and credit unions. The loan terms are beneficial to the lender and borrower, and the eligibility requirements are straightforward.
Small businesses range in funding needs, which is why the SBA 7(a) loan has no minimum loan amount and a maximum of $5 million. Your retail business might need to purchase equipment, maintain regular supplies, or even buy a building to house the store — all of which are covered under the SBA 7(a) loan. The loan can be used for practically any legitimate business expense.
More Information on the SBA 7(a) Loan
The SBA 7(a) loan is a versatile loan that’s designed to get you the capital needed for your small business. If you’ve been looking for a way to fund your business, consider this kind of loan.
Finding an SBA Lender
Though the SBA shares a wealth of valuable information on starting and growing your small business, it isn’t in the business of lending money. The SBA 7(a) loan is offered through banks, credit unions, and other lending institutions, and the SBA guarantees the loan up to a certain amount.
Certain banks are considered SBA Preferred Lenders, and have proven track records of providing small businesses with SBA-backed loans. There are many factors that could improve your chances when speaking with a lender. For more information, head over to our Finding a Lender page.
How to Qualify and Apply for an SBA 7(a) Loan
Good bookkeeping, understanding your creditworthiness, and a solid business plan can all help you when applying for your loan. But, as with any loan, a borrower must meet certain standards to qualify:
Your retail store must operate for profit.
You must have reasonable equity to invest — this could mean that you already have a profitable retail store, or you could invest your own personal equity like real estate.
The store owner cannot be on parole.
You must be doing business in the U.S. or its territories.
You must have first used other financial resources. So, if you have savings accounts or are able to get a personal loan, you’re usually required to try these methods before you can qualify for an SBA 7(a) loan.
What are the eligibility requirements for an SBA 7(a) loan?
The eligibility requirements for an SBA 7(a) loan include:
- 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.
- 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 documents are needed to apply for an SBA 7(a) loan?
To apply for an SBA 7(a) loan, you will need to provide the following documents:
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Financial statements, including a balance sheet, profit and loss, and income projection
In addition, the SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.
The SBA allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.
What is the maximum loan amount for an SBA 7(a) loan?
The maximum loan amount for an SBA 7(a) loan is $5 million. If you borrow the maximum, the SBA will be funding $3,750,000 of the loan and your private lender will cover the rest.
Source: SBA 7(a) Loan Calculator and SBA 7(a) Loan Amounts, Maturity, and Rates
How long does it take to get an SBA 7(a) loan?
The approval time for an SBA 7(a) loan will depend on how much experience your lender has with processing this type of financing. By choosing your lender carefully, you may be able to have your loan application processed more quickly. Here are a few different ways the SBA 7(a) loan is processed:
SBA 7(a) Loan Processing Type Approval Time Standard 7(a) Loan Processing 7-10 business days Certified Lenders Program (CLP) Processing 3 business days Preferred Lenders Program (PLP) Processing 24 hours or less What are the interest rates for an SBA 7(a) loan?
The interest rates for an SBA 7(a) loan depend on the amount of the loan and the maturity of the loan. For loans with a maturity of less than 7 years, the interest rate is the prime rate plus 4.25% for loans of $25,000 or less, 3.25% for loans between $25,001 and $50,000, and 2.25% for loans of $50,001 and up. For loans with a maturity of more than 7 years, the interest rate is the prime rate plus 4.75% for loans of $25,000 or less, 3.75% for loans between $25,001 and $50,000, and 2.75% for loans of $50,001 and up. The Current prime rate is 8% as of May 2023.
For more details on how to apply for an SBA 7(a) loan, and information on eligibility, check out our Qualifications page.
SBA 7(a) Loan Terms
Terms for real estate and land loans run up to 25 years. The maximum loan amount is $5 million, and there’s no minimum. The SBA guarantees up to 85% for loans of up to $150,000. For loans greater than $150,000, the SBA guarantees 75%.
For more details about interest rates, fees, and other terms, head over to our Loan Terms page.
Case Study: Julio's Camping Gear Shop
Julio, an avid outdoorsman and experienced entrepreneur, had always dreamed of opening a camping gear store in his hometown of Tulsa, Oklahoma. He envisioned a one-stop-shop for all things camping, hiking, and backpacking, catering to Tulsa's growing community of outdoor enthusiasts.
Julio had saved a considerable amount of money and invested $30,000 of his savings to fund the startup costs of his store, Great Outdoors Tulsa. However, he quickly realized that he would need additional capital to secure a prime location, renovate the retail space, and stock up on inventory.
Julio approached several local banks for a business loan, but they were hesitant to lend to a new retail business, citing the potential risks associated with the highly competitive landscape in the area.
Frustrated but not defeated, Julio turned to the SBA 7(a) loan program as an alternative funding option.
With a well-structured business plan and detailed financial projections, Julio approached an SBA-approved lender in Tulsa. He presented his vision for Great Outdoors Tulsa, showcasing his extensive knowledge of the outdoor industry and emphasizing the untapped market potential in the area.
The bank was impressed with Julio's determination and thorough planning. They approved a $150,000 SBA 7(a) loan with a 10-year repayment term and a competitive, fixed interest rate. The loan enabled Julio to secure an ideal location for his store, renovate the space to create an inviting atmosphere, and stock up on a diverse range of high-quality camping gear.
Great Outdoors Tulsa opened its doors to the public and quickly gained a loyal customer base. The store's success attracted partnerships with major outdoor brands, further solidifying its reputation as the go-to place for camping enthusiasts in Tulsa.
This is a fictional case study provided for illustrative purposes.
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