The U.S. Small Business Administration (SBA) guarantees several types of business loans. The 7(a) loan program constitutes the primary SBA program for providing financial assistance to small businesses.The 504 loan program provides long-term,
fixed-rate financing for major fixed assets.

This column addresses the highlights of the 7(a) program.

Before going into the basics of 7(a) loans, it’s important to understand the SBA rarely issues loans. Instead, the federal agency provides a guarantee of up to 90 percent, based on the loan amount and type, to the lender to reduce the risk of lending to small businesses.

The 7(a) program provides guaranties to lenders that allow them to provide financial help for small businesses with special requirements. There are three types of 7(a) loans: standard, express loans and CAPLines. Loan amounts, terms and funding speeds vary, but business owners can generally qualify for up to $5 million for standard 7(a) loans. The application review usually takes five to 10 business days.

A 7(a) loan can be used for:

Acquiring, refinancing or improving real estate and buildings.

Short- and long-term working capital.

Refinancing current business debt.

Purchasing and installing machinery and equipment, including expenses related to artificial intelligence.

Purchasing furniture, fixtures and supplies.

Complete or partial changes in ownership.

Key eligibility factors for 7(a) loans are based on what the business does to earn income, credit history and where the business operates. First, business must meet SBA size limitations. Know your North American Industry Classification, or NAICS, codes. Here is a link to the list of NAICS codes:
https://www.naics.com/six-digit-naics. If you’re registered with the System for Award Management, you already chose your NAICS codes.

SBA size standards define whether or not a business is small and therefore eligible for government programs and preferences reserved for small business concerns. Size standards have been established for types of economic activity or industry. In addition, a business must operate for profit, be located in the United States, creditworthy and demonstrate the ability to repay the loan.

The SBA provides a lender match tool to help you find a lender and gather the documentation you need to apply for a 7(a) loan. You can go to the SBA website to start the process and see what documentation you need — www.sba.gov/funding-programs/loans/lender-match-connects-you-lenders.

The maximum 7(a) loan amount is $5 million. The minimum varies by loan program, but is generally about $25,000. For amounts up to $50,000, the SBA microloan program could offer a better option.

Loan recipients could be required to put up collateral, obtain life insurance to cover the loan amount or provide personal guarantees if your business doesn’t have sufficient assets and collateral.

Loan repayment terms vary according to several factors. Most 7(a) term loans are repaid with monthly payments of principal and interest from the cash flow of the business. Payments stay the same for fixed-rate loans because the interest rate is constant. For variable rate loans, the lender could require a different payment amount when the interest rate changes.

Note: The lending market is in constant flux, particularly in the current high interest rate market. Approach several lenders to determine the best fit for your business.