What Are SBA 7(a) Loans?

Posted on Nov. 23, 2022

IMAGE: Man holding tablet in flower shopSmall businesses may need funding assistance to thrive during a challenging economic climate. The Small Business Administration (SBA) offers many loan options, and 7(a) loans are the most common for small businesses with special requirements. Named from section 7(a) of the Small Business Act, it authorizes the agency to provide loans to small businesses that cannot get funding from other resources. It’s the best option when real estate is part of the business purchase, but it can also be used for working capital, refinancing current debt, or purchasing furniture and supplies.

Eligibility Requirements

Besides being a for-profit that meets the SBA qualifications for small businesses, the eligibility requirements to apply for 7(a) loan assistance include:

  • The business must operate in the United States.
  • The business owner must show a reasonable invested equity of their own time and money.
  • The owner must seek other financial resources, like personal assets, before applying.
  • The business must demonstrate a need for the loan and use the funds for a sound business purpose.
  • The business must not be delinquent on any other existing government loans.

Real estate investment firms, religious or nonprofit organizations, gambling businesses, pyramid sales plans, and other business types are not eligible. The small business should operate for at least two years with solid annual revenue. In addition, the business owner’s credit score must reflect financial responsibility (690 or higher).

SBA 7(a) loans can also be used for start-up businesses. In this case, a business plan and pro forma financial statements — or financial projections — can be used instead of historical financial data. To view the full terms, conditions, and eligibility list, visit sba.gov.

Uses for 7(a) Loans

The SBA 7(a) loan is helpful when a real estate purchase involves expansion, renovation, new construction, or land and building purchases. Business owners can also use 7(a) loans for leasehold improvements1 where the small business owner is leasing a property and needs funding to customize the space for their needs.

Other common uses include:

  • Long- and short-term working capital
  • Revolving funds available for continuous operations (amount based on the value of inventory and receivables)
  • Purchasing equipment, furniture, supplies, or materials
  • Establishing, acquiring, or expanding a business or operation, including some franchises
  • Refinancing business debt under certain conditions

Repayment Terms

SBA 7(a) loans offer longer repayment terms than traditional loans and vary based on the type of collateral. For instance, commercial real estate has longer terms than loans for equipment. When deciding on the repayment terms, your lender will consider your ability to repay, how you’ll use the funds, and the asset you’re financing.

You can dream big for your small business with help from Texell’s Commercial Loan Heroes. Call 254.774.5161 or email businessloans@Texell.org to get started today. For more information on other SBA loans, visit Texell.org.

1 Leasehold Improvement: Definition, Accounting, and Examples from Investopedia.com.

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