Is an SBA 7(a) Loan Right for Your Small Business?

February 08, 2021 by Rob Hughes

CARES-Act-Stimulus-MoneyFirst Federal Bank is committed to supporting our small business customers during these challenging times. In 2020, the SBA’s Paycheck Protection Program (PPP) authorized up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Over 1,000 small businesses secured $140 million through First Federal.

There is another way First Federal can support your small business. An SBA 7(a) loan is a financial tool designed to get money into the hands of small business owners. Offered through Preferred Lenders, the 7(a) loan program is designed to provide financial assistance to small businesses in the US. It is the most used type of loan from the Small Business Association. The name comes from section 7(a) of the Small Business Act, which authorizes the agency to provide loans to American small businesses.

There are compelling reasons to consider applying for an SBA 7(a) loan in 2021. The SBA’s origination fee, normally three percent of the total loan amount, is currently being waived. And for loans originated before September, the SBA may make up to three payments on behalf of your small business. 

The term 7(a) refers to more than a half dozen different types of SBA loans. Each is designed to meet a different need. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan your small business applies for. Typically, 7(a) loans require a 10 percent down payment. Collateral is required at 90 percent. The maximum for an SBA 7(a) loan is $5 million.

With a 7(a) loan, the SBA helps small business owners secure funds by guaranteeing a portion of the amount borrowed. This guarantee from a government agency helps small businesses acquire funds they may not have otherwise qualified for. The SBA will guarantee 85% of loans up to $150,000, and 75% of loans greater than $150,000. Interest rates are based on prime rate, the size of the loan, and the maturity of the loan.

In order to be considered for a 7(a) loan, businesses must demonstrate they don’t already have the resources to provide the financing. In addition, they must meet SBA size standards, be for profit, be able to demonstrate repayment, and be located in the United States. Funds obtained through an SBA 7(a) loan can be used for a variety of purposes, from acquisition of a business, to the purchase of equipment or real estate, to working capital to help manage cash flow.

First Federal can offer low fixed rates, and walk you through every step of the process. Contact a representative today to see if your small business can take advantage of this opportunity!

Categories: Small Business Lending, Small Business

Interested in getting an SBA 7(a) loan for your business? Contact us today.

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