United States Small Business Administration 7(a) Loan Program
SBA 7(a) loans are provided by authorized commercial lenders who participate in the program. The participating lender funds the loan and receives a guarantee of up to 75% of the loan amount from the SBA. This allows the lender to make loans to businesses that might not qualify for financing from other lenders. In addition to funding the loan, the participating lender is also responsible for administering the loan throughout its life.
All 7(a) loan applicants must meet the program's eligibility requirements, which are designed to be as broad as possible.
Businesses must meet SBA size standards, must be "for-profit", must be without internal resources to provide the financing and must be able to demonstrate repayment ability.
Loan Details
Loan Purpose 7(a) loans can be used to purchase commercial real estate, machinery and equipment, fixtures and furniture, inventory and other business assets; to provide working capital; and to pay loan closing costs. MSL SBA 7(a) loans can also be used to refinance certain loans.
Loan Amount Loans range from $250,000 to $2,000,000.
Loan To Value Up to 90% for real estate acquisition. Higher LTV's are available for other type transactions.
Interest Rate Floating rates, up to 2.75% over the Wall Street Journal Prime rate, adjusting monthly.
Term Up to 25 years, fully amortizing over the life of the loan.
The term offered is based upon the use of loan proceeds. Terms for assets categories are as follows: Real estate – up to 25 years. Working capital – 7 to 10 years. Machinery and Equipment – based on the useful life of the asset
Prepayment Penalty Prepayment penalties apply to loans with amortizations of 15 years or longer.
Fees A one time SBA guarantee fee based on the dollar amount being guaranteed. An SBA application packaging fee is sometimes charged by the Lender. Good faith deposit upon approval is required to be used for loan closing costs.
Collateral Loans must be fully secured by commercial real estate or a combination of commercial real estate, residential real estate, machinery and equipment, and fixtures and furniture as available.
Recourse All principals who own 20% or more of the business are required to provide a full guarantee. Principals or key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis.
The guarantee of affiliated companies may be required based on the percentage of ownership of the affiliate and the borrower's relationship with the affiliate.
Debt Service Requirements A minimum projected debt service coverage ratio of 1.20 times is required for most projects. Lower DSC may be possible for business expansion loans.
Industries Loans can be made to all businesses except those that do not meet SBA 7(a) eligibility requirements. These are primarily firms involved in real estate investment/speculation, gambling, adult entertainment, lending money and pyramid sales schemes. Firms involved in nuclear waste, utilities, natural resource development, fishing vessels, biotechnology and internet technology are also excluded from eligibility.
Other Considerations Appraisal and Environmental reports will be required for real estate used as collateral.
Borrowers cannot have filed for bankruptcy within the last three years. Life insurance on the principals of the company may be required.
