Struggling Small Business Owner? Here’s How the SBA’s Standard 7(a) Loan Program Can Help

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The SBA’s 7(a) Loan Program is designed to help business owners secure the funds they need to grow their businesses. Here’s how it can help you. 

You don’t have to go alone if you’re running a small business. The Small Business Administration’s Standard 7(a) Loan Program is designed to help businesses like yours get over bumps in the road. While the SBA offers five other versions of the 7(a) Loan Program, here we’ll focus on how the standard guaranteed loan works, how to know if you’re eligible, and the steps you’ll need to take to land a Standard 7(a) loan.

How does the Standard 7(a) Loan Program work?

Here’s how SBA’s Standard program works:

The SBA partners with a wide range of financial institutions, normally banks.Working through the loan guarantee program, the business owner works with one of their partner financial institutions.The business owner receives access to better loan terms than those offered by other financial institutions.The SBA offers a partial guarantee of the loan, meaning the SBA will repay at least a portion of the loan if the small business owner cannot make payments.The SBA may guarantee up to 85% of small business loans up to $150,000 and 75% for loans above $150,000.

Who’s eligible for a Standard 7(a) loan?

Eligibility for guaranteed loan assistance includes:

You must show that you have already attempted and failed to borrow funds from other lenders, fully exhausting other options.Your business must operate for profit.Your business must be independently owned and operated.Your business must qualify as a small business as defined by the SBA.You must be able to demonstrate that your business needs an infusion of cash.Your business must be located in the U.S. and either be engaged in or plan to do business in the U.S. or its territories.You cannot be delinquent on existing debt to the U.S. government.You must use the funds for a well-thought-out, sound business purpose.You must be creditworthy, and the SBA must be reasonably sure you can repay the loan.

What can a 7(a) loan be used for?

The SBA guarantees loans for a wide range of business activities, including:

Refinancing current business debt.As revolving funds based on the value of existing inventory and receivables.To purchase real estate, including land and buildings.For short- and long-term working capital.To construct a new building or renovate an existing building.To purchase supplies, furniture, and fixtures.To buy and install machinery and equipment.

Maximum loan amount

The maximum loan amount available through the Standard 7(a) Loan Program is $5 million. Not every business will qualify, though. Factors that go into the loan decision include the type of business you operate, where your company does business, and the business’s credit history.

Documents to gather before applying

The loan process varies by lender, but generally, here are some of the documents you can expect to supply:

SBA Form 1919Loan application historyPersonal financial statements (depending on the lender)Business financial statements, including current profit and loss statements and projected financial statements.Income tax returnsOwnership and affiliationsBusiness license or certificateBusiness overviewResume for each principalBusiness lease, if applicable

If you’re buying a business, be prepared to provide the following

Bill of sale or purchase agreement, including terms of saleAsking price, including a schedule of inventory furniture and fixtures, and machinery and equipmentBalance sheet and profit and loss statement of business you’re buyingIncome tax returns for the previous three years

As a small business owner, you’re responsible for everything, from bidding jobs to covering payroll. No one has to tell you how challenging it can be. However, that’s where the SBA comes in. If the Standard 7(a) Loan Program isn’t right for you, the SBA will help you find a program that will work. And if you don’t need a loan, the SBA offers great mentorship programs.

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