What types of SBA loans are available for my business? As a small business owner, you may not be aware of the existence of the Small Business Administration. This US held cabinet level agency is dedicated to helping new or already existing businesses succeed in a variety of ways. This vital government agency has a myriad of programs to assist the small business owner. Our discussion will focus on the most highly used and successful government guaranteed loan program named the 7(a) loan. In this article, we’re going to discuss the features and benefits of the 7(a).
What Is an SBA 7(a) Loan?
It is a loan product guaranteed by the SBA generally speaking at a guaranteed rate of 75% to the third party lender. This means that the government is guaranteeing the loan to help the lender support his credit decision. On a 7(a) loan you are not receiving the money from the government directly. The loan proceeds come from a lender. Instead, the way it works is that the SBA acts like a co-signer for you so that you can apply for and get a loan through a third-party lender. The SBA has an extensive network of general, certified and preferred lenders from which you can choose. We strongly recommend that you always deal directly with a preferred lender. A preferred lender will provide you the fastest turn around time and closing that is possible with an SBA 7(a) loan.
An SBA 7a Loan for Starting or Expanding a Business
The 7(a) Loan program is the primary system through which businesses receive SBA assistance. The sole purpose of these loans is to help start-ups or existing companies get the capital they need for success.
So if I am a business person and I need a loan, why do I need an SBA loan? Possibly because you are in an industry that requires special use commercial real estate. Industries that come to mind are limited services hotels, funeral homes, and mini storage facilities. You also may be a borrower that doesn’t have 25% down for a conventional loan product. In most cases the 7(a) loan will require far less down payment. Probably the best reason to obtain a 7(a) loan is for the longest terms available in the finance industry. For example, commercial real estate the term and amortization is a full 25 years.
What is an SBA loan that I might be eligible for?
As you can see, there is a wide range of different financial incentives offered by the SBA. It’s evident that each type of loan has certain requirements that must be satisfied before you can receive any assistance. We offer a free no obligation 30-minute SBA loan consultation to determine if you are eligible for an SBA loan. Below we are going to discuss the primary qualifications that must be met for a 7(a) Loan; the most highly used loan.
Much like the loan process itself, the best way to describe the qualification parameters is to illustrate conditions that would prohibit your company from receiving a loan. Since the essential requirements are that your company operates for profit and meets certain size restrictions, these are the other situations in which your business would be denied a loan.
What is an SBA Loan Disqualifying Circumstances?
- If your company functions as a lending or financial service (such as a payday loan)
- Firms that acquire property for the purpose of renting it to other users
- Any life insurance companies
- Any foreign-owned entities
- Those businesses that could be considered a pyramid scheme
- Any entity that makes at least a third of its revenue through legal gambling practices
- Companies that engage in any illegal activity
- Private entities that limit the number of memberships for any reason other than capacity
- Government-owned entities
- Any business or entity that practices or promotes certain religious doctrine as part of its operations
- Consumer and marketing cooperatives (although co-ops that are producers can qualify)
- Any businesses that could create a conflict of interest with the lender (such as if a member of the lending company owns a stake in the business applying for the loan)
- Entities that make money from indecent sexual performances or other services that are related to indecent sexual content
- Any entity engaged in political activities
- Speculative companies such as oil exploration
- There are also some other stipulations that can prohibit owners from seeking out a loan that we did not mention on that list. These conditions are related to the borrowers themselves and not their companies. One prohibition is that any felon is barred from applying for a loan, as is anyone who has already caused a loss for the government through the SBA or a similar program. Your loan can also be denied if one of your business partners (at least a 20% stake) meets one of these conditions as well.
Overall, many small companies can benefit greatly from the SBA and its comprehensive loan program, so if you think that you may qualify, feel free to visit the SBA website at www.sba.gov to get the application process started.