Why an SBA 7a Loan May Be Right for Your Business
For a small business just starting out, it can be difficult to find banks willing to work with you to provide loans that would allow your business to grow. Fortunately, the Small Business Administration has recognized this need among small businesses. The SBA 7a loan program works with banks to ensure there are equal lending opportunities for businesses of all sizes. They do this by guaranteeing a large percentage of your loan.
There is some eligibility criteria that your business must first meet, the first of which is your business needs to be small and it needs to be able to prove the need for the loan. The SBA has a set of calculations to define a small business and these calculations change every few years.
Your business also must operate as for profit in the United States. The funds you receive must be used for the business purpose demonstrated for that need. They also require that you not have any debt obligations to any branch of the U.S. government.
All of these criteria exist as protection for the SBA, as loaning to a small business without much credit history can be risky, so you’ll need to show that you’ve made your own investments in our company as well. Having a new business or one without much established history is a reason the SBA may want to look at your personal financial statements in addition to those of your business.
An SBA 7a loan can have fixed-interest or floating interest. Interest rates vary between 4 and 10 percent and depend upon the nature of the loan. Just be aware, a floating interest rate could have your payments changing on a regular basis. The benefit to a fixed rate loan is that you always know the amount you owe for months and years in advance of your next payment.
The SBA will charge a fee for guaranteeing your loan. For loans under $150,000 the SBA waives the fee, but for loans over $175,000 that fee can range between 0.25 percent to 3.5 percent of your loans value.
The SBA 7a loan has opened the doors of lending to industries which in the past struggled to find financing. This includes the tech industry. If your business has struggled to get financing through traditional routes, ask your bank if they offer SBA loan options. This type of loan could be the resource you need to advance your company to the next level.