When searching for capital to grow your business, it can be difficult to discern the differences between financing options and loan types. This article outlines the benefits of SBA 7(a) loans so you can make an informed decision about the best fit for your company.
SBA 7(a) Loan Terms, Conditions, and Eligibility
Let’s start by giving a quick overview of the loan terms, conditions, and eligibility requirements for the SBA’s 7(a) program.
Loan terms and conditions are as follows:
Loan terms and conditions are as follows:
- Loan Amount: Up to $350,000
- Loan Term: 10 years
- Interest Rate: WSJ Prime + 2.75%-3.75%
- Monthly Payment: as low as $327 per month for a $25,000 loan*
- Allowable Uses: Working Capital
Eligibility
The SBA’s 7(a) program encourages banks and non-bank lenders to provide loans to small businesses that are not able to obtain financing on reasonable terms and conditions. The eligibility requirements for an SBA 7(a) working capital loan through NEWITY are as follows:
- In operation for at least 2 years as a for-profit business, 4+ years for businesses in construction
- U.S.-based location and operations
- Owner-supported, owner-funded
- Meet the SBA’s basic eligibility requirements (if you had a PPP loan, you likely qualify)
- Loan size determined based on average annual revenue; minimum of $100,000 in annual revenue required
- Minimum FICO score of 600+
- SBSS score of 170+, 180+ for businesses with no employees
1) Built for Businesses That Might Struggle to Obtain Capital
SBA 7(a) loans are meant to provide capital to U.S. small businesses who might otherwise have challenges in obtaining a loan. Traditional banks typically require excellent business and personal credit scores and have high standards for cash flow, capital, and collateral. During a credit-tightening cycle (i.e., with a recession looming), bank standards can be exceptionally high.
SBA 7(a) loans can be a helpful avenue to obtain funding when others may have turned you down.
SBA 7(a) loans can be a helpful avenue to obtain funding when others may have turned you down.
2) Eligibility and Documentation Requirements are Consistent
Another benefit of SBA 7(a) loans is that the eligibility and documentation requirements stay the same, even with volatile economic conditions. Economic downturns typically lead to less available financing for small businesses as banks tighten their credit and underwriting standards. As banks’ requirements increase, eligibility and documentation requirements can become increasingly stringent.
SBA 7(a) loans, however, keep the same eligibility and documentation requirements even during uncertain times. Other financing options may require you to jump through additional hoops or have credit standards you can’t reach, but small businesses can rely on obtaining a SBA 7(a) loan as long as they meet the eligibility criteria.
SBA 7(a) loans, however, keep the same eligibility and documentation requirements even during uncertain times. Other financing options may require you to jump through additional hoops or have credit standards you can’t reach, but small businesses can rely on obtaining a SBA 7(a) loan as long as they meet the eligibility criteria.
3) Low Interest Rate and Long Repayment Term
SBA 7(a) loans are the most popular SBA lending program, and they serve as the U.S. Government’s primary offering for business financing.
As a government-backed product, the interest rate is kept low. Through NEWITY, SBA 7(a) loan interest rates are based on the Variable WSJ Prime Rate + 2.75%-3.75%. Interest rates for other business loans can range from 3% from a traditional bank for very strong credit scores and operating history all the way up to 150% with an alternative lender.
With a loan term of 10 years, you are also given more time to pay off the loan, which means a lower monthly payment and more available cash for business operations.
As a government-backed product, the interest rate is kept low. Through NEWITY, SBA 7(a) loan interest rates are based on the Variable WSJ Prime Rate + 2.75%-3.75%. Interest rates for other business loans can range from 3% from a traditional bank for very strong credit scores and operating history all the way up to 150% with an alternative lender.
With a loan term of 10 years, you are also given more time to pay off the loan, which means a lower monthly payment and more available cash for business operations.
4) Flexibility in Allowable Spending
In our recent article, we covered the permissible categories for spending the funds of an SBA 7(a) loan under $350,000. As mentioned above, these all fall under “working capital”:
- Payroll – Includes salaried, hourly, part-time, and 1099 employees
- Operating expenses – Short-term expenses, e.g., marketing, inventory, membership programs, and day-to-day expenses
- Rent – Rent payments for your office or place of business
- Utilities – Includes all utility expenses you incur as a business
5) Small Balance Loans Available
While we’ve outlined SBA 7(a) loans up to $350,000, there are many businesses that need smaller loan amounts. Traditional banks have been less interested in funding these small loans because their cost to underwrite a small loan is equivalent to larger loan sizes, but the revenue potential is much lower for a small loan than a large loan.
At NEWITY, we strive to equalize access to working capital no matter the loan size you are seeking.
At NEWITY, we strive to equalize access to working capital no matter the loan size you are seeking.
Interested in finding out how much you could qualify for in an SBA 7(a) loan? Apply now and find out in 10 minutes or less.
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