NEWITY continues its commitment to help small businesses thrive by offering SBA 7(a) working capital loans of up to $250,000. SBA 7(a) loans are an attractive option for a number of reasons, two of the main ones being lower interest rates and longer maturity which leads to a lower monthly payment.
How do you start the SBA 7(a) application process? By reading our 3-part insights Preparing for your SBA 7(a) loan application series:
- Part 1: Loan Eligibility – Explaining the main eligibility requirements for an SBA 7(a) loan.
- Part 2: Which Documents To Prepare and How – Outlining specific documentation necessary for the SBA 7(a) application and how to find and prepare each one.
- Part 3: SBA 7(a) FAQs on Applications – Answering specific frequently asked questions while applying for the SBA 7(a) loan.
This 3-Part Series will ensure a smooth and simple SBA 7(a) application process. Be sure to check back since Part 2 and 3 will be posted in March.
Eligibility Requirements for SBA 7(a) Loans
To qualify for an SBA 7(a) small business loan, the business will need to meet the requirements below. Click on any condition to expand the dropdown for more detail.
In order to receive a 7(a) loan, the SBA requires the business to be organized for profit. The business must be officially registered and operate legally. Nonprofits are not eligible for SBA financing.
In order to qualify for a 7(a) loan from the United States SBA, the business must be physically located in (and have operations in) the US or a U.S. Territory.
The business cannot be passive; it must be operating.
For example, a business that leases a piece of land for the installation of a cell tower or billboard would not qualify.
The SBA requires that business owners have reasonable invested equity and use alternative financial resources, including their personal assets, before seeking financial assistance through a 7(a) loan.
The SBA reserves certain loan programs, including 7(a), for small businesses. In order to qualify, the business must meet the SBA size standards. There are a few methods for determining that the business meets this requirement.
To start, businesses should review the Table of Size Standards:
“A size standard, which is usually stated in number of employees or average annual receipts, represents the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA and federal contracting programs. The definition of ‘small’ varies by industry.”
Determining the size of the business includes looking at affiliates, if applicable.
Affiliation can exist if:
- one individual or entity controls or has the power to control another
- a third party or parties has the power to control both
- The SBA even considers ownership, management, interest of close relatives, franchise, licenses, management and other agreements and situations that could result in affiliation
If any of these agreements exist, they must be reviewed in order to determine if there is an affiliation with the applicant business. These affiliations can then alter the “size” of the business according to the SBA, which may have an impact on eligibility.
Other SBA requirements for 7(a) loans include:
- Minimum SBA SBSS score of 155
- Be able to demonstrate a need for a loan
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
- Loan size determined by average annual revenue of the business and FICO score
Factors that disqualify a business from receiving a 7(a) loan
In addition to the eligibility parameters above, the SBA has a list of businesses deemed ineligible for the 7(a) loan program. This includes businesses engaged in loan packaging, gambling, investment, marijuana-related activities, certain types of lending, and those for whom political or lobbying activities account for over 50% of gross annual revenue.
Where to find more information on 7(a) and apply for a loan
NEWITY offers small business 7(a) loans up to $250,000. We’ve streamlined the SBA loan process for our members to make applying as simple as possible while standing by to guide you through every step. Start your 7(a) application here.
Want more information on 7(a) loans? Feel free to review some of our existing insights below, and stay tuned for the rest of our series on preparing for your SBA 7(a) loan application.