SBA 7(a) Basics
Everything you need to know about SBA 7(a) loans
Your essential guide to SBA 7(a) loans
Learn more about SBA 7(a) loans, their terms and qualification requirements, how much you may be eligible to receive, and the steps to apply so you can receive your funds in as little as three weeks.
What are SBA 7(a) Loans?
An SBA loan is a government-backed loan that is available to small businesses that are owned and operated within the United States. The Small Business Administration created the 7(a) loan program as the primary method to provide financial assistance to small businesses.
The name “7(a)” is derived from the clause number and letter within SBA legislation that provides the standards for this specific loan program.
While SBA 7(a) loans are similar to other small business loans, their benefits include longer repayment terms and lower interest rates, which results in lower overall monthly payments. Lower monthly payments enable small business owners to borrow a larger total loan amount. As a government-backed loan, small business owners are more likely to be approved for an SBA loan than traditional business loans.
While SBA 7(a) loans can scale up to $5,000,000, through NEWITY, small businesses can receive loans from $17,500 to $500,000 in as a little as three weeks.
Qualifications
To qualify for an SBA 7(a) loan through NEWITY, your business must:
- Operate for profit in the U.S. for more than two months
- Be a small business under SBA Size Requirements
- Not be considered an ineligible business
If you’re generating at least $50,000 in annual revenue, your business meets initial eligibility requirements for an SBA 7(a) loan.
Interest Rate & Terms
Interest rates for SBA 7(a) loans are based on the Wall Street Journal Prime Rate plus an additional percentage. As of October 2024:
7.75% (WSJ Prime Rate)
+ 2.75% (Interest Rate Spread)
= 10.50% Interest Rate
All SBA 7(a) loans through NEWITY have 10-year repayment terms, which helps keep your monthly payments lower than traditional loans.
Documents to Apply
You do not need documents to determine if you qualify for an SBA 7(a) loan with NEWITY.
You’ll only need to supply these documents if you qualify for a loan and choose to move forward.
- Most recent personal tax returns for majority owners (20%+)
- Most recent business tax returns
- Last 3 months of business bank statements
- Business debt schedule, if applicable
How much can I receive through an SBA 7(a) loan?
The largest SBA 7(a) loan amount is $5,000,000. Through NEWITY, you can receive an SBA loan from $17,500 to $500,000 in as little as three weeks.
SBA 7(a) Loan Calculator
Start your capital journey with NEWITY
Create a free NEWITY account and submit our application to determine how much you qualify to receive in less than 10 minutes without impacting your credit score.
SBA 7(a) Webinars
All the information you’ll need to get started with the SBA 7(a) program and submit your application for funding.
SBA 7(a) Loans | How to Apply
Learn how easy it is to apply for an SBA loan through our step-by-step application demonstration.
SBA's New Rules for 7(a) Loans
Learn about the new rules released by the SBA for the 7(a) program that could mean more money for your business.
SBA 7(a) Loans vs. Traditional Business Loans
As a small business owner looking for capital it can be difficult to understand the differences between SBA 7(a) loans and traditional business loans. SBA 7(a) loans provide seven primary benefits as compared to traditional business loans:
Lower interest rates — As a government-backed loan, SBA loans tend to have lower interest rates, especially for small businesses.
Lenders are allowed to set their own interest rate within a certain range approved by the SBA.
SBA 7(a) loans through NEWITY are priced at the low-end of the range:
WSJ Prime Rate + 2.75%. Today, that means loans carry a 10.50% interest rate1.
Higher approval rates — As part of the SBA’s mission to help businesses access affordable growth capital, the approval rate for SBA 7(a) loans tends to be higher compared to other loans with similar terms.
As a small business owner, this means you are more likely to be approved for your requested loan amount at a lower interest rate than through a traditional loan.
Wide variety of uses — SBA loans, like those offered through the 7(a) working capital program, can be used for a wide variety of expenses.
This includes debt refinance, payroll, utilities, 1099 payments, inventory, marketing, supplies, expansion, initiatives and more.
With more freedom to use loan funds, business owners have the greatest opportunitiy to utilize the funds in the best method to scale their business.
Long loan terms — SBA 7(a) loans have 10-year loan terms with no prepayment penalties. With long loan terms and low interest rates, SBA loans tend to have lower monthly payments.
As a result, most business owners can borrow a greater loan amount because it is repaid in smaller increments over a longer period of time.
Existing Relationships — Conventional loans can be influenced by relationship dynamics. A long, positive track record with a bank may boost the likelihood of loan approval.
Conversely, the SBA loan process is not influenced by existing relationships.
Supporting Documents — SBA loan required documents are usually routine to business ownership, like a business tax return.
Conversely, many conventional loans require documents like business plans, which are not part of the SBA loan evaluation process.
Credit Impact — Conventional loans often entail a hard inquiry in you qualify for a loan, which affects your credit score.
In contrast, SBA loans like those through NEWITY only use soft credit checks, so your credit score remains unaffected.
References:
- WSJ Prime Rate is 7.75% as of November 11, 2024.
More frequently asked questions about SBA loans
The method to determine exact loan size varies between lenders. At NEWITY, SBA loan amounts are determined based on average annualized revenue and cash flow. As a small business owner, if you’re generating at least $4,169 per month in revenue or at least $50,000 per year in revenue, then you’re eligible to apply for an SBA 7(a) loan.
Applying for any type of business loan can impact your credit. At NEWITY, the application utilizes a “soft” credit pull, which accesses your credit profile without impacting your credit score. In terms of credit, another benefit of SBA loans is that they can help build your business credit score. Having a high business credit score can ensure you can access larger loan amounts in the future at a lower interest rate.
With the benefits of SBA loans, there are two primary drawbacks.
- Not everone will qualify for a loan – SBA loans are designed to support businesses who otherwise may not be able to secure capital. They are also specifically designated for businesses that operate for-profit. If you do not meet SBA program requirements, you are unable to take advantage of the loan program. If your business qualified for the Paycheck Protection Program then you most likely qualify for the SBA 7(a) program.
- Longer loan review – While this is a partial myth, SBA loans typically take longer to receive funding than alternative loan options. Business owners can expedite their approval time by applying for a loan by choosing loan providers who simplify the loan process. At NEWITY, you can receive SBA 7(a) funding in as little as three weeks from your initial application. At other institutions, this process can take as many as four months.
Some lenders require a downpayment or deposit to determine if you’re eligible for an SBA loan. Down payments can vary based on the size of the loan. Deposits are usually a flat fee to reaffirm to the underwriting lender that you have a strong interest in receiving a loan.
At NEWITY, there is no down payment or deposit. There is no fee to determine if you qualify for a loan.
There are three primary reasons you may not qualify for an SBA loan.
- You don’t meet program requirements — If your business is a non-profit, operates in a handful of specific industries, you will not meet basic program requirements. In addition to industry, the SBA also has size requirements for each eligible industry. For example, if you own a full-service restaurant and you have average annual receipts (total income + cost of goods sold) in excess of $11.5 million, you do not meet the program size requirements. To see the size requirements of your industry, you can check the SBA Standards here.
- Low credit scores — While SBA loans accept a much wider array of credit scores, the lowest credit scores are not eligible for an SBA loan. Keep in mind the SBA evaluates both your personal and business credit scores, so it’s important to pay both your personal and business bills on time to help ensure you receive a loan. You can receive an SBA loan with a 660+ FICO score, but if your business has been operating for less than two years, a higher credit score may be required.
- Low or no revenue — Your business must be generating revenue to receive an SBA loan. Through NEWITY, the minimum revenue requirement is $50,000 per year.
Yes, you can qualify for an SBA loan with a prior bankruptcy if it was discharged more than three years ago. No business or majority owner can be in bankruptcy currently to qualify.
Yes! Certain individuals with criminal convictions can qualify for an SBA loan. Those with financial felonies or those currently incarcerated are not eligible. Entrepreneurs with a criminal conviction more than seven years ago or a misdemeanor conviction more than three years ago are eligible fo an SBA 7(a) loan.
SBA loans are provided through banks and non-bank lenders. The SBA itself is not a direct lender. NEWITY provides access to SBA loans up to $500,000 through its simple online application that takes less than 10 minutes.
If you are seeking an SBA loan more than $500,000, the SBA provides a Lender Match tool that can help connect you to an approved lender that provides SBA loans that are similar to your request.
If you don’t qualify for an SBA loan due to credit score, focus on improving your credit score over the next 90 days. This can include making payments, bringing delinquent accounts current, or making use of credit building credit cards. After 90 days, you can reapply for an SBA loan without impacting your credit score. To read more about improving your personal credit or building business credit, view our credit-building webinar or you can read more here.
If you need immediate financing, NEWITY can help match you with the most competitive available option for your business. No matter where you apply, be wary of quick payment loans that carry very high interest rates. Be sure you can make payments on financing before you take out the loan.
If you secure short term funding, you can still reapply for an SBA loan every 90 days. If you qualify for an SBA loan, you may be able to refinance your high-interest rate business debt to consolidate your payments and lower your overall capital costs.
