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Home > Financing > SBA Loans > 7(a) Loan Guarantee Program

7(a) Loan Guaranty Program: the Primary SBA Loan Program

There are two main SBA loan programs, the 7(a) Loan Guaranty Program and the 504 Certified Development Company Program (see Chapter 5). The 7(a) Program is the SBA's primary loan program.

There are three principal parties to an SBA 7(a) guaranty loan: SBA, the small business applicant, and the private lender. The lender plays the central role in delivering the loan. It is the lender that performs the initial review of the small business loan application and determines whether to submit the loan to the SBA for approval. The SBA reviews the application and the lender's analysis and determines whether to provide the loan guarantee. See "How It Works" for more details.

A typical loan package to a lender will include a Business Plan, financial projections for three years including Cash Flow Statements, Income (Profit and Loss) Statements, and Balance Sheets, current business financial statements, and business financial statements and income tax returns for the past three years or for how ever long the business has existed, whichever is less. If the business is a start-up and unless the business has a substantial banking history and unencumbered assets, the lending institution will require all owners with more than a 20% ownership position to personally guarantee the loan. Therefore, a current personal financial statement and personal income tax returns for the past three years from each such owner will also be required. If the loan request is submitted to the SBA, a 7(a) Loan Application will need to be completed as well.

To be eligible for a 7(a) Loan, the business must be operated for profit and qualify as a small business under the SBA size standard. The size standard is based on the average number of employees for the proceeding 12 months or on sales volume averaged over the last three years. The Standard Industrial Classification (SIC) Code for the industry in which the small business is engaged is used to determine the applicable size standard. The business may NOT be involved in speculation or investment in rental real estate.

Loan funds can be used for expansion or renovation, construction of a new facility, purchase of land or buildings, purchase of equipment, fixtures, or leasehold improvements, working capital, refinancing debt for compelling reasons, a seasonal line of credit, acquiring inventory or any legal business expense. Loan terms depend on the ability to repay the loan. Generally, working capital is 5 to 10 years and construction, real estate, and capital equipment or machinery is up to 25 years, not to exceed the life of the equipment or machinery. The maximum amount of a 7(a) guarantee is $750,000 or 75% of the total loan which ever is less. On loans under $100,000, the guarantee is 80%. The guarantee is to the LENDER to encourage the lender to make the loan. Default does NOT absolve the borrower(s) from repayment to the lender and/or the SBA on any amount not repaid.