The Small Business Administration (SBA) has assisted small businesses across the country for more than six decades. The organization provides various funding options that help small business owners achieve their goals. A 7(a) SBA loan is one of the most common solutions. Here’s what you need to know.

How It Works

The first thing to know about a 7(a) SBA loan is that the Small Business Administration doesn’t offer it (or any other SBA loan for that matter). Instead, the SBA partially backs the loan. You apply for the loan (and receive the funds) through an approved lender.

The SBA guarantees 75% to 85% of the loan, and you need to provide collateral for the remaining amount. Since this mitigates the risk to the lender, you are more likely to be approved.

How to Apply

Applying for any type of SBA loan requires significant documentation. The process can take several weeks, as well. Even so, it may be well worth the time and effort to get the financing you need for your business.

The first thing that you need to do is to make sure that your business qualifies. To qualify you must:

  • Operate for profit.
  • Meet the SBA qualifications of a small business and operate in the US.
  • Not have access to any other type of financing, including personal assets.
  • Demonstrate the need for financing and use the funds for a business-related purpose.
  • Have no delinquencies on existing debts.

The SBA outlines its requirements on its website, including the types of businesses that are ineligible for funding.

Your next step is to find an SBA-approved lender. Again, you can do this on their website. Lenders may be physical banks or online financial institutions. Once you’ve found a lender, you need to reach out to begin the application process. Be sure to gather all essential documentation, including business and personal tax returns, financial statements, and other pertinent business information.

How Much It Costs

Pricing for loans varies by lender, as well as your financial information. The SBA sets general guidelines, including the maximum rates that lenders can charge, but ultimately the financial institution determines the cost. Along with the interest rate, you will be charged a fee for having the SBA guarantee your loan. You may also have other fees depending upon the lender you choose.

If your small business needs financing, but you’re finding it difficult to qualify for a traditional bank loan, a 7(a) SBA loan may be just what you need.