Loan types
The SBA 7(a) loan, and what the paperwork actually buys you
The SBA does not lend you the money. It guarantees part of a bank loan. Here is what that changes about the rate, the term, the collateral, and the 30 to 90 day wait.
The Small Business Administration does not write your check. A bank, credit union, or licensed non bank lender does, and the SBA guarantees a portion of it against loss. That guarantee is the entire product. It is why a lender will write a ten year working capital loan with no balloon to a business that would never clear conventional credit.
Get one thing straight before you compare anything. A 7(a) is not the lowest rate in the market. A bank's strongest conventional borrower gets better pricing than a 7(a) and always will, because the SBA program exists for the businesses that do not qualify for that conventional loan. The credit elsewhere test is a real requirement: your lender has to certify that reasonable terms were not available without the guarantee. See the credit elsewhere test.
What a 7(a) actually buys is structure. Ten years on working capital. Twenty five years on real estate. No balloon payment. Ten percent down on a business acquisition. Collateral requirements a conventional lender would never accept. Those terms are worth more to most owners than a point or two of rate.
What the program actually offers
- Maximum loan
- $5,000,000, with the SBA guaranteeing up to $3,750,000 of it.
- Guaranty percentage
- 85 percent on loans of $150,000 or less, 75 percent above that. Higher guaranty means the lender risks less, which is why small files get written at all.
- Maturity
- Up to 10 years for working capital and equipment. Up to 25 years when the proceeds buy real estate. Blended uses get a weighted maturity.
- Rate structure
- A base rate plus a spread, most commonly the prime rate plus a lender spread, adjusting quarterly. Fixed rate 7(a) loans exist and are less common.
- Equity injection
- Business acquisitions and new businesses generally require at least 10 percent of total project cost from the borrower. See equity injection.
- Personal guarantee
- Required from every owner holding 20 percent or more. There is no version of this loan without one.
The SBA also caps what a lender may charge over the base rate, and the cap steps down as the loan gets larger. The tiers below are the ones published in the current SOP. Confirm the tier in force the week you apply, because the SBA revises them.
| Loan amount | Maximum spread | What that means at a 7.50 percent base |
|---|---|---|
| $50,000 or less | Base plus 6.50 percent | Ceiling around 14.00 percent |
| $50,001 to $250,000 | Base plus 6.00 percent | Ceiling around 13.50 percent |
| $250,001 to $350,000 | Base plus 4.50 percent | Ceiling around 12.00 percent |
| Over $350,000 | Base plus 3.00 percent | Ceiling around 10.50 percent |
Two consequences fall out of that table. Small 7(a) loans are expensive relative to large ones, and a loan priced at $348,000 can carry a materially higher ceiling than the same file written at $355,000. If you are near a tier line, ask your lender to run it both ways.
The math on $250,000
Take $250,000 of working capital on a ten year 7(a) at 10.5 percent. The payment is $3,373 a month and the loan retires $154,805 in interest across 120 payments. Now price the same $250,000 as a conventional five year term loan at 12 percent. The payment jumps to $5,561 and total interest falls to $83,667.
Read that honestly. The SBA loan costs $71,138 more in total interest and leaves $2,188 more in your account every single month for five straight years. Neither number is the right one on its own. If that $2,188 a month is the difference between hiring and not hiring, the longer term is worth every dollar. If you have the coverage to carry the bigger payment, the shorter conventional loan is cheaper and you should take it. Work through total cost of capital before you decide.
What you can and cannot use it for
The 7(a) is the most flexible SBA product, which is precisely why it is the one most owners end up in. Eligible uses cover nearly every normal business purpose.
- Working capital for payroll, inventory, marketing, and general operations, on terms up to ten years.
- Equipment and machinery, though a straight equipment finance deal usually closes faster and does not consume your guarantee capacity.
- Owner occupied commercial real estate, where you occupy at least 51 percent of an existing building. For larger fixed asset projects, compare it against the 504 program.
- Business acquisition and partner buyout, the use case where 7(a) has no real competitor at 10 percent down.
- Refinancing existing business debt, but only where the refinance produces a real benefit to the borrower and the original debt was for an eligible purpose.
- Not eligible: passive real estate investment, lending, gambling, speculation, pyramid sales, and paying off delinquent federal debt or taxes in most cases.
Eligibility itself is narrower than most owners assume. The business must be for profit, based in the United States, operating, and inside the SBA size standard for its industry code. Any owner delinquent on a federal obligation, including student loans, will stop the file until it is cured. Franchises have to appear on the SBA Franchise Directory or clear a separate review, which is worth checking before you sign a franchise agreement rather than after.
Why it takes 30 to 90 days
The wait is not the SBA sitting on your file. It is document collection, third party reports, and a two layer credit process. Understanding where the time goes is the only way to shorten it.
- 01Package, one to three weeks
Three years of business and personal returns, interim financials, a debt schedule, SBA Form 1919, SBA Form 413, and a use of funds statement. Almost all avoidable delay lives here.
- 02Lender credit, one to three weeks
The lender underwrites it as its own loan first. Coverage ratio, global cash flow across the owners, collateral, and management experience.
- 03SBA review, days to weeks
A lender in the Preferred Lender Program approves on the SBA's behalf and skips the queue. A non delegated lender submits to the SBA and waits. Ask which one you are working with on day one.
- 04Third party reports, two to six weeks
Appraisal, title, environmental, and business valuation on acquisitions. These run in parallel if the lender orders them early, and in sequence if nobody pushes.
- 05Close and fund
Signing, lien filings, insurance assignments, and the wire.
The files that die usually die for the same handful of reasons, and most of them are visible on day one. Cash flow that does not cover the new payment at 1.15 to 1.25 times. A tax return that shows a loss the owner explains verbally but never documents. An open judgment or tax lien nobody disclosed. A business in an ineligible industry. Delinquent federal debt. If any of those describe your file, fix it before you spend two months in process, because a withdrawn application is much cheaper than a decline at week eight.
Where it sits against everything else
The 7(a) is the cheapest and slowest thing on this map. Every product above it on the cost axis exists because somebody could not wait 60 days, not because anybody thought it was a better deal.
The comparison worth running is 7(a) against 504 when the money is buying real estate or heavy equipment, because 504 usually wins on rate and total cost for those exact uses. That one is worked out in 7(a) against 504. If speed is the constraint and the amount is under $500,000, look at SBA Express, which trades a smaller guaranty for a faster decision.
What Exp Capital does with this
Exp Capital Solutions is a broker. We do not originate SBA loans, we do not approve them, and we have no say in what the SBA or a lender decides. What we do is read the file honestly, tell you whether it has a real shot at a 7(a), and route it to SBA lenders who actively write your size, industry, and use of funds instead of the ones that will sit on it for six weeks and pass. When a 7(a) is genuinely the best product for you, we will say so and stay out of the way, even though a bridge product would pay us sooner and pay us more.