What Are SBA 7(a) Loans?

When beginning your search for business lending, it’s easy to get overwhelmed with financial terminology and jargon.

As a current, or soon-to-be, business owner, you’ve probably heard of an SBA loan at some point – but what are they, really? No matter where you are in your entrepreneurial journey, “SBA loan” is one industry acronym every small business owner should be aware of. In this article, we explore SBA 7a loans - what they are, why they can be an excellent lending option, and how you can obtain one for your small business.

What are SBA loans?

An SBA loan is a small business loan issued by a private lender, such as SouthState Bank, and backed by the federal government (the Small Business Administration). Since these loans are guaranteed by the government, the risk for the lender significantly decreases, and the financing terms are more favorable for borrowers. The SBA does not do the lending, instead they partner with lending institutions (most of the time these are banks and credit unions) to make loans more accessible to small businesses. At SouthState, we offer two types of SBA 7(a) loans:

Standard SBA 7(a) loan

The standard loan is for businesses needing between $350,000 – $5 million to purchase commercial real estate, finance equipment or machinery, and more. Our dedicated small business lenders will work with you to package your loan documentation and secure financing as quickly as possible. Standard SBA loans can be a lengthy process, but choosing a reputable SBA lender can make the process a streamlined experience.

Small SBA 7(a) loan

The small loan is recommended for businesses seeking a loan up to $350,000 for working capital, equipment financing, purchasing inventory, and more. At SouthState, the small loan process is a digital experience from start to finish. The application is an online process, the loan documents are prepared in-house, and the closing is completely virtual. You can apply and be prequalified within minutes, and close in as little as two weeks.

Do you have to pay back an SBA loan?

Borrowers are obligated to pay back SBA loan funds. If you default on your SBA loan, the government will pay the lender their guaranteed portion of the loan- which can cover up to 85 percent. As collateral, the SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in the company.

What are the benefits of an SBA loan as opposed to a regular small business loan? By nature, SBA loans are loans that cannot be made conventionally. They offer competitive rates, low fees, and longer terms than what a small business owner would otherwise receive. Federal regulations require SBA lenders to base their interest rates on the prime rate, and fees typically consist of an upfront guaranteed fee, along with a yearly service fee (many financial institutions will cover this fee on your behalf). Additionally, loan term depends on how you plan to use the money.

What terms does an SBA loan offer?

With an SBA 7a loan, the repayment term is typically longer than a traditional bank loan, and the term is dependent on how you plan to use the money. If needed, it can be stretched out to a maximum of 25 years for real estate or 10 years for goodwill , equipment or working capital. By stretching out the repayment term, businesses are able to conserve cash for their operating needs with lower monthly payments.

How do I apply for an SBA loan?

1. Make Sure Your Business is Eligible

Visiting our SBA loan comparison chart is a great place to start. You can explore eligibility requirements and help determine the best type of SBA loan structure for your business. Lenders and loan programs each have unique program requirements, but some things that are standard: you must be a for-profit business operating in the United States with the ability to repay the loan.

2. Gather your documents, and apply for the loan

The next step requires the business owner(s) to submit a financial package. The application will be easier if you gather your documents before-hand; you can use the SBA loan application checklist [PDF] to stay organized. Some of the records you’ll need to gather include business tax returns, your personal financial statement and your business plan explaining your products or services.

3. Wait

Standard SBA loans can be a lengthy process, but small SBA loans under $350,000 can be approved in as little as two weeks. Just like other lending, the loan is subject to credit approval. Larger loans (greater than $350,000) require a lengthy document package, but the small loan is structured for an easy online application and streamlined processing.

After submission, an underwriter will take a look at your package and make a decision. Small SBA 7(a) loans are eligible for abbreviated credit underwriting and are funded quicker than larger loans. For a small loan, wait times can be as little as two weeks; for larger loans, borrowers can expect to wait about three months. At SouthState, we have a collective 400+ years of SBA lending experience and take pride in making both processes as easy as possible.

4. Close the Loan and Secure Funding

If your application for a standard loan is approved, a closing will be scheduled where any fees will need to be paid, and the funds are dispersed to the appropriate parties. If your application is not approved, your small business banker may be able to provide you with an alternative solution. If you are approved for a small loan, closing is completed entirely through a secure electronic signing platform.

The SBA helps small businesses get loans that otherwise wouldn’t be available to them. At SouthState, we have flexible SBA lending options to help you grow your business and reach your financial goals. Our experts will work to secure your business the funds needed and explore alternative options if necessary.

About the Author, Jessica Michener: Jessica Michener is the Director of SBA 7a Small Loans at SouthState Bank. She worked in Credit Administration for 15 years; she began her career as a credit analyst and then grew to manage a team of commercial loan underwriters. When the pandemic hit, she assumed a leadership role in the bank’s Paycheck Protection Program (PPP) efforts, which opened the door to SBA lending. After PPP, she led the charge to start the bank’s SBA 7a small loan department.