SBA 7(a) Program

The Small Business Association 7(a) loan program provides for-profit existing or new small businesses with long-term financing. The SBA 7(a) program allows the bank loan to be guaranteed up to 85% on loans up to $150,000 and 75% on loans larger than $150,000, by the federal government. This encourages loans that are not available otherwise at reasonable interest rates for eligible small businesses.

Use of Proceeds

Funding provided by the SBA 7(a) program can be used for fixed asset financing (land, land improvements, building construction, purchase of buildings, renovation of buildings, machinery or equipment), inventory, accounts receivables, abd working capital). Refinancing of existing debt is eligible under certain conditions.

Interest Rate

The Interest Rate on an SBA 7(a) loan is determined by the lender, but SBA does cap the maximum rate for loans maturing in less than seven years at 2.25% above the New York Prime Rate and for loans maturing in seven years or more at 2.75% above the New York Prime Rate. Higher rates can be charged on loans under $50,000 and a variable interest rate can be used.

Term of the Loan

The term of an SBA 7(a) loan is determined by the lender, but is not allowed to exceed seven years for a short term working capital guarantee, 10 years on machinery and equipment and long term working capital, and 25 years on real estate.

Cost of Financing

The fee for an SBA 7(a) loan is based on the guaranty amount (the guarantee fee may be included in the loan). Legal costs associated with the loan closing may also be included in the loan.

Financing Cost of an SBA 7a Loan

Guaranteed Portion	Guaranty Fee Percentage
$150,000 or less	2%
Up to $700,000	3%
Up to $1,000,000	3.5%
Up to $1,500,000	3.5% on the first $1,000,000 and 3.75% on the excess

LowDoc Program

SBA's Low Documentation (LowDoc) program simplifies the application process for guaranteed loans of $100,000 or less. Any small business that would be eligible for the regular 7(a) loan program can apply to the LowDoc program assuming the average sales for the business are $5,000,000 or less and the business employs 100 or less individuals. Using a one page application and an SBA response time of usually two or three days, SBA can guarantee up to 80% of a loan made to an existing business, a new business, or a business purchase.

SBA 7(a) FAQ

Is Job generation of retention required?

No, job generation or retention is not required through the Small Business Association 7(a) program.

What is the maximum guarantee amount?

The maximum guarantee amount for a Small Business Association 7(a) loan is $2,000,000.

What is the prepayment penalty?

Loans with a maturity of 15 years or more have a prepayment penalty of 5% during year 1, 3% during year 2, and 1% during year 3.

Are there insurance requirements for the 7(a) program?

The insurance requirements for the Small Business Association 7(a) program are life insurance on the principals of the business and hazard insurance on the value of the assets.

Are personal guarantees required?

Yes, personal guarantees are required for the SBA 7(a) program.

How do I apply?

Southeast Development Corporation is not a lender and does not make 7(a) loans. The first step to apply for a 7(a) loan should be to contact your existing bank. SDC can assist your bank in packaging the loan for SBA approval, or if needed assist you in finding a bank that will make a 7(a) loan.

Contact

Southeast Development Corporation
Mike Ohlman
(423) 424 - 4227
mohlman@afgnmtc.com