SBA 7(a) Loans: Frequently Asked Questions - aka ‘FAQs’
The SBA 7a Loan White Paper: An Exhaustively Researched Guide to 7a Loans for Borrowers Based on Primary US Government Sources
By Jeff Bardos, CEO, Speritas Capital
January 4, 2021 – Greenwich, Connecticut
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Common SBA 7a Loan FAQs
Speritas Capital Partners CEO Jeff Bardos answers the most common - and not so common - questions we receive from clients about 7a loans in the FAQ list below. If you have further questions feel free to reach out to us.
What kinds of loans are offered by the SBA?
This would make a great question for your next ‘finance’ trivia night!
The main SBA loan programs are referred to as 7a and 504. SBA loans can be used for business acquisitions, franchise acquisitions, and business expansions and for acquiring, renovating or constructing the real estate in which your business will operate.
What many people don’t know is that the SBA offers 5 different loan programs in addition to the SBA 7a and SBA 504 programs – SBA CAPlines, Export Loans, Disaster Recovery Assistance, Microloans and Surety Bond Guarantees. (This list doesn’t include PPP, EIDL and other COVID related programs).
Am I eligible for an SBA 7a loan?
Eligibility depends on many factors so it’s hard to say if you’re eligible without specific details about your situation. This is probably the question we receive most often.
There are four basic areas that any debt advisor, including Speritas Capital needs to understand in order to determine if you and your business are eligible for an SBA 7a loan:
Type of business
Business financials (historical for existing businesses or projected for new ventures)
Your credit profile
Your personal financial situation
Your experience
If your situation is unusually complex, it’s sometimes easier to simply give us a call.
How much equity do I need to contribute in an SBA 7a loan structure?
This is a complicated issue, but SBA lenders will generally not lend you 100% of the acquisition price nor will they lend 100% of the cost of your expansion project.
SBA regulations require that the borrower contribute at least 10% of the total cost. The 10% cannot be borrowed from someone else (although even here there are exceptions.)
Lenders can provide the other 90%, but sometimes they require more than 10% equity. Seller financing (aka seller carrybacks) can be used to bridge the gap between your equity and the SBA loan amount. These seller notes must meet lender requirements on maturity, interest and subordination.
There are specific cases where the amount of equity needed can be less than 10%, such as a partner buyout.
Confusing, right? What qualifies for the SBA’s equity injection requirements is so complicated that we wrote an entire article about acceptable equity sources for SBA loans.
What are the current rates for SBA 7a loans?
Most 7a lenders offer variable or adjustable rate loans that are based on the Prime rate. Most lenders price 7a loans between Prime + 1% and Prime + 2.75%, with 2.75% being the most common spread over Prime.
The Prime rate is set by each bank and generally adjusts up or down whenever the Federal Reserve changes their target Federal funds rate.
What are the loan maturities for SBA 7a loans?
The maximum maturity is determined by the purpose of the transaction.
For business acquisitions and expansions, the maximum maturity is 10 years.
If there is real estate involved, the maximum maturity can be extended out to as long as 25 years.
In situations where a business acquisition involves business assets and real estate, the maturity will be based on a weighted average of the value of the business assets and the real estate.
How long does it take an SBA 7a loan to close?
Contrary to some common misconceptions, most SBA loans do NOT take longer than conventional bank deals. At least not with the Preferred lenders that Speritas Capital works with.
You can expect to close within 30-60 days of receiving a proposal from the lender. The exact timing depends on how complicated the deal is and how responsive you are in providing documentation.
In business acquisition and owner-occupied real estate deals, the lender may require a third party business or property appraisal. Revised or new insurance documents need to be produced. These requirements take time and can push you closer to 60 days, or possibly longer in complex cases.
So while there is more documentation required in an SBA loan, if your loan is relatively straight forward, it shouldn’t take more than 30-60 days to close. IF you use a Preferred lender (PLP).
What types of lenders can make SBA 7(a) loans?
Banks and so-called “nonbank” lenders can offer SBA loans. On the bank side, SBA lenders range from the biggest U.S. banks to community banks.
Nonbank lenders tend to be smaller and privately funded.
Not all SBA lenders have the same level of creativity and flexibility when looking at potential 7a loans.
Some lenders have a very conservative approach and will not deviate from their standard terms. Other lenders are innovative and look at how they can fully comply with the SBA regulations while providing a loan structure that fits the borrower’s needs. Speritas Capital works with the most flexible lenders.
Read about one of our recently funded SBA 7a loans for a restaurant acquisition, by one of our SBA PLP lenders that required some creative storytelling.
What is an SBA ‘PLP lender’?
The Preferred Lenders Program (PLP) is used by the most experienced SBA lenders. PLP lenders must complete an SBA application and review process to ensure that they have the expertise to comply with the SBA regulations.
To approve a lender for PLP status, the SBA considers the following (quoted directly from the SBA.gov website):
“Does the lender have the ability to process, close, service and liquidate loans?”
“Does the lender have the ability to develop and analyze complete loan packages?”
“Does the lender have satisfactory SBA performance?”
Once approved, PLP lenders have delegated authority to structure, underwrite, close and service SBA guaranteed loans without prior SBA review. PLP lenders are responsible for underwriting each loan and for confirming 7a eligibility. This speeds up the process.
Speritas Capital only works with PLP lenders because they have the most flexibility to structure a loan to meet a borrower’s needs and because PLP lenders can move more quickly than non-PLP lenders.
Using a PLP lender ensures that closing your SBA loan will take no longer than a regular bank loan, under most circumstances.
Can I get a fixed rate SBA 7a loan?
A few lenders will offer fixed rate loans in specific cases. But it is much more common for your SBA 7a loan to have a floating rate based on a spread over the Prime rate.
Why? Most SBA loans have a floating rate because they are sold in the secondary market. Fixed rate loans can’t be packaged and resold, they must be held by the lending institution. Fixed rate loans remain on the lender’s balance sheet, at a higher risk, so the lender must be extra comfortable with the strength of the borrower.
Your best chance of getting a fixed rate SBA loan is with a local lender in the community where you bank or where your business is located. They will know you personally.
Questions about SBA 7a Loans? Schedule a call with the author Jeff Bardos now or call/text 203-247-4358.
What is an SBA 7a Express Loan?
These are 7a loans up to $500,000 with just a 50% SBA Guaranty. You can expect a quicker approval turnaround, possibly within 36 hours.
The rates for Express Loans are higher than other 7a loans. The spread over the Prime rate ranges from 4.5-6.5%. Additional points could apply.
Unless you’re focused on a very quick approval, you should consider a regular 7a loan which will have a lower rate, and lower overall costs.
Does the SBA offer loans under $50K?
Yes! The SBA calls these ‘Microloans’. We receive many calls and email inquiries asking about smaller loans. We wish we could help but these are well below our minimum loan amount of $400K.
If you’re looking for an SBA loan under $50K – an SBA Microloan – these are funded by the SBA but administered by local nonprofits. Contact these designated microloan lenders directly. Learn more about SBA Microloans & view the state by state list of SBA Microloan providers.
About the Author
Jeff Bardos, CEO, Speritas Capital Partners
Jeff has over 30 years of experience in the financial services industry. After graduating from the Columbia Business School, he joined the New York Federal Reserve Bank as a senior staff member in Bank Supervision, leading the Bank Analysis department. From the nation’s central bank, Jeff moved into the private sector, working at senior levels in commercial banking, retail banking and risk management. He has also played senior founding roles in several start-ups. Learn more about Jeff.
CONTACT INFO
Jeffrey Bardos
CEO Speritas Capital Partners
Call/text Jeff at 203-247-4358
Email Jeff with your financing questions
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Speritas Capital Partners specializes in complex credit, collateral and cash flow situations and we never take upfront fees.
Because Speritas Capital is a debt advisory firm, we have access to a wide variety of lending structures. We’re not beholden to any one lender or structure so we can use our creativity and experience to design a structure that truly fits the needs of our clients.
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