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General Information:
The 7(a) is one of the flagship loan guaranty programs of The
Small Business Administration (SBA). SBA does not lend the money
directly (a few exceptions do apply) but provides an added security
to the lenders. Because of this guaranty the lenders are able
to make loans to small & mid size businesses (SMBs).
The eligibility requirements and credit criteria are very broad
in nature and also depend upon the credit policies of the bank
or the lending institution. In theory the credit criterion seem
very broad to accommodate a wide range of businesses, but in
practicality, it is up to the bank, which makes the final decision
as weather to process the loan application or not. If the bank
decides to make loan, it will forward the loan application and
the documents to SBA for approval. If further approved by SBA,
it will issue a guarantee to the initiating bank up to 85% of
the first $150,000 and 75% of the amount over $150,000. In general,
the maximum guaranty is up to $1 million.
There are no fees under 7(a) programs. The term of loan may
5 to 7 years for working capital loans and up to 15 or longer
terms for fixed assets. Generally, fixed and variable interest
rates are allowed under the program. Interest rates are based
on prime+2.25 for loans with maturities of less than seven years.
Rates may be higher for loans under $25,000 and for longer-
term loans.
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