Did you know that only 30% of small business loan requests are approved? Money can be a big problem for businesses, leaving them feeling lost and stressed.
Senior Housing Lender knows the unique problems small companies face and is committed to helping them navigate the often confusing funding process. We help businesses obtain money by securing government-backed loans, such as the SBA 7(a) program.
This blog post has everything you need to know about how to get approved for an SBA 7(a) loan. We will discuss essential things lenders look at, important application tips, and typical mistakes you should avoid.
What are SBA 7(a) Loans?
The U.S. Small Business Administration’s loan schemes are based on SBA 7(a) loans. These loans help many businesses, from new ones to those that have been around for a while. They’re a good alternative to standard bank loans because the terms are often more flexible, and the payments are easier to make.
Who are they for?
SBA 7(a) loans are primarily for small businesses that meet specific requirements for size and income. In general, they work well for companies that:
- Are businesses that make money
- Do business in the United States
- have proof that they need the money
General Purpose
You can use an SBA 7(a) loan for many business reasons, such as:
Working cash is used to pay for day-to-day business costs.
Purchases of equipment: To buy new tools, technology, or other things that are needed
Purchase of real estate: To buy commercial land or fix it up
Businesses must grow to fund growth projects like adding staff or entering new markets.
This blog post will discuss SBA 7(a) loans in more detail and provide tips on improving your chances of getting the money your business needs.
Types of SBA 7(a) Loans
The SBA 7(a) loan program offers several variations to cater to different business needs:
7(a) Standard
Overview: This is the most common type of 7(a) loan, offering flexible funding for various business purposes.
Key Features
- Maximum loan amount: $5 million.
- It can be used for various purposes, including working capital, equipment purchases, real estate acquisitions, and business expansion.
- It requires a more comprehensive application process than other 7(a) loan options.
7(a) Express
Overview: Designed for smaller loan amounts and streamlined application processes.
Key Features
- Maximum loan amount: $500,000
- Faster application processing and funding compared to standard 7(a) loans.
- It is ideal for businesses with minor financing needs who prefer a quicker application process.
7(a) Patriot Express
Overview: Specifically for veterans and military families.
Key Features
- Maximum loan amount: $500,000
- Streamlined application process with expedited funding.
- Designed to support veterans and military families in their entrepreneurial endeavors.
SBA 7(a) International Trade
Overview: Supports businesses engaged in international trade activities.
Key Features
- Maximum loan amount: $5 million
- It can finance export-related activities, such as purchasing inventory for export, expanding into new foreign markets, or covering export-related expenses.
SBA 7(a) Equipment
Overview: Specifically for purchasing equipment.
Key Features
- Maximum loan amount: $5 million
- It can finance the acquisition of machinery, equipment, and other necessary assets for business operations.
The specific terms and conditions of each 7(a) loan type may vary. It’s essential to consult with an SBA-approved lender or a financial advisor to determine the most suitable option for your business needs.
Benefits of SBA 7(a) Loans
These are some of the best things about SBA 7(a) loans:
Low Interest Rates: The interest rates on SBA 7(a) loans are usually lower than those on regular bank loans. This makes them more affordable for small businesses.
Longer Loan Terms: The repayment terms for these loans are usually longer. This gives businesses more time to repay the loan and better manage their cash flow.
Flexible Funding Options: As you said, SBA 7(a) loans can be used for various business reasons, allowing businesses to meet multiple financial needs.
Government support: The SBA backs some of the loans lenders make. This lowers the risk for lenders and raises the chances of loan approval for small businesses that might not otherwise be able to get traditional financing.
Because of these perks, SBA 7(a) loans are an excellent way for many small businesses to get the money they need to grow and expand.
SBA 7(a) Loan Eligibility Requirements
Business Eligibility
“Small Business” Definition: To be considered “small,” a “small business” must meet specific size requirements set by the SBA. These standards are essential for eligibility and vary by business.
Industry Size Standards: The SBA examines a business’s number of employees, yearly revenue, and tangible net worth, among other things, to determine whether it is within the size limits of its industry.
Industries Not Eligible: The following industries are not eligible for SBA 7(a) loans:
- Real estate investment firms
- Lending institutions
- Speculative businesses
- Illegal or non-profit organizations
Borrower Eligibility
US Citizenship or Legal Residency: People who want to borrow money must be US citizens or legal residents.
Character and Creditworthiness: You need to have a good credit background. Lenders will examine credit scores, payment history, and experience of not paying bills on time.
Shown Capacity to Pay: Lenders will decide if the client can pay back the loan by looking at things like
- Business Plan: It’s essential to have a well-thought-out and sensible business plan.
- Financial Statements: You need accurate and up-to-date financial statements, such as income statements, balance sheets, and cash flow statements.
- Cash Flow Projections: It is essential to show that you have enough cash flow to repay your loans.
Collateral: Depending on the loan size, you may need to put up collateral to protect it.
If you meet these standards, your chances of getting an SBA 7(a) loan go up. It’s best to read the SBA’s official rules carefully and get personalized advice from an SBA-approved provider.
How to Get Approved for an SBA 7(a) Loan
Prepare a Strong Business Plan
A thorough and well-written business plan is essential to any loan application. It shows you know the market, your business, and how to reach your goals.
Key Sections
Executive Summary: A summary of your business, its goals, and your loan request.
Company Description: A complete account of your company, its goods and services, and what makes it unique from others in the same field.
Market Analysis: A complete look at your target market, including how big it is, how much competition there is, and what the trends are in the market.
Management Team: Information about the experience, skills, and abilities of the people on your management team.
Service or Product Line: A complete list of your goods and services, with prices, marketing plans, and expected sales.
Your marketing and sales strategy is your plan for attracting customers, making sales, and making people aware of your brand.
Financial Projections include income statements, balance sheets, and cash flow statements. They should be realistic and attainable.
Funding Request: Clearly state the amount of the loan requested and how it will be used.
Loan Repayment Plan: Write down how you will repay the loan and where the money will come from.
Financial Projections: Ensure your financial projections are realistic, supported by data, and demonstrate a clear path to profitability.
Improve Your Credit Score
Your credit score significantly impacts your loan eligibility and interest rates. A higher credit score demonstrates your creditworthiness and reduces lender risk.
Tips for Improvement
Pay Your Bills On Time: Pay all your bills on time, like rent, credit card bills, and utilities.
Keep Credit Card Amounts Low: Keep your credit card amounts low compared to your credit limits. Aim for a loan utilization ratio that is less than 30%.
Dispute Any Errors: Check your credit records often and tell the credit bureaus about any mistakes.
Limit Your Applications for New Credit: Trying to get new credit can temporarily lower your score.
Think about getting a Credit Builder Loan. If you pay these small loans back on time, they can help you build your credit past.
Organize Your Financial Documents
Essential Documents
Personal and Business Tax reports: You must usually file reports for over a year.
Profit and Loss Statements: These have been made monthly or three months for the past year or two.
Balance Sheets: Statements made monthly or three months for the past year or two.
Bank Statements: Statements from your personal and business accounts from the last few months.
Lease Agreements: Copies of leases for business space and gear.
Claims: Copies of business insurance claims, like property and general liability insurance.
Personal Financial Statements: If the investor asks for them, give them your financial statements, which list your assets and debts.
Organization: Keep all documents organized, accurate, and easily accessible for quick retrieval.
Demonstrate Strong Cash Flow
Lenders want a healthy and consistent cash flow to ensure you can repay the loan.
Tips for Improvement
Reduce Costs: Identify and eliminate unnecessary costs, such as subscriptions you don’t use or high energy bills.
Improve Inventory Management by keeping costs as low as possible and lowering the risk of items going out of date.
Talk to Your Suppliers About Better Terms: Talk to your suppliers about better payment terms, like discounts for paying early or longer payment terms.
Improve Collection Processes: To ensure customers pay on time, streamline your billing and collection processes.
Choose the Right Lender
Research the different SBA lenders, such as banks, credit unions, and non-bank loans.
Things to consider: Check out the costs, interest rates, loan terms, and how long the lender has offered SBA loans.
Build Relationships: To build relationships, talk to possible lenders and attend events in your field.
Work closely with an SBA Lender.
Proactive Communication: During the whole loan application process, be Proactive and talk to people.
Quickly Address Concerns: Take care of any lender issues quickly and correctly.
More information: If the lender asks, be ready to give it to them.
These tips will increase your chances of getting an SBA 7(a) loan and help you achieve your business goals.
The SBA Loan Application Process
Gather Necessary Documentation
Create a Checklist
Make a complete list of all the papers that are needed. This may include the following, but it will depend on the loan scheme and lender’s rules:
Personal and Business Tax reports: You may need to file reports for over a year.
Profit and Loss Statements: These have been made monthly or three months for the past year or two.
Balance Sheets: Statements made monthly or three months for the past year or two.
Bank Statements: Statements from your personal and business accounts from the last few months.
Lease Agreements: Copies of leases for business space and gear.
Claims: Copies of business insurance claims, like property and general liability insurance.
Personal Financial Statements: If the investor asks for them, give them your financial statements, which list your assets and debts.
Business Plan: A thorough and well-written plan for a business.
Key Personnel Resumes: These are the resumes of the most critical people on your management team.
Accuracy and Completeness: Ensure all documents are complete, accurate, and up-to-date. Any discrepancies or missing information can delay the application process.
Complete the SBA Loan Application
For most SBA 7(a) loans, SBA Form 1003 is the main form you must complete. It has a lot of different kinds of information about your business, like:
Business details like ownership, legal organization, and the type of business.
Income, expenses, investments, and debts are all examples of financial information.
Loan Request: The amount of money being asked for and what it will be used for.
Payment Plan: This is how you intend to pay back the loan.
Accurate and Quick Finishing: Carefully read the directions before you complete the application.
Do your best and be thorough: You should give complete and correct details in every section.
Get help from a professional: Talk to a business expert or accountant about correctly filling out the application.
Submit the Application
Send Application to Lender: Send the finished application along with all supporting documents to the lender of your choice.
Follow up: Contact your loan officer again to see how your application goes. Keep in touch regularly to address any questions or issues quickly.
Lender Review and Underwriting
Lender Review: The lender will review your application and supporting documentation to assess your creditworthiness and the viability of your business.
Underwriting Criteria: Common underwriting criteria include:
Account information: This is both your personal and business credit information.
Cash Flow: The loan can be paid back with your business’s money.
Financial Statements: How correct and complete your financial statements are.
Business Plan: How realistic and sound your business plan is.
Collateral means that there is enough collateral to back up the loan.
SBA Approval
SBA Review: Once the company agrees to work with you, they will send your application to the SBA for final approval and review.
SBA Approval Process: The SBA will look over the lender’s choice and may ask for more information.
Possible Delays: Sometimes, the SBA approval process takes longer than expected.
Dealing with Delays: If you encounter delays, contact your loan and the SBA immediately to find out why they’re occurring and what to do next.
Using SBA 7(a) Loan Funds Wisely
Develop a Detailed Budget
Make a Budget: Before you get the loan money, you should make a thorough budget that shows how you will spend it.
List expenses in order of importance to your business’s growth and success.
Keep track of your spending With care: Use accounting tools or spreadsheets to keep careful track of all your spending.
Review and make changes often: Review your budget regularly and make changes as needed based on actual costs and changes in your business’s performance.
Maintain Accurate Financial Records
Careful Record-Keeping: During the loan time, keep financial records such as income statements, balance sheets, and cash flow statements.
Reviewing often: Regularly review these financial records to monitor your business’s economic health, spot potential problems, and track your progress toward your goals.
Get expert advice: Talk to an accountant or financial expert to help you keep good money records and make wise choices.
Make Timely Loan Payments
Set up automatic payments: Set up automatic payments to ensure you repay your loan on time and avoid late fees.
Talk to Your Lender: If you have trouble making your loan payments, call your lender immediately to find immediately feasible solutions, like a brief description or a different repayment schedule.
Build a Strong History of Repayment: Paying back your loans on time is crucial for keeping your credit score high and getting along well with your backer.
Comply with Loan Agreement Terms
Know what the agreement says: Read and fully understand the loan agreement’s terms and conditions.
Adhere to Restrictions: Adhere to any restrictions on how the loan funds can be used, such as limitations on personal use or prohibited costs.
Keep up with compliance: Maintain compliance with all loan covenants and reporting requirements throughout the loan.
By following these guidelines, you can ensure that you use your SBA 7(a) loan funds effectively, achieve your business goals, and keep a positive relationship with your lender.
Senior Housing Lender – Your Trusted SBA Loan Partner
Senior Housing Lender is one of the best places to get an SBA 7(a) loan because it has been reviewing loans for over 30 years and has a history of success. We know all the ins and outs of the SBA banking process and can help you through every step, from completing the application to getting the loan approved.
Because we can connect you with more than 200 private loans, we can find the best rates and terms for your needs. We can also help you navigate the complicated SBA 7(a) lending process, no matter how much business experience you have or how new you are to it.
Contact us immediately for a complimentary meeting to discuss your SBA 7(a) loan needs. Our team of experts will review your case, answer your questions, and help you find the best way to fund your business.
Don’t let the difficulty of understanding SBA 7(a) loans stop you. Call Senior Housing Lender immediately, and we’ll help you get the money your business needs to succeed.
Conclusion
An SBA 7(a) loan can help small businesses get the money needed. You can significantly raise your chances of being approved by carefully creating a strong business plan, working to improve your credit score, and organizing your financial records.
Remember that applying for an SBA 7(a) loan requires careful planning and attention to detail. Working with a seasoned lender, such as a Senior Housing Lender, can be very helpful and provide valuable advice.
With the right help and careful planning, small businesses can navigate the application process and get the SBA 7(a) loan money they need to grow.
FAQs
What are the typical interest rates for SBA 7(a) loans?
Interest rates on SBA 7(a) loans can change based on several factors, such as the borrower’s credit score, the loan amount, and the type of loan (e.g., 7(a) Standard, 7(a) Express). Most of the time, the interest rates on SBA 7(a) loans are lower than those on standard bank loans.
What are the typical loan terms for SBA 7(a) loans?
Depending on the reason for the loan, SBA 7(a) loans usually have longer repayment terms than regular bank loans. These terms can range from 7 to 25 years. Businesses that have longer terms better manage their cash flow.
What happens if I miss an SBA 7(a) loan payment?
If you miss a loan payment, you might have to pay late fees, your credit score could drop, and you might even have to fail on the loan. If you have trouble paying, call your lender immediately to discuss options, like a brief delay or a different repayment plan.
Can I refinance existing debt using an SBA 7(a) loan
SBA 7(a) loans can sometimes be used to pay off other business debt. However, specific standards must be met to be eligible, and the loan money must be used to improve or grow the business.
How long does getting approved for an SBA 7(a) loan typically take?
The process for getting an SBA 7(a) loan approved can be very different based on several factors, such as the complexity of the application, the time it takes the lender to process it, and the time it takes the SBA to review it. Sometimes, getting the final approval can take weeks or even months.
