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If you own a small business and need money, you might have heard about the SBA 7(a) loan program. It’s a helpful way for the U.S. Small Business Administration (SBA) to get money for your business to start, grow, and do well. This article will tell you about the SBA 7(a) Business Plan, who can get it, how to use it, how to apply it, the different types, how to pay it back, and how to make a business plan.
You can also refer to our loan officer business plan here.
Definition of SBA 7(a) Loan
The 7(a) loan is the SBA’s primary loan program to help small businesses. The SBA does not give loans directly to businesses. Instead, it guarantees part of the loan from a participating lender. This makes lenders more willing to provide loans to small businesses.
The SBA 7(a) loan program allows up to $5 million, with SBA guaranteeing 85% for loans under $150,000 and 75% above. Interest rates are negotiated between lender and borrower. Still, they must be within SBA maximums based on the prime rate plus an additional amount depending on the individual loan amount and term.
7(a) loans can be used for:
- Buying, improving, or refinancing real estate and buildings
- Short- and long-term working capital
- Refinancing current business debt
- Buying equipment
- Buying furniture, fixtures, and supplies
- Business acquisition
- Multi-purpose loans
SBA 7(a) Loan Eligibility
Your business must meet specific SBA criteria to qualify for a 7(a) loan. These include:
- Be an operating business
- Operate for profit
- Be located in the U.S.
- Be small under SBA Size Requirements
- Not be a type of ineligible business
- Not be able to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources
- Be creditworthy and demonstrate a reasonable ability to repay the loan
Some businesses are not eligible for a 7(a) loan, such as:
- Non-profit businesses (for-profit subsidiaries are eligible)
- Lending institutions like banks, finance companies, factors (except certain pawn shops)
- Passive real estate companies not actively occupying or using assets acquired with loan proceeds (except Eligible Passive Companies)
- Life insurance companies
- Foreign businesses (U.S. businesses owned by aliens may qualify)
- Pyramid schemes
- Businesses earning over 1/3 of revenue from gambling
- Illegal businesses
- Private clubs limiting memberships
- Government-owned entities (except Tribal)
- Loan packagers earning over ⅓ of revenue from SBA loans
- Businesses with owners incarcerated, on probation/parole, or indicted for financial crimes
- Businesses owned by lenders or CDCs
- Adult entertainment businesses
- Defaults on previous government loans (waivers available)
- Political or lobbying businesses
- Speculative businesses like oil wildcatting
The SBA also considers other factors such as your industry, management experience, market potential, collateral, and equity contribution.
Using the SBA 7(a) Loan
The 7(a) loan can be used for various purposes related to your business operations and growth. 7(a) loans can be used for:
- Acquiring, refinancing, or improving real estate and buildings
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing and installing machinery and equipment
- Buying furniture, fixtures, and supplies
- Facilitating ownership changes
- Multipurpose loans that combine several eligible uses
The 7(a) loan program has certain restrictions on the use of funds. Four key restrictions of use of SBA 7(a) loan include:
- Personal expenses or dividends
- Repaying delinquent taxes or debts owed to the government
- Financing illegal activities or unapproved products/services
- Influencing any federal employee or official
The SBA also has some specific requirements and guidelines on how you can use the SBA 7(a) loan funds for certain purposes, such as:
- Working Capital: Can be used for short-term needs like inventory, payroll, and marketing. It cannot be used for permanent working capital or fixed assets.
- Debt Refinancing: Can refinance existing business debt if current and not guaranteed by a federal agency. Cannot refinance to get a lower interest rate or longer maturity.
- Real Estate: Can purchase or improve real estate used by the business. Must occupy at least 51% of existing property or 60% of new construction.
- Equipment: Can purchase or install essential business equipment with a useful life of at least ten years that will be depreciated over that period.
Applying for the SBA 7(a) Loan
SBA 7(a) Loan Application Requirements
To apply for a 7(a) loan, you must submit a loan application package to an SBA-approved lender. The lender will review your application and decide whether to approve it. The SBA will also review your application and decide whether to guarantee it.
The loan application package generally consists of the following documents and information:
- SBA Form 1919 – Borrower Information Form
- SBA Form 1920 – Lender’s Application for Loan Guaranty
- Business plan – A document that describes your business goals, strategies, market analysis, financial projections, and operational details
- Personal financial statement – A document that shows your personal assets, liabilities, income, and expenses
- Business financial statements – Documents that show your business income, expenses, assets, liabilities, and cash flow
- Tax returns – Copies of your personal and business tax returns for the past three years
- Collateral – Documents that show the value and ownership of the assets you are pledging as security for the loan
- Other documents – Depending on the type and purpose of the loan, you may need to provide additional documents, such as:
- Lease agreements
- Purchase agreements
- Franchise agreements
- Licenses and permits
- Contracts and invoices
- Resumes and references
Depending on the size and complexity of your loan request, your lender may ask for additional documents or information.
SBA 7(a) Loan Application Process
To apply for an SBA 7(a) loan, you must follow some steps and meet some requirements. Here is what you need to do and what you need to know:
1. Find a SBA 7(a) Lender
You can search for an SBA-approved lender online or contact your local SBA district office for referrals. You can also use the Lender Match tool offered by SBA to connect with lenders that offer 7(a) loans.
2. Prepare your application
You will need to gather all the required documents (See the SBA 7(a) Loan Submission Checklist for specifics) and information and write a business plan for your SBA 7(a) loan proposal. You can use resources like SBA’s Business Plan Tool to help you create a professional and comprehensive plan.
3. Submit your application
You will apply for your loan directly through your lender. You can submit your loan application package to your lender online or in person. Your lender will review your application and perform a credit analysis and due diligence. The lender may also ask you for additional information or documents if needed.
4. Wait for the approval
Based on their criteria and policies, the lender will decide whether to approve or decline your loan request. The SBA will also decide whether to guarantee or decline your loan request based on their eligibility requirements and guidelines. The decision time may vary from a few days to weeks, depending on the 7(a) loan type and the lender’s processing method.
5. Close the loan
Once you receive the SBA’s approval, you must sign the loan agreement and other closing documents with your lender. You will also need to pay any fees or charges associated with the loan. Your lender will disburse the funds according to the agreed schedule and purpose.
Types of SBA 7(a) Loans
The SBA offers several types of 7(a) loans to meet the diverse needs of small businesses. Each type has its features and benefits. Some of the most common types of 7(a) loans are:
Standard 7(a) Loans
Standard 7(a) Loans are 7(a) loans over $500,000, excluding 7(a) Small, SBA Express, Export Express, CAPLines, EWCP, International Trade loans, and Pilot Programs.
Key Features:
- Loan Amount: $500,001 to $5 million
- Maximum SBA Guarantee: 75%
- Interest Rate: Negotiable up to SBA maximum
- Revolving Lines of Credit: Only for SBA Express, Export Express, CAPLines
- SBA Turnaround Time: 5-10 business days
- Required Forms: SBA Form 1919
- Collateral: Fully secured if the lender takes security interests in all assets acquired, refinanced, or improved with the 7(a) loan, plus available fixed assets, up to the loan amount.
- Other Conditions: See SOP 50 10
- Credit Decision: By SBA or PLP lenders with authority to process, close, service, and liquidate without SBA review.
7(a) Small Loans
7(a) Small Loans are term, non-revolving 7(a) loans of $500,000 or less, excluding Standard 7(a), SBA Express, Export Express, CAPLines, EWCP, and Pilot Program loans.
Key Features:
- Maximum Loan Amount: $500,000
- Maximum SBA Guarantee: 85% for loans ≤ $150,000; 75% for loans > $150,000
- Interest Rate: Negotiable up to SBA maximum
- SBA Turnaround Time: 2-10 business days
- Required Forms: SBA Form 1919
- Collateral:
- Loans ≤ $50,000: No collateral required, except for International Trade loans
- Loans $50,001 – $500,000: Lender follows own collateral policies for similarly-sized non-SBA loans; cannot decline solely due to inadequate collateral
- Credit Decision: By SBA or delegated lenders authorized to process, close, service, and liquidate without SBA review
SBA Express Loans
The SBA Express program allows lenders to use their own processes and procedures in exchange for a lower SBA guarantee percentage.
Key Features:
- Maximum Loan Amount: $500,000
- Maximum SBA Guarantee: 50%
- Interest Rate: Negotiable up to SBA maximum
- Revolving Lines of Credit: Up to 10 years
- Forms: Lender uses own forms, plus SBA Form 1919
- Collateral:
- Loans ≤ $50,000: No collateral required
- Loans > $50,000: Lender collateral policy applies, except loan cannot be declined solely for inadequate collateral
- Credit Decision: Made by the lender
Export Express Loans
The Export Express program guarantees smaller revolving lines of credit or term loans to help small businesses expand exporting. It offers streamlined features like SBA Express, with higher guarantees to mitigate international risk.
Key Features:
- Maximum Loan Amount: $500,000
- Maximum SBA Guarantee: 90% for loans ≤ $350,000; 75% for loans > $350,000
- Interest Rate: Negotiable up to SBA maximum
- Revolving Lines of Credit: Up to 7 years
- Forms: Lender uses own forms, plus SBA Form 1919
- Collateral:
- Loans ≤ $50,000: No collateral required
- Loans > $50,000: Lender policy applies; cannot decline solely for inadequate collateral
- Credit Decision: Made by the lender
Export Working Capital Loans
The 7(a) Export Working Capital Program (EWCP) provides loans to businesses that generate export sales and need additional working capital to support these sales.
Key Features:
- Maximum Loan Amount: $5 million
- Maximum SBA Guarantee: 90%
- Interest Rate: Negotiated between lender and borrower, no SBA maximum
- Revolving Lines of Credit: Terms up to 36 months
- Forms: SBA Form 1919
- Collateral: Export-related inventory and foreign accounts receivable generally provide adequate coverage
- Credit Decision: By SBA or delegated lenders can process, close, service, and liquidate without SBA review
International Trade Loans
The 7(a) International Trade loan program guarantees term loans to improve the competitive position of small businesses in international trade. These loans can be used for:
- Existing exporters developing new export markets
- Businesses adversely affected by import competition
- Improving facilities/equipment to produce goods/services for international trade
- Working capital for export transactions
Key Features:
- Maximum Loan Amount: $5 million
- Maximum SBA Guarantee: 90%
- Interest Rate: Negotiable up to SBA maximum
- SBA Turnaround Time: 5-10 business days
- Credit Decision: By SBA or delegated lenders can process, close, service, and liquidate without SBA review
CAPLines
CAPLines are revolving lines of credit that provide short-term working capital to help small businesses meet their cyclical or seasonal cash flow needs.
There are four types of CAPLines:
- Seasonal Line
- Contract Line
- Builders Line
- Working Capital Line.
Repayment of the SBA 7(a) Loan
The 7(a) loan repayment terms are agreed upon between the lender and borrower. The lender provides a repayment schedule specifying:
- Payment amount and frequency
- Interest rate
- Fees
Fees
Lenders must pay the SBA both an upfront guaranty fee and an ongoing annual service fee, but they can pass these costs on to the borrower. The SBA publishes the amount of these fees each year. Lenders and agents are limited in the fees they can directly charge the borrower.
Percentage of Guaranty
The SBA charges a guaranty fee to the lender for each 7(a) loan. The lender may pass this fee on to you as part of the closing costs. The guaranty fee varies depending on the loan amount, the guarantee percentage, and the repayment term.
- Up to 85% guaranty for loans of $150,000 or less.
- Up to 75% guaranty for loans above $150,000.
- 50% guaranty for SBA Express loans.
- 90% guaranty for Export Express, Export Working Capital Program (EWCP), and International Trade loans.
Interest rates
The borrower and lender negotiate interest rates for 7(a) loans. Still, they are subject to maximums set by the SBA. These maximums are tied to the prime rate or an optional peg rate. The interest rates can be fixed or variable. SBA publishes the maximum fixed interest rates. The maximum variable interest rates are based on the loan amount, as follows:
Prepayment Penalty
For loans with maturities of 15 years or longer, prepayment penalties apply under the following conditions:
- The borrower voluntarily prepays 25% or more of the outstanding loan balance
- The prepayment occurs within the first three years after the date of initial loan disbursement
The prepayment fees are calculated as a percentage of the prepayment amount as follows:
- 5% fee if prepayment is made in year 1 after disbursement
- 3% fee if prepayment is made in year 2 after disbursement
- 1% fee if prepayment is made in year 3 after disbursement
No prepayment penalties apply after the first 3 years from initial disbursement.
Tips for Efficient Repayment of SBA 7(a) Loan:
- Make timely, full payments
- Track loan balance and interest
- Budget for payments
- Minimize expenses, save money
- Seek additional income/financing if needed
- Communicate with a lender about any changes
Focus on understanding the lender’s repayment terms, budgeting properly, and making timely payments. Ask the lender for clarification as needed.
Writing a Business Plan for the SBA 7(a) Loan
Your business plan makes the case for your company’s viability and your ability to repay borrowed funds. Follow these guidelines to write a plan that secures financing:
- Use the SBA’s outline. The SBA’s template covers all required sections including the company overview, market analysis, organization, operations, and detailed financials.
- Be concise and direct. Use clear language, bullet points, and headings to concisely convey your business model and opportunities. Avoid jargon and keep the plan under 50 pages.
- Provide accurate projections. Thoroughly research your industry and create realistic forecasts for sales, expenses, and profits. Provide historical data to support your projections.
- Demonstrate expertise. Highlight your management team’s experience. Provide credentials and track records that prove you can execute your business plan.
- Address risks honestly. Identify potential threats along with plans to mitigate them. This shows you have done careful risk assessment.
- Outline milestones. Define goals and performance metrics to track progress. This enables you to monitor success and pivot if needed.
- Use visuals strategically. Charts, graphs, and tables help summarize data and highlight trends. They make your plan more readable.
With a well-structured, realistic, and persuasive plan, you can convey your business’s full potential and ability to repay borrowed capital. This significantly improves your chances of SBA loan approval.
Sample SBA 7(a) Loan Proposal
To give you an idea of what a 7(a) loan proposal looks like, here is a sample outline of a business plan for a fictional company called ABC Bakery. This is not a complete or perfect example, but rather a simplified and illustrative one.
ABC Bakery SBA 7(a) Loan Business Plan
Executive Summary
- Summary of business goals, target market, competitive analysis, financial projections, and loan amount requested
- Highlight key points on why the business deserves funding
Company Description
- Legal business name, incorporation status, EIN, address, website
- Founding date, key personnel, their experience and qualifications
- Company vision, values, objectives, and long-term goals
Products and Services
- Details on types of baked goods offered
- Ingredients sourcing, production process, quality control procedures
- Packaging, pricing, inventory management
- Order fulfillment process and delivery options
Market Analysis
- Overview of bakery and cafe industry trends
- Demographic details on target customers
- Competitor products, pricing, quality, brand recognition
- Relevant regulations and opportunities for growth
Marketing Plan
- Pricing strategy aligned with positioning
- Planned promotions, partnerships, social media, SEO
- Distribution channels such as retail, wholesale, online
- Key metrics to measure performance
Operations Plan
- Leadership organizational chart
- Key roles and responsibilities
- Location requirements, equipment, suppliers
- Policies for health and safety, sustainability
Financial Plan
- Past financials and 5-year monthly projections
- Assumptions behind the projections
- repayment terms based on projections
Appendix (additional supporting documents)
- Resumes of key personnel
- Letters of reference or recommendation
- Contracts or agreements
- Licenses or permits
- Patents or trademarks
- Market research or surveys
- Product samples or brochures
- Financial statements or tax returns
OGSCapital: Your Partner in Crafting Effective SBA 7(a) Business Plans
Creating a strong SBA 7(a) business plan is challenging, but it is also critical for loan approval. At OGSCapital, our SBA business plan consultants specialize in crafting captivating narratives that resonate with lenders. With industry insight across sectors, we forge personalized SBA 7(a) loan business plans that spotlight your business’s essence and potential.
With meticulous market research, precise financial projections, and polished presentation, our business plan writers prepare plans to set you apart. Whether a startup or established, team up with us at OGSCapital for a competitive edge that ensures your SBA loan application shines.
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Frequently Asked Questions
Q. Do SBA loans require a business plan?
Yes, SBA loans require a business plan. A business plan is a crucial piece of any SBA loan application. It’s what lenders will look at most closely when approving a loan, so it should be organized, well planned and persuasive.
Q. How do I write a business plan for SBA?
You can write a business plan for SBA by following the business plan guide provided by the U.S. Small Business Administration. They offer a business plan template and examples that you can use to create your own plan. Alternatively, you can refer to our financial advisor business plan.
Q. What is a SBA plan?
A SBA plan is a business plan that follows the specific formatting and requirements for SBA loan approval. The SBA provides detailed instructions on what to include in each section of your plan.
Q. What are the parts of a business plan for SBA?
Depending on your choice, you can write a traditional or a lean startup plan for SBA. A traditional plan is more detailed and has nine sections, such as executive summary, market analysis, and financial projections. A lean startup plan is more concise and has four sections, such as value proposition, problem and solution, and target market.
OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.
