What Is an SBA Preferred Lender? | SBA 7(a) Loans (2024)

FAQs

What Is an SBA Preferred Lender? | SBA 7(a) Loans? ›

These loans are typically used for working capital, equipment, and real estate purchases. The SBA 7(a) loan program is the most popular loan program offered by the Small Business Administration. It provides up to $5 million in financing and has a maximum repayment term of 25 years.

The SBA 7(a) loan is the SBA's most flexible business loan program. It can be used for a variety of general business purposes such as purchasing real estate and equipment, refinancing, making tenant improvements, making a business acquisition, accessing working capital and more.

SBA Preferred Lender program

When a bank or financial institution has a “Preferred Lender” status, it has the authority to make final decisions on SBA-guaranteed loans. In contrast, non-preferred lenders must submit the loans directly to the SBA for approval, which can make the process longer.

The SBA requires borrowers to make a 10% down payment on 7(a) loans for startup businesses and business acquisitions. For 7(a) loans used for other purposes, the individual lender may require equity if they do so for their other similar (non-SBA) loans.

SBA 7(a) loans are the most popular type of SBA loan. These loans are federally guaranteed term loans with a maximum loan amount of $5 million. Business owners often use SBA 7(a) loans to finance working capital needs, buy an existing business, refinance debt, or purchase new equipment.

While there are specific cases where you may not have to pay back an SBA loan, in nearly all cases, you do have to pay back the loan, just as with any other traditional small business loan.

SBA Express loans, part of the SBA's 7(a) loan program, offer the easiest application process and the fastest approval times among all SBA loans. These loans, with payoff periods as long as 25 years, are designed for purposes such as refinancing debt, buying equipment, or improving real estate.

Lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose.

With the government backing SBA loans, lenders can provide business loans with less stringent credit standards and lower down payments than conventional loans. Repayment terms on SBA loans are longer than those for traditional loans, extended to up to 10 and even 25 years in some cases.

What disqualifies you from getting an SBA loan? ›

The most common reasons SBA loans are denied are poor credit, too much existing debt, or insufficient collateral. Other reasons include: Prior bankruptcy. Negative taxable income.

The SBA generally doesn't offer 100 percent forgiveness on 7(a) and 504 loans, no matter how dire your finances are. However, for companies that have had to cease operations, the SBA will consider settlements that have been agreed to between a borrower and their loan issuer.

The guarantee fee for SBA 7(a) loans ranges from 0.00 percent up to 3.75 percent. In practice, the guarantee fee on a loan of $1,000,001, with 75 percent guaranteed, would be $1,875 for terms of 12 months or fewer and $10,875.01 for terms greater than 12 months.

It can be difficult to get an SBA 7(a) loan if you don't have strong annual revenue, a good credit score (690+) and at least two years in business. SBA 7(a) loan requirements vary from lender to lender, but you'll generally need to meet these criteria to qualify.

7(a) Small loans exclude: Standard 7(a) loans, SBA Express, Export Express, CAPLines, Export Working Capital Program (EWCP), and Pilot Program loans. For loans $50,000 or less: SBA does not require collateral, except for International Trade loans, which have different requirements.

Business owners defaulting on their SBA loan can apply for loan forgiveness, but that does not guarantee the SBA will approve the request. It is more commonly referred to as an "offer in compromise". The SBA evaluates your case and discusses the matter with the lender.

Current SBA 7(a) loan interest rates

11.5%. *Rates calculated with the current prime rate of 8.5%. Updated June 2024. Keeping up on the Small Business Administration's terms and rates is part of a smart approach to finding a small-business loan.

An SBA 504 loan is commercial real estate financing for owner-occupied properties. These loans require only a 10 percent down payment by the small business owner and funding amounts range from $125,000 to $20 million. On the other hand, SBA 7a loans can be used to buy a business or obtain working capital.