Most lenders participate in the 7(a) Loan Program yet before making your application, you should enquire to see if your bank participates in this program. 7(a) loans are only available on a guarantee basis which means lenders opt to structure their loans by SBA requirements. Lenders make the final decision to approve the loan, either with or without the guarantee which protects the lender up to a certain percentage in the event of default by you, the borrower.
The 7(a) loan is issued by the lender, not by the Government. Therefore, the lender can decide to not approve the loan, even if they have received the guarantee from the SBA. The SBA cannot issue any loans of their own. When applying for this loan program, it is essential that you know your lender’s requirements as well as those of the SBA. Attention will be placed on those candidates who make an effort to follow the guidelines.
To qualify for a 7(a) loan, you must meet four criteria of eligibility: size, be classified as an eligible business, use of proceeds, and have insufficient funds from private sources. Notwithstanding the first two criteria for which franchises qualify, the SBA outlines specifically the use of proceeds from your 7(a) loan. Finally, you must not have sufficient personal financial strength to finance the business.
$2 Million
Vary on criteria of borrower and negotiated with lender. Maximums are:
Fixed or variable, negotiated with lender. Subject to SBA maximums:
Lenders are levied a “guarantee fee” for every loan approved and once disbursed, this fee is reversed onto the borrower. The fees schedule is specific to the amount of the loan and also, there is an annual, ongoing fee levied to the outstanding balance of the loan.
It may seem odd that a lender will penalize you for paying your loan off early. The SBA provides no justification for this action. Nonetheless, the SBA has a penalty rate schedule
