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Could An SBA Loan be Right For You?

Are you looking for a loan for your small business, or have you been turned down for a conventional loan? The Small Business Administration has several programs suited for small businesses — the most common of which is the 7(a) loan.

The 7(a) loan doesn't come directly from SBA, rather, an authorized SBA lender (a bank, for example) endorses the loan, and the SBA guarantees a portion of it, reducing the risk for that bank. This guaranty enables the bank to make a loan that it may have otherwise turned down.

The federal government has a vested interest in encouraging small business growth (more employment opportunities, for example). As a result, some SBA loans have less stringent requirements for owner's equity and collateral than conventional commercial loans, making the SBA an excellent financing source for start-ups, franchises, working capital and more.

Who Is Eligible For SBA 7(a) Loans?

The lender/bank determines a borrower's eligibility, so a lot depends on the credit-tolerance of the lender, but borrowers must meet minimum SBA eligibility standards such as:

  • Operate a for-profit business
  • Possess reasonable ownership equity to invest
  • Demonstrate a need for the loan
  • Conduct the business in the United States
  • Exhibit management capability and reasonable experience in the industry

In what ways Can the Funds From SBA 7(a) Loans Be Used?

Businesses who obtain loans from the 7(a) program can use the proceeds to purchase equipment and inventory, augment working capital, refinance debt, purchase owner-occupied commercial real estate, start a business or franchise, or purchase an existing business. SBA 7(a) loans can range from $50,000 to $5 million with the amortization, in general, from ten years on working capital and equipment up to 30 years for real estate. Interest rates vary but the lender cannot exceed SBA's guidelines.

Are There Eligibility Guidelines?

Lenders apply the same criteria that they would with a traditional loan, but thanks to the SBA guaranty, some standards may be relaxed. The lender will judge a business based on several factors:

  • Equity investment: The more "skin-in-the-game" an owner has, the better.
  • Cash Flow: Does the business plan show enough cash flow to meet the debt obligation?
  • Collateral: Do the borrowers own anything of monetary value that can be used as collateral in the event of default?
  • Management: Do the borrowers have sufficient experience or background?

Finally, SBA loans can originate from most banks/ institutions anywhere in the United States, and can be structured to accommodate state-to-state income tax practices. Most banks will walk prospective borrowers through the application process.


To discuss your creative financing options contact Carolyn Gegg at 636.628.6984 or e-mail her at Cgegg@Fortunefincorp.comm.

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