Factors to Consider When Borrowing under the SBA’s 7(a) Lending Program


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The Small Business Administration 7(a) loans are the primary source that small business owners seek to finance a business venture throughout the country. There are numerous factors that need consideration such as interest rates, flexibility of payments and growing or expanding the business once enough revenue received increases the possibility.

Small business owners or those trying to own a company seek the SBA’s 7(a) loan programs to finance the operation. Many view these as the most flexible with low interest rates and are available to a person or group seeking to build a possible commercial success. However, there are certain factors to consider. These include payments to the SBA once the contract is complete, the terms and conditions and default of payment. Before a loan becomes part of the business, the owner must ensure his or her company is set. A business plan is often a must. Communication and contact with the SBA is vital. Networking and building a circle contacts is beneficial.

Getting the Loan

One primary concern with initiating the 7(a) loan program with the SBA is getting the loan. This is frequently the most difficult to accomplish. For those seeking this option, it is best to start out online. Seeking information through the SBA website is generally the first step. There are contact pages for additional information and to talk to a representative. However, the owner’s documents, tax returns and business records all help in acquiring the loan. Applications need filing, personal history is necessary and various other forms are sent to the SBA. The individual needs to have a business license and the ability to operate in the state. Additional considerations may include intellectual property, a leased building and similar paperwork.

Loan Details

While there is a large amount of paperwork necessary to acquire the loan, the details are important to those seeking to build a business. It is possible to borrow up to $5 million in funds as working capital for creating or expanding a company. These funds may also have use in buying equipment tools. Some important factors with these details are that the loan may process through a bank or credit union. Some specialized lenders may involve the business in certain conditions. These funds ae federally guaranteed when the applicant succeeds in acquiring the money. There are additional loan types other than the 7(a), but this is the most popular and widely used.

While the SBA loan is for small businesses, they are usually transferred through participating banks. Some other agencies may provide funding, but certain banks are often the most used in these agreements. The $5 million is a max amount. However, most business owners borrow between $150,000 and $375,000. The guarantee of funds for the lower amount is at about 85 percent with loans greater than $150,000 guaranteed up to 75 percent of the time. It is important to know exactly how much is necessary to build or expand. This will cut down other costs and ensure that the right loan provided to the business owner applies to the most appropriate items.

Interest Rates and Payment Terms

After the possibility of acquiring a 7(a) loan becomes reality, the individual needs to consider the interest rates that could apply based on the other conditions. These rates are usually set through a standard rate with a spread or a market rate. This could range from 2.25 percent to 7.25 based on the length and amount borrowed. If the owner of the company borrows only $50,000 for a short term that may involve less than seven years, the optimum 2.25 percentage may apply. However, if the same amount requires seven or more years to pay back, the maximum interest rate of 7.25 is the more likely scenario.

Repayment terms are important for the business owner. The lower the annual percentage rate, the greater the perks available such as a longer term to pay back. For working capital for the company, the loan may have a life of seven years. Equipment purchases for the business could permit ten years. When real estate is necessary, 25 years are possible. More money is available for business needs when the individual requires larger purchases, and this could reach up to the max of $5 million.

Business Lawyer in 7(a) Loans

It is crucial to have a lawyer to ensure the loan is valid and all specifics worked out do not negatively affect the company. The lawyer may need to look over the documentation.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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