SBA 7(a) Loan Programs
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Obtaining financing for business ventures is often challenging for entrepreneurs. From being in the startup phase to growing your business, you may face difficulties with the requirements of traditional bank loans. But the 7(a) Program may be able to help – its SBA’s primary and most popular program. Here’s some insight to see if this is the right option for you.The information below is an overview of the SBA 7(a) loan programs features.
SBA 7(a) Loan Program
What is an SBA 7(a) Loan Program
The Small Business Administration (SBA) 7(a) Loan Guarantee program is one of the most popular loan programs offered by the agency and is the basic SBA loan program. A 7(a)-loan guarantee is provided to lenders to make them more willing to lend money to small businesses with “weaknesses” in their loan applications.
For example, a business startup would not have cash flow history to provide a lender with the assurance of continued ability to pay back a loan, so the SBA 7(a) loan would serve to provide the lender with an increased guaranty against default. The SBA warns, though, that lenders do not have to accept 7(a) loans.
Key Program Features
- A typical project structure of 75 – 90% LTV and 10 – 25% equity injection
- A maximum loan amount of $2,000,000
- Maturity and Amortization up to 25 years for real estate, 10 years for business acquisition, between 7 to 10 years for debt refinancing and up to 7 years for permanent working capital (blended maturity and amortization will be applied depending on final structure as determined by SBA guidelines)
- Maximum LTV Multi-Use of up to 90%
- Limited or special purpose real estate up to 80% LTV
Some examples of eligible use of proceeds are :
- To purchase land or buildings, to cover new construction as well as expansion or conversion of existing facilities
- To acquire equipment, machinery, furniture, fixtures, supplies or materials
- For long-term working capital, including the payment of accounts payable and/or for the purchase of inventory
- To refinance existing business indebtedness which isn’t already structured with reasonable terms and conditions
- For short-term working capital needs, including seasonal financing, contract performance, construction financing, export production and for financing against existing inventory and receivable under special conditions
- To purchase an existing business.
Some examples of where you wouldn’t be eligible to use proceeds include :
- To effect a partial change of business ownership or a change which would not benefit the business
- To permit the reimbursement of funds to any owner, including any equity injection or injection of capital for the business’ continuance until the loan supported by the SBA is disbursed
- To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow.
The property in question must be occupied by a minimum of 51% by the Small Business Concern (60% for new construction) and of these types :
- Office: Professional, Condominium, Medical, Dental and Veterinarian.
- Industrial: Heavy and Light Manufacturing, Warehouse and R&D Flex.
- Retail: General.
- Special Use: Assisted Living Facilities, Adult Care, Day Care Facilities, Restaurants, Funeral Homes, Hotels/Motels.
Interest rates are generally adjustable based loans, tied to the Prime Index rate. Maturities up to 25 years are available based on use of loan proceeds. Fees are based on the total loan request and calculated on the guaranteed portion of the loan. The SBA fees are not currently being charged as part of the American Reinvestment and Recovery Act.
Am I Eligible?
If you can demonstrate a need for funds and have a sound business purpose in mind, you’re on the right track. To be considered eligible for the SBA 7(a) Loan Program, your business must meet SBA’s size standards and be considered small within your particular industry, operate for profit and you must have reasonable equity to invest.
You’re also required to do, or propose to do business, in the United States or its possessions. Another eligibility requirement is that you must have tried to use other financial resources, including personal assets, before applying for a loan.
To qualify, here are the underwriting requirements :
- You must have prior ownership and management experience
- Minimum FICO of 680
- All loans are Full Recourse and require the personal guarantee of any and all individuals or entities holding 20% of the ownership interest or more
- A 1.25 x Minimum Debt Coverage Ratio (DCR) for the most recent FYE and Interim period is required.
Download our SBA Mortgage Borrower’s Guide
Download our SBA Loan Application
To find out if you qualify for the SBA 7(a) loan program call our office at 800-510-2214 to speak with one of our commercial loan Advisors or click here to request a Free consultation to get prequalified. Disclaimer: Loan program parameters subject to change without notice.