What Type of Businesses Qualify for a SBA 7(a) Loan?

The Small Business Act has a section labeled 7(a), under which it creates an SBA 7(a) loan. This loan is made by a third party lender (either a bank or other financial institution), known as a participant. The loan is guaranteed by the SBA to the lender, up to a certain percentage. This loan is particularly good for businesses having a hard time keeping up with their business or is unable to grow. Here are some of the requirements that a business has to meet in order to qualify for an SBA 7(a) loan.

First of all, the SBA 7(a) loans are for business looking to borrow between $100,000 and $2 million. These businesses must be for-profit, show proof that they don't have the internal resources o generate the kind of money needed, and must require the money in order to refinance, expand, renovate, or otherwise improve their business. Qualifying businesses must also show what the money will be used for. If the money is for investment into other business ventures and/or speculative business moves, then the borrower will be disqualified for an SBA 7(a) loan.

The use of the money is extremely important to figure whether or not a business qualifies for an SBA 7(a) loan. If the money will be used for buying or repairing equipment/ machinery or for buying or repairing fixtures, buildings or facilities, then the applicant can qualify for SBA 7(a) loan. However, if the money will be used for investing in real estate for the purpose of speculation, then the applicant will not be eligible for an SBA 7(a) loan.

For example, a small restaurant is looking to purchase and renovate a building for the purposes of creating a second branch to the restaurant and/or for the purposes of moving to a bigger location. Under SBA 7(a) rules, that restaurant is eligible for an SBA 7(a) loan. However, if a small restaurant is looking to invest money with a conglomerate of other small businesses in order to purchase a rundown strip mall, which they believe can be made into a new and invigorating shopping center, then that restaurant will not be eligible for an SBA 7(a) loan.

The kind or type of business that applies for an SBA 7(a) loan is also very important. If a business does not create a lot of jobs and is otherwise not very useful to the community, it is less likely to receive an SBA loan of any kind, much less and SBA 7(a) loan. However, a business that creates a number of jobs for its community and/or helps its community in other ways, like through community service volunteering and/or fund raising (like churches), then that business is more likely to qualify for an SBA 7(a) loan. The Small Business Act is set up by the United States Government with the purpose of helping small businesses thrive for the betterment of the United States economy. Why? Because small business are the backbone of the country's economy.