How to Apply for a SBA 7(a) Loan

The most basic, and therefore most popular, of all the loans that the Small Business Act (SBA) authorizes are the SBA 7(a) loan. The loan is named after a section in the SBA by the same title. These loans are provided by non-government, third party lenders called participants with a percentage of the loan guaranteed by the SBA. Participants are basically American banks and other non-bank lenders that participate in the SBA's 7(a) program. A 7(a) loan is made to a business, individual, or eligible passive concern for business purposes (Investment loans are not eligible). The risks are shared between the participant and the SBA. The fact that this loan has a percentage of it guaranteed by the SBA to the participant means that the participant is more likely to extend this kind of loan to a qualified applicant than any other loan.

If a business were to apply for an SBA loan, it would have to apply at the offices of the third party lender or participant. It is the lender's job to decide both a) if the business is safe enough to get a non SBA guaranteed loan, which would mean a loan that isn't an SBA 7(a) or b) if the business can apply for an SBA guaranteed loan. If the business is considered too risky for a loan, then it must qualify for an SBA 7(a), otherwise no loan will be made. The guarantee is not in place for the borrower's sake. If the borrower were to default on the SBA 7(a) loan, then the SBA would pay the lender up to whatever percentage of the loan was guaranteed. The borrower is still responsible for the full amount of the loan and whatever interests are accumulated.

In order to be eligible for an SBA 7(a) loan, an applicant must meet certain criteria. For example, eligible applicants must be for-profit, and it must show proof that without this loan, there would be no internal resources to provide for financial needs. It must also prove that repayment will be possible and it must be able to explain to both the participant lender and the SBA what the funds will be used for. Money borrowed using an SBA 7(a) loan has limited uses. The participant lenders will look into the borrower's past. They will try to assess the businesses' willingness to pay back past loans and their willingness to abide by local laws and regulations. Applicants must also meet other requirements that are specific to both the SBA and the SBA 7(a) programs

The best way to prepare for the application and process for an SBA 7(a) loan is to research as much as possible before starting the process. Make sure that your business meets all the requirements that both the participating lender and the SBA ask for. Also make sure that you are aware of any legal obligations that might be included with the program. SBA 7(a) applicants must be able to show how the funds will be or are being used for the benefit of its community. This is one of the easiest requirements that businesses can comply with.