sba 7 (a) terms & conditions
SBA 7(a) Terms, Conditions and Eligibility
The SBA sets the guidelines that govern the 7(a) loan program. These conditions determine which businesses you can lend to and the type of loans you can give.
The specific terms of SBA loans are negotiated between the borrower and the participating lender, subject to the requirements of the SBA. In general, the following provisions apply to all SBA 7 (a) loans.
Loan Amounts
The SBA's maximum exposure is $3.75 million ($4.5 million under the International Trade Loan). If a business receives an SBA-guaranteed loan for $5 million, the maximum guaranty to the lender will be $3.7 million, or 75 percent. The guaranty percentage varies depending on the loan amount and program type.
Maturity Terms
SBA loan programs are generally intended to encourage longer term small business financing. Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed.
The maximum maturities for SBA loans are as follows:
- 25 years for real estate
- 10 years for equipment
- 10 years for working capital or inventory
The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets, in no instance to exceed 25 years. The 25 year maximum will generally apply to the acquisition and / or improvements of land and buildings or the refinancing of debt incurred in their acquisition. Where business premises are to be constructed or significantly renovated, the 25 year maximum would be in addition to the time needed to complete construction. (Significant renovation means construction of at least one third of the current value of the property).
When loan proceeds will be used for a combination of purposes, the maximum maturity can be a blended maturity based on the use of proceeds or up to the maximum for the asset class comprising the largest percentage of the use of proceeds.
Interest Rates
Interest rates may be fixed or variable.
The interest rates for variable rate loans are as follows:
Loan Amount | $25,000 or Less |
Max rate if maturity is less than 7 years | Base rate plus 4.25% |
Max rate if maturity is more than 7 years | Base rate plus 4.75% |
Loan Amount | $25,000 to $50,000 |
Max rate if maturity is less than 7 years | Base rate plus 3.25% |
Loan Amount | $50,000 or more |
Max rate if maturity is less than 7 years | Base rate polus 2.25% |
Variable rate loans may be pegged to the lowest prime rate, the LIBOR Rate, or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pay for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the Federal Register. The lender and the borrower negotiate the amount of the spread, which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must not be more often than monthly and it must be consistent (e.g. monthly, quarterly, semi-annually, or any other defined period). The maximum rate for SBA Express and Export Express Loans is Prime + 6.5 for loans of $50,000 or less. For loans of over $50,000, it is Prime + 4.5.
The interest rates for fixed rate loans are as follows:
Loan Amount | $25,000 or less |
Prime rate in effect on the first business day of the month, plus | 6.0% (600 basis points) plus the 2.0% (200 basis points) permitted by 13 CFR 120.215 |
Loan Amount | $25,000 to $50,000 |
Prime rate in effect on the first business day of the month, plus | 6.0% (600 basis points) plus the 1.0% (100 basis) permitted by 13 CFR 120.215 |
Loan Amount | $250,000 or more |
Prime rate in effect on the first business day of the month, plus | 5.0% (500 basis points) |
Percentage of Guaranty
For most 7(a) loan programs, the SBA can guarantee up to 85 percent of loans of $150,000 or less, and u to 75% of loan above $150,000. However, SBA Express loans carry a maximum of 50% guaranty and Export loans carry a maximum 90% guaranty. The export Working Capital loan program and International Trade loans carry a maximum of 90% guaranty, up to a guaranteed amount of $4.5 million.
Fees
Gross Loan Size | Loans of $150,000 or Less | |
Fees | 2% of guaranteed portion. Lender is authorized to retain 25% of the fee. | |
Gross Loan Size | SBA Express Loans to qualified Veterans & Spouses up to $350,000 | |
Fees | Zero (When program is zero subsidy) | |
Notes | Maturities that exceed 12 months | |
Gross Loan Size | $150,001 to $700,000 | |
Fees | 3% of guaranteed portion | |
Notes | Maturities that exceed 12 months | |
Gross Loan Size | $701,001 to $5,000,000 | |
Fees | 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000 | |
Notes | Maturities that exceed 12 months | |
Gross Loan Size | Short term loans | |
Fees | Maturities of 12 months or less | |
Gross Loan Size | SBA On Going Guaranty Fee | |
Notes | Paid by lender and cannot be passed on to the borrower |
Prohibited Fees
Processing fees, origination fees, application fees, points, brokerage fees, bonus points, and other fees that could be charged to an SBA loan applicant are prohibited. The only time a commitment fee may be charged is for a loan made under the Export Working Capital loan program.
Prepayment Penalties
For loans with amaturity of 15 years or longer, prepayment penalties apply when:
- The borrower voluntarily prepays 25% or more of the outstanding balance of the loan.
- The prepayment is made within the first 3 years after the date of the first disbursement of the loan proceeds.
The prepayment fee is as follows:
- During the first year after disbursement, 5% of the amount of the prepayment
- During the second year after disbursement, 3% of the amount of the prepayment
Ineligible Businesses
Ineligible businesses include those engaged in illegal activities, loan packaging, speculation sales distribution, gambling, investment or lending, or where the owner is on parole.
Firms involved in speculative activitfies that develop profits from fluctuations in price rater than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the reular activities of the gusiness.
Dealers of rare coins and stamps are not eligible.
Firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies (not agents), and any other firm whose stock in trade is money.
Pyramid sales plans, where a participant's primary incentive is based on the sales made by an ever increasing number of participants. Such products as cosmetics, household goods, and other soft goods lend themselves to this type of business.
Charitable, religious, or other non-profit or government owned corporations, consumer and marketing cooperative, and churches and organizations promoting religious objectives are not eligible.