Small Business Administration 7(a) Loan Guarantee

The U.S. Small Business Administration 7(a) Loan Guarantee Program is the primary SBA mechanism for financing user-owned or user-operated business expansions. 

The program can also finance the purchase of an existing business or finance a start-up business. The program is used to provide long-term, low-down payment financing for a variety of needs, including fixed assets and working capital. The program operates through private-sector lenders that provide loans that are guaranteed by SBA.

The SBA has no funds appropriated for direct lending or grants.

The SBA may guarantee up to 85 percent of a loan not to exceed $150,000 or 75 percent of a loan up to $5 million. The loan can cover up to 100 percent of an expansion of an existing business and a lesser amount for start-up costs for a new business. The SBA favors requests that include a reasonable equity injection from a company.

User financing applies to activities in which the borrower uses or occupies the assets purchased with the loan. This stipulation disqualifies developers. The 7(a) financing option applies to costs associated with expansion and acquisition of assets, including working capital (usually five to 10 year terms for working capital). The maximum term for loans on machinery and equipment is 10 years, although they are usually five to seven years in length. The term of loans for renovation, remodeling and lease hold improvements is generally less than 10 years, and those for new construction and land acquisition may extend up to 25 years.

For-profit businesses are eligible for loan guarantees, subject to certain size standards that vary according to business types.

General size limitations are listed below:

  • Manufacturing – maximum number of employees may range from 500 to 1,500, depending on the product being manufactured.
  • Wholesaling – maximum number of employees may not exceed 100.
  • Service – sales may not exceed $3.5 million to $29 million, depending on the industry.
  • Retailing – sales may not exceed $5 million to $24.5 million, depending on the industry.
  • Agriculture – sales may not exceed $750,000 to $9 million, depending on the industry.
  • General Construction – sales may not exceed $17 million to $28.5 million, depending on the industry.
  • Special Trade Construction – average annual receipts may not exceed $7 million to $11.5 million, depending on the industry.
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