Navigating SBA 7(a) Loans: The Upsides and Downsides
So, you're eyeing an SBA 7(a) loan for your small business – smart move! Before you dive in, let's chat about the highs and lows you might encounter on this financial adventure.
The Pros: Why SBA 7(a) Loans Are Awesome
1. Accessible to Small Businesses
The beauty of SBA 7(a) loans lies in their inclusivity. Small businesses, startups, and even those lacking hefty collateral can often qualify. If you're in the small biz game, this loan could be a perfect match for your business.
2. Flexible Use of Funds:
Entrepreneurs always think two steps ahead for their business. An SBA 7a loan has a flexible use of funds that can help you reach those goals. SBA 7(a) loans let you use the funds for a variety of purposes – from working capital and equipment purchases to refinancing debt. It's like having a financial Swiss Army knife.
3. Lower Down Payments:
Who doesn't love a good deal? With SBA 7(a) loans, you can snag financing with lower down payments compared to other loan options. It's a win-win for your business and your pocket.
4. Longer Repayment Terms:
Breathe easy – SBA 7(a) loans often offer longer repayment terms. This means you can spread out your payments, reducing monthly payment costs, making it more manageable for your business's cash flow.
5. Competitive Interest Rates:
The interest rates on SBA 7(a) loans are often competitive, making them an attractive option for businesses looking to keep borrowing costs in check. Plus with a quarterly adjusting rate, your loan will refinance itself automatically, meaning you can take advantage of expected rate cuts.
The Cons: Watch Out for These Hurdles
1. Application Process Takes Time:
Patience is key. The SBA loan application process can be a bit of a marathon. Our average time to close is 45 days, so you will need to plan accordingly, especially if there are hard contract days in place. Take time to review all key dates, and clearly communicate them to your lender so you can make a plan.
2. Strict Eligibility Requirements:
While SBA 7(a) loans are inclusive, there are still eligibility hoops to jump through. Be prepared to showcase your business's financial health and demonstrate your ability to repay the loan. Remember, your lender is subject to very specific regulations from the SBA and will need to stay compliant with them.
3. Personal Guarantee Might Be Required:
Get ready to put skin in the game. Some lenders may require a personal guarantee, which means your personal assets could be on the line if your business hits a rough patch. It is important to approach the loan process with open eyes, and make sure your business can support the funding you are requesting.
4. Collateral Might Be Needed:
Though SBA 7(a) loans are more forgiving on collateral, it's not a free pass. Depending on your situation, you might still need to put up some collateral to secure the loan. Before you go into the process, have a conversation with yourself, and your spouse if applicable, about your willingness to pledge collateral.
5. Paperwork:
Buckle up for paperwork – there's a fair bit involved. You are, after all, applying for funds through a government program. So, your lender is required to collect certain documents. To overcome this hurdle, set aside an afternoon to work through the list of documents your lender is requesting and gather all documents.
About the author
Mary Hayes is a dedicated and thorough SBA financing professional. She provides white glove service to each and every one of her clients. She mastered in tailor financing solutions to meet each client’s unique needs. To learn more about SBA financing options, our referral program, or to join the VelocitySBA team, reach out to Mary at mhayes@velocitysba.com or 954-868-0033.