SBA 7A Loan Programs- Program structure, eligibility and uses

Through its network of Non Bank Asset Funds, Advantage Capital Investments can fund projects through the SBA 7A Loan Program. The 7(a) Loan Program is the SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. SBA 7A loans are the most basic and most commonly used type of loans. They are also the most flexible, since financing can be guaranteed for a variety of general business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions).

Loan Amount Minimum $350,000, up to $5MM

Term 25 years

Lending Territory Nationwide

LTV 90%
Property Types Hotels, Restaurants, Office, Mixed Use, Retail, Gas Station/C-Store, Day Care, Medical Office, Assisted Living, Warehouse/Manufacturing, Self Storage, Industrial, Land

Collateral Commercial Real Estate

Prepayment Penalty Declining 5%, 3%,1%

Guarantees Personal recourse required. All owners with 20% or more interest in the business.

Use of SBA 7(a) Loan Proceeds

If you are awarded a 7(a) loan, you can use the loan proceeds to help finance a large variety of business purposes. However, there are a few restrictions. For example, proceeds can’t be used to buy an asset to hold for its potential increased value or to reimburse an owner for the money they previously put into their business.

Basic uses for SBA 7(a) loan proceeds include:

To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
Short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
Revolving funds based on the value of existing inventory and receivables, under special conditions
To purchase equipment, machinery, furniture, fixtures, supplies or materials
To purchase real estate, including land and buildings
To construct a new building or renovate an existing building
To establish a new business or assist in the acquisition, operation or expansion of an existing business
To refinance existing business debt, under certain conditions

SBA 7(a) loans cannot be used for these purposes:

To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing
To affect a partial change of business ownership or a change that will not benefit the business
To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital to continue the business until the SBA-backed loan is disbursed
To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
For a purpose that is not considered to be a sound business purpose as determined by SBA
If you are unsure whether or not your anticipated use of funds is allowed, check with your SBA-approved lender

SBA 7(a) Loan Structure

SBA 7(a) loans are fully funded by lenders (SBA-licensed banks and other lending institutions), but the SBA

provides a guarantee to lenders on a 75% portion of the loans. A minimum 10-25% equity contribution is

required from the borrower on multi-use, special-use or single-use properties financed by the loan.

SBA 7(a) Loan Program Eligibility

SBA provides loans to businesses — not individuals — so the requirements of eligibility are based on aspects of the business, not the owners. As such, the key factors of eligibility are based on what the business does to receive its income, the character of its ownership and where the business operates.

SBA generally does not specify what businesses are eligible. Rather, the agency outlines what businesses are not eligible. However, there are some universally applicable requirements. To be eligible for assistance, businesses must:

Operate for profit
Be small, as defined by SBA
Be engaged in, or propose to do business in, the United States or its possessions
Have reasonable invested equity
Use alternative financial resources, including personal assets, before seeking financial assistance
Be able to demonstrate a need for the loan proceeds
Use the funds for a sound business purpose
Not be delinquent on any existing debt obligations to the U.S. government

Ineligible Businesses

A business must be engaged in an activity SBA determines as acceptable for financial assistance from a federal provider. The following list of businesses types are not eligible for assistance because of the activities they conduct:

Financial businesses primarily engaged in the business of lending, such as banks, finance companies, payday lenders, some leasing companies and factors (pawn shops, although engaged in lending, may qualify in some circumstances)
Businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except when the property is leased to the business at zero profit for the property’s owners)
Life insurance companies
Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify)
Businesses engaged in pyramid sale distribution plans, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants
Businesses deriving more than one-third of gross annual revenue from legal gambling activities
Businesses engaged in any illegal activity
Private clubs and businesses that limit the number of memberships for reasons other than capacity
Government-owned entities
Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs, whether in a religious or secular setting
Consumer and marketing cooperatives (producer cooperatives are eligible)
Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans
Businesses in which the lender or CDC, or any of its associates owns an equity interest
Businesses that present live performances of an indecent sexual nature or derive directly or indirectly more 2.5 percent of gross revenue through the sale of products or services, or the presentation of any depictions or displays, of an indecent sexual nature
Businesses primarily engaged in political or lobbying activities
Speculative businesses (such as oil exploration)

There are also eligibility factors for financial assistance based on the activities of the owners and the historical operation of the business. As such, the business cannot have been:

A business that caused the government to have incurred a loss related to a prior business debt
A business owned 20 percent or more by a person associated with a different business that caused the government to have incurred a loss related to a prior business debt
A business owned 20 percent or more by a person who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral depravity

Special Considerations

Special considerations apply to some types of businesses and individuals, which include:

Franchises are eligible except when a franchiser retains power to control operations to such an extent as to equate to an employment contract; the franchisee must have the right to profit from efforts commensurate with ownership
Recreational facilities and clubs are eligible if the facilities are open to the general public, or in membership-only situations, membership is not selectively denied or restricted to any particular groups
Farms and agricultural businesses are eligible, but these applicants should first explore Farm Service Agency (FSA) programs, particularly if the applicant has a prior or existing relationship with FSA
Fishing vessels are eligible, but those seeking funds for the construction or reconditioning of vessels with a cargo capacity of five tons or more must first request financing from the National Marine Fisheries Service
Privately owned medical facilities including hospitals, clinics, emergency outpatient facilities, and medical and dental laboratories are eligible; recovery and nursing homes are also eligible, provided they are licensed by the appropriate government agency and they provide more than room and board
An Eligible Passive Company (EPC) must use loan proceeds to acquire or lease, and/or improve or renovate, real or personal property that it leases to one or more operating companies and must not make any profit from conducting its activities
Legal aliens are eligible; however, consideration is given to status (e.g., resident, lawful temporary resident) in determining the business’ degree of risk
Probation or parole: Applications will not be accepted from firms in which a principal is currently incarcerated, on parole, on probation or is a defendant in a criminal proceeding

To get a loan started simply Apply now using our online application.

Typical SBA 7A Structure