Named after its section number under the Small Business Act, the 7(a) loan is the SBA’s flagship loan program and also the most popular. In 2022, the agency issued 47,678 7(a) loans with a total value of $25.7 billion. Historically, white male business owners have comprised the majority of loan recipients and, since 2017, minority- and women-owned businesses have only seen modest gains. In 2022, minority-owned business owners were approved for 32% of 7(a) loan capital (up from 30% five years ago), and majority women-owned businesses captured 15% (up from 14% five years ago).
Capped at $5 million per borrower, 7(a) loans have an interest rate between 6% to 10%. There are several requirements that a small business owner needs to meet for approval, including proof that you’ve exhausted alternative funding sources, built up reasonable equity in the business, and have a good personal credit score.
In addition to providing capital for long- and short-term business operations, the loan is primarily for owners who plan to make significant purchases such as equipment, real estate, or land; expand or acquire another business; invest in constructing or renovating an office building; or refinance debt. The loan can finance all or one of these funding needs, so it’s a good option for borrowers who need to fund multiple kinds of growth. Put another way, borrowers don’t need to apply for multiple loans at different rates for different purposes.
The 7(a) loan is also an appealing option for owners planning to purchase real estate. The loan offers a longer repayment period of up to 25 years, which can be ideal for real estate investing, which usually takes years, or even…