The SBA 7(a) Loan Guarantee program is one of the most popular loan programs offered by the agency and is the primary SBA loan program for providing financial assistance to small businesses. A 7(a) loan can be used for the acquisition, expansion or renovation of owner occupied commercial real estate, purchasing equipment, working capital, leasehold improvements, financing a franchise, acquiring a business, and debt refinancing.
The SBA does not directly lend money to small businesses; it guarantees the loan, acting as a co-signer. SBA 7(a) loans are provided by authorized commercial lenders like Meadows Bank who participate in the program. A 7(a) loan guarantee (up to 85% of the loan) is provided to the lenders to make them more willing to lend money to small businesses that will not qualify for financing on a conventional basis or don’t have the required conventional loan down payment without sacrificing needed working capital of the business. For example, a business startup would not have the cash flow history to provide a lender to show the continued ability to pay back a loan, so the Bank would recommend an SBA 7(a) loan which provides a government guarantee on a portion of the loan, giving the Bank more flexibility to approve the loan.
Lenders and government guaranteed loan programs have unique eligibility requirements. In general, eligible businesses must meet size standards, operate for profit, be engaged in or propose to do business in the United States or its territories, have reasonable owner equity to invest and use alternative financial resources, including personal assets, before seeking financial assistance. Eligible businesses must also be able to demonstrate repayment ability.
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