7(a) Loan Guaranty ProgramDefinition: The most basic and most popular of the SBA's loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the agency to provide business loans to American small businesses.
The SBA doesn't lend money itself but rather, provides loan guarantees of up to $1 million or 75 percent of the total loan amount, whichever is less. For loans that are less than $150,000, the maximum guarantee is 85 percent of the total loan amount. For loans of less than $100,000, the guarantee usually tops out at 80 percent of the total loan. A 7(a) loan can be used for many business purposes, including real estate or equipment purchases, expansion, working capital or inventory. The money can be paid back over as many as 25 years for real estate and 10 years for working capital. Interest rates are a maximum of 2.75 percent if over seven years.
SBA policy prohibits lenders from charging many of the usual fees associated with commercial loans. Still, you can expect to pay a one-time guarantee fee, which the agency charges the lender and allows the lender to pass on to you.