The Basic 7 (a) Loan Program for a Small Business
A Home Business Article Contributed by Cassandra l. Keller
The Basic 7 (a) Loan Program for a Small Business
The Basic 7 (a) Loan Program is the most basic and common small business loan utilized by the Small Business Administration. It is named after section 7 (a) of the Small Business Act, which authorizes the SBA to supply small business loans to American ventures.
Lenders and the Basic 7 (a) Loan Program for a Small Business
Lenders provide all 7 (a) loans, but not all lenders elect to participate in the SBA's program. Most U.S. banks do, however, take part in the program as well as some non-bank lenders.
The 7 (a) loan is only available on a guaranty basis. In other words, the loan is provided by a lender who opts to structure their loans by the SBA's requirements. The lender also receives a partial guaranty on the loan from the SBA. This guarantee is against payment default. It does not include imprudent decisions by the lender or misrepresentation by the borrower.
The SBA does not provide full guarantees on small business loans through the Basic 7 (a) Loan Program.
The Guaranty Concept of the Basic 7 (a) Loan Program for a Small Business
It is through the guaranty concept of the SBA that commercial lenders administer the loan. A business applies directly for a loan through the lender. The lender then determines if they will make the loan or if the application has some weak factors. If this is the case, they may require the SBA guaranty to make the loan.
This guaranty is only applicable to the lender. It assures the lender that if the business owner can't repay their debt and a payment default occurs, the government will reimburse the lender for that loss. The SBA, however, will only guaranty up to a a certain percentage determined at the time of the loan.
Under the Basic 7 (a) Loan Program, the borrower remains obligated to repay the full amount of the loan.
Obtaining Positive Consideration for an Sba Small Business Loan
A small business owner must first qualify for an SBA supported loan. To do so, the borrower must be credit-worthy and eligible to participate in the program.
First, the business must have repayment ability from its cash flow. This is the primary consideration in the SBA loan program. Good character and management capability mixed with collateral and owner's equity are also major factors in the loan process.
As mentioned above, an applicant must also be eligible for the Basic 7 (a) Loan Program. In order to accommodate as many small business owners as possible, the SBA keeps the eligibility criteria as broad as possible.
In general, all businesses being considered for an SBA loan must meet SBA size standards, be for-profit, not already have the internal resources to provide the financing and be able to repay the loan.
Depending on the variation of the 7 (a) program, the borrower may also be required to pass some additional eligibility criteria. These additional factors will be determined through any special purpose programs the borrower may take part in.
