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A Breakdown Of The 7(a) Loan Program For Small Businesses

Updated: Oct 14, 2022

Written by Phil Dushey, CEO & President of the Global Financial Training Program

Originally Published by Forbes on Apr 28, 2021

Consultant passing clipboard across the table.

The Small Business Administration, also known as the SBA, is most famous for its popular 7(a) loan program. The 7(a) loan is a government-backed loan that allows small businesses to obtain working capital for short- or long-term use. It can be used for debt restructuring, and most famously, it is a great option for someone looking to purchase a business or real estate.

In 2020, our world took a hit, and the Covid-19 pandemic took a toll on everyone, especially on small businesses. Many businesses disappeared overnight, while some just tried to stay afloat, resulting in the loss of hundreds of thousands of jobs. Since small businesses create more than half of the jobs in the country, Congress came in and passed legislation that would help stimulate the economy and, in turn, create new jobs by helping these small businesses. This legislation ensured that small businesses had access to capital with incentives to borrow and invest in themselves. These incentives would include three months of payment relief, temporarily waiving fees, and guaranteeing the loan up to 90%.

So, what does this mean for business leaders, especially those who might not have a full understanding of this program? Until September 30, 2021...

1. Borrowers with a loan approved by the SBA are eligible for three months of payment relief up to $9,000 a month. The government will make the payments on behalf of the borrower, unlike a deferment, in which the payments may be waived for three months to be paid at a later date.

2. The SBA is waiving all insurance guarantee fees. These fees usually range from 3-3.75% for the guaranteed portion of the loan, which is typically 75%. As an example, if a business borrows $1 million over 10 years at 6%, with the payment relief and fee waiver, a business will save $54,000. Those are big savings!

3. The government is giving the lending institutions an incentive to lend since there was a huge influx of borrowers. The SBA has raised the guarantee on each loan from 75% to 90%, leaving the lending institutions with very little risk exposure. The guarantee applies to all 7(a) loans up to $5 million.

Aside from the 7(a) programs, the SBA has enhanced the guarantee percentages and fee waivers on their other programs. Every small business considering these programs must take advantage before September 30, 2021.

The potential uses for this program include purchasing commercial real estate, partner buyouts, business acquisitions, purchasing equipment, consolidating business debt, startup franchises and much more. These programs also open the door to people who have been dreaming of starting their own businesses.

While business owners can get an SBA loan through a traditional bank, keep in mind that there are private non-bank SBA-approved lenders that can get these loans done as well. Most of these private lenders work with loan brokers and can approve a loan in 2-4 weeks, whereas most banks might take 2-4 months.

The year 2020 was a roller coaster of a year. Now armed with all of this information, it is up to the loan brokers and their lending partners to get the information out there and for small businesses to do their research. Done well, this could help pump billions of dollars into the small business communities, stimulate the economy and create new jobs along the way.

Written by Phil Dushey, CEO and President of Global Financial

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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