SBA 7(a) Loan vs. SBA Express Loan

The Small Business Administration has helped many small businesses reach their goals through their financing options and other resources. There are several types of SBA loans based on how much money a business needs and what the intended use of funds are for.

In this post, we will compare two types of SBA loans, the 7(a) Loan and the Express Loan.

About SBA 7(a) Loans and SBA Express Loans

The SBA guarantees some amount for loans but do not lend the money themselves, which makes it easier for small businesses to be approved.

The SBA 7(a) loan is the SBA main funding program, which can be used to cover expenses for working capital, purchasing machinery, and equipment, purchasing land, or real estate, refinancing debt, and improving property.

The SBA Express Loan is one of the several types of the SBA 7(a) loan. The benefit of choosing this option is that you will get a decision from a lender faster (within 36 hours of applying). Express loans can be used for the same purposes as a 7(a) Loan.

SBA 7(a) and SBA Express Loans

The standard option for SBA 7(a) Loans provides loans for up to $5 million. The loans have an interest rate of 6.75 to 9.25 percent and can go up to 10 years in terms. The SBA guarantees 85 percent of loans up to $150,000 and 75 percent for anything above that amount.

Express Loans can be taken for up to $350,000 with interest rates between 9 and 11 percent. Express Loan terms can be up to 7 years. The SBA guarantees 50 percent of the loan amount for Express Loans.

Qualifying for an SBA 7(a) and SBA Express Loan

To qualify for the SBA 7(a) or SBA Express loan, you must own a for-profit small business. The guidelines for being a small business are as follows:

  • Have less than 500 employees
  • Earn less than $7.5 million annual revenue
  • Have less than $5 million average net income
  • Have less than $15 million net worth

Since the SBA does not directly give out the loan, you will need to apply through a local lender. Each lender has their own unique process and set of forms to determine if you qualify to borrow from them.

Bring all business documents with you such as a business plan and tax information that shows your revenue for the past 3 years. This will increase your chances of qualifying for either a SBA 7(a) or SBA Express Loan. You should be ready to discuss how much money you need and how you will use that money.

The lender will look at your credit score to determine if you qualify for a loan or not. Collateral might be required for loans over a certain amount.

How to Choose the Right Loan for Your Small Business

The loan you choose depends on the unique needs of your business. If you are a new business that requires a financial boost to get started a 7(a) Loan is the right option for you. If your business makes large purchases like expensive equipment or real estate, this might be the loan for you.

SBA Express Loans have quick turnaround times. You should consider this loan if you need small amounts of money fast. If your small business needs funds to rent space and purchase inventory, an Express Loan might be the right fit.

Of course, these are not the only financing options available. The SBA has other loans or you can apply for a business loan from an alternative lender. It is important to consider all types of financing so that you can do what is right for your business.