Starting or expanding a business takes more than grit and a good idea—it takes capital. But for many small business owners, especially those without deep pockets or a long track record, conventional bank financing can be a tough fit. That’s where the U.S. Small Business Administration (SBA) 7(a) loan comes in.
Backed by a federal guarantee and offered through local lenders, the SBA 7(a) loan is designed to help business owners access affordable financing for a wide range of needs—from working capital to equipment, business acquisitions to real estate. And in today’s economic environment, with interest rates fluctuating and capital costs rising, understanding this program could be a difference-maker for entrepreneurs looking to grow smart.
To learn how the SBA 7(a) works in practice, we spoke with Doug Burchill, Senior Vice President and Commercial Banker at Bell Bank, an SBA Preferred Lender.
What Is The Sba 7(A) Loan?
The SBA 7(a) is the most common loan program administered by the SBA. While the name might not sound intuitive—“7(a)” refers to the section of the legislation that created it—the loan itself is built to be highly flexible.
As Burchill explained, “The 7(a) guaranteed loan is where the SBA provides a guarantee to the bank for a certain portion of the loan. That guarantee reduces the bank’s risk, and in turn, allows us to offer better terms to the borrower—or even approve a loan we might not otherwise be able to do at all.”
Why The SBA Guarantee Matters
Most banks have internal underwriting requirements around credit scores, collateral, down payments, and cash flow. If a borrower doesn’t check all the boxes, a conventional business loan may be off the table. But with an SBA guarantee—which can cover up to 85% of the loan—the lender has more flexibility.
“Because our risk is reduced,” Burchill said, “we’re able to offer more favorable terms. It could mean less money down, a longer repayment period, or just being able to say ‘yes’ to a deal that might otherwise be too tight.”
SBA 7(A) Loan At A Glance
Maximum Loan Amount:
$5 million
Typical Term Length:
Up to 10 years for working capital, equipment, or business acquisition, and up to 25 years for real estate
Down Payment Required:
As low as 10%
Guarantee:
Up to 85% of the loan amount
Interest Rates:
Typically Prime + 2.75%–4.75% (negotiated with lender)
Collateral:
Required when available, but not always a dealbreaker
Prepayment Penalty:
Only on loans with terms over 15 years
Key Features Of The SBA 7(A) Loan
While exact terms vary based on the project and lender, the SBA 7(a) loan typically includes:
- Loan Amounts up to$5 million
- Repayment Terms up to 10 years for most purposes (and up to 25 years for real estate)
- Lower down payments—as little as 10% equity
- No balloon payments
- Competitive interest rates (typically variable, based on the Prime rate plus a margin)
According to Burchill, one of the biggest benefits is how it can ease the pressure on early cash flow: “With a longer amortization and lower equity requirement, your monthly payments are lower. That gives a business more room to breathe in those early or transitional stages.”
What Can You Use The Loan For?
The 7(a) is intentionally broad in its allowable uses. It can be used for:
- Working capital (day-to-day operating expenses)
- Buying equipment
- Refinancing existing debt
- Purchasing inventory
- Expanding or renovating facilities
- Purchasing commercial real estate
- Buying an existing business
In fact, Burchill noted that business acquisition is one of the most common uses they see: “It’s a great tool for someone buying an existing business—especially when there’s goodwill involved or when the deal structure doesn’t meet conventional lending criteria.”
Who Qualifies?
To be eligible for an SBA 7(a) loan, a business must:
- Be for-profit and operate in the U.S.
- Meet the SBA’s size standards (typically under $20 million in net worth and under $6.5 million in average net income)
- Have reasonable owner equity to invest in the business
- Use the funds for an eligible purpose
- Demonstrate the ability to repay the loan
But there are some exceptions and exclusions. According to Burchill, “Certain industries are ineligible—like gambling, adult entertainment, and religious nonprofits. And if a borrower has a criminal background or has previously defaulted on a federal loan, that could also disqualify them.”
Quick Tips For SBA 7(A) Success
- Start your lender conversations early
- Have your business plan and financials ready
- Clean up personal and business credit
- Consider working with your local SBDC
- Choose a lender who’s SBA Preferred to speed up the process
Tips For Applying
Getting approved for an SBA 7(a) loan isn’t necessarily difficult—but it does require preparation. Burchill recommends:
1. Start the Conversation Early
“Even if you’re just thinking about buying a business or expanding, it’s a good idea to talk to a lender early on. We can give you an idea of what to expect, what information we’ll need, and how to prepare.”
2. Bring the Full Picture
“Have a business plan, financial projections, and historical data ready. If it’s an existing business, bring tax returns and financial statements. The more we know, the easier it is to evaluate.”
3. Get Your House in Order
“All loans are looked at holistically,” he said. “If the borrower has outstanding personal debt or unresolved credit issues, it’s best to clean those up in advance. Presenting a strong personal financial picture helps.”
If a conventional loan doesn’t quite get you there, an SBA loan might. That’s what it’s built for—to help good businesses do more.
What Makes A Lender "Preferred"?
Burchill also highlighted a key distinction in how SBA loans are processed: some banks are designated as SBA Preferred Lenders. That means they’ve been approved by the SBA to make final credit decisions without sending every application to the federal agency for review.
“For Bell Bank, being a Preferred Lender allows us to make decisions locally and speed up the process,” Burchill said. “That can be a big deal for business owners who are trying to move quickly.”
Other Helpful Resources
If you’re not sure where to begin, consider starting with your local Small Business Development Center (SBDC). These centers offer free business planning assistance, financial projection support, and can even help prepare loan applications.
“There’s one right here in Fargo at the NDSU Research & Technology Park,” Burchill said. “They’re a great place to start, especially if you’ve never gone through a financing process before.”
Bottom Line
The SBA 7(a) loan isn’t just a fallback—it’s a strategic tool for growth. Whether you’re buying a business, launching a new product line, or simply need working capital to keep moving forward, the 7(a) offers flexible financing that’s designed with small business realities in mind.
As Burchill put it: “If a conventional loan doesn’t quite get you there, an SBA loan might. That’s what it’s built for—to help good businesses do more.”
Bell Bank
bell.bank
Facebook | /gobellbanks
Instagram | @gobellbanks
Linkedin | /gobellbanks
