SBA 7 a Loans
7(a) loans
The 7(a) loan program is SBA's primary business loan program for providing financial assistance to small businesses.
What is a 7(a) loan?
The 7(a) Loan Program, SBA’s primary business loan program, provides loan guaranties to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for:
Acquiring, refinancing, or improving real estate and buildings
Short- and long-term working capital
Refinancing current business debt
Purchasing and installation of machinery and equipment, including AI-related expenses
Purchasing furniture, fixtures, and supplies
Changes of ownership (complete or partial)
Multiple purpose loans, including any of the above
The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates.
Is your business eligible?
To be eligible for 7(a) loan assistance, businesses must:
Be an operating business
Operate for profit
Be located in the U.S.
Be small under SBA Size Requirements
Not be a type of ineligible business
Not be able to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources
Be creditworthy and demonstrate a reasonable ability to repay the loan
SBA Loan Requirements
You must meet these baseline requirements:
Operate for profit in the U.S.
Be a small business by SBA size standards (based on NAICS code; most manufacturing businesses qualify if under 500 employees or <$41.5M in revenue).
Have invested equity (time or money into the business).
Exhaust other financing options (SBA is not a first resort).
Demonstrate ability to repay the loan (strong business plan, cash flow, or collateral).
Good personal and business credit (typically 650+ personal FICO score).
U.S. citizen or lawful permanent resident ownership
7(a) Working Capital Pilot (WCP) program
What is 7(a) WCP?
Beginning August 1, SBA's 7(a) WCP is a pilot loan program that offers monitored lines of credit within the 7(a) loan program.
7(a) WCP has been engineered to:
Support a range of financing needs for growing small businesses
Bring together the best features of the existing permanent 7(a) line of credit delivery methods
Provide financing for domestic and/or export purposes
Offer one-on-one counseling with SBA's subject-matter experts to both small businesses and lenders
What are the terms for an SBA Loan?
Maximum loan amount
$5,000,000
Loan guarantee
85% $150,000 or less
75% if greater than $150,000
Maximum loan maturity
60 months
Interest rates
$50,000 or less: Cannot exceed base rate +6.5%
$50,001 - $250,000: Cannot exceed base rate +6.0%
$250,001 - $350,000: Cannot exceed base rate +4.5%
$350,001 and greater: Cannot exceed base rate +3.0%
Documents to Gather
Personal Documents
Driver’s license / government ID
Personal financial statement (SBA Form 413)
Personal tax returns (last 3 years)
Resume (especially for startups or new owners)
Business Documents
Business tax returns (last 3 years)
Interim and year-end profit & loss statements
Balance sheets (last 3 years + current YTD)
Cash flow projections (typically 1-3 years)
Business debt schedule (list of debts, monthly payments, balances)
Business plan (include use of funds, market analysis, competition, team)
Organizational documents (Articles of Incorporation/Organization, EIN, licenses)
Equipment quotes (if buying machinery)
Lease or property deed (if applicable)
Accounts receivable & accounts payable aging reports
📊 1. Debt Service Coverage Ratio (DSCR) – Most Important
Formula:
Net Operating Income / Total Debt Service
Target: ✅ 1.25x or higher
Shows if your business can cover loan payments with existing cash flow.
If your DSCR is below 1.15, most lenders will flag the file as risky.
✅ Tip: Add back depreciation, amortization, and interest to net income to calculate NOI for DSCR.
💸 2. Debt-to-Equity Ratio
Formula:
Total Liabilities / Shareholder Equity
Target: ✅ Less than 2:1 (but some industries allow up to 3:1)
Measures how much debt your business carries relative to owner's investment.
Lower is better — shows financial stability and commitment from ownership.
📉 3. Current Ratio
Formula:
Current Assets / Current Liabilities
Target: ✅ 1.25 or higher
Indicates ability to pay short-term obligations.
Manufacturing companies should especially maintain this, since they have inventory and supply chain obligations.
🔄 4. Quick Ratio (Acid Test)
Formula:
(Cash + Accounts Receivable) / Current Liabilities
Target: ✅ 1.0 or higher
Excludes inventory from assets (less conservative than current ratio)
Especially relevant if your manufacturing company holds a lot of inventory, which can skew the current ratio.
💰 5. Gross Profit Margin
Formula:
(Revenue - Cost of Goods Sold) / Revenue
Target: Depends on manufacturing niche, but generally 30%-60%
Indicates how efficiently your business produces goods
📈 6. Net Profit Margin
Formula:
Net Profit / Revenue
Target: 8%–20% or higher is healthy for small manufacturers.
Shows overall profitability — key to prove repayment ability.
🏭 Manufacturing-Specific Ratios to Also Watch
Inventory Turnover Ratio:
Formula:
COGS / Average Inventory
Target: Varies by product; higher is better (efficient inventory management)
Operating Margin:
Formula:
Operating Income / Revenue
Important if you're scaling operations, investing in equipment, or funding growth
✅ What Lenders Want to See
Stable and growing revenue
Predictable cash flow
Low leverage (manageable debt)
Healthy liquidity (cash + working capital)
Business owner putting in equity (skin in the game)