Inside a Small Business SBA 7(a) Loan

Starting a small business requires more than just a great idea and a “can do” attitude. It requires money and lots of it. Unfortunately, most people don’t have wads of cash just lying around, so they turn to lending institutions for help. The SBA (Small Business Administration) has several loan programs designed to assist you in getting the capital you need to start your business. The SBA is not a direct provider of loans, but a guarantor that lowers the risk of lenders providing small business loans. The most common type of business loan provided by the SBA is called a 7(a) loan which gets its name from section 7(a) of the Small Business Act. This particular loan program is designed to assist only for-profit small businesses unable to obtain financing through other sources. 

The great thing about a 7(a) loan is that it can be combined with with other sources of funding including money stored in a retirement account. The DRDA P.C. firm specializes in a program called the BORSA (Business Owners Retirement Savings Account)  plan that utilizes funds stored in a 401(k) pension plan, profit sharing 401(k), a 403(b), 457, or IRA rollover to start a business. With the The BORSA Plan, managed by Suzy Granger and her knowledgable team at DRDA P.C. you can take your money out without incurring early withdrawal taxation, distribution or penalties.

Though flexible, the SBA 7(a) loan program does require a rather rigorous application process.However, with less strict requirements, the 7(a) loan program is great for most small businesses save a few. Speculative businesses such as real estate, pyramid sales and non-profits are ineligible because of the high risk factor. However, eligible business purposes such as purchasing buildings or land, office equipment and machinery are acceptable. You can also use a 7(a) loan for refinancing or for the purchase of an existing business property.

After eligibility, the SBA looks at repayment ability, which is based on the cash flow of the business. They also take into consideration good character and equity contribution. Some form of equity is required to obtain a 7(a) loan, which is where the BORSA plan can come in handy as an equity injection. 

7(a) Loan terms run a maximum length of 7 years for working capital and 25 years for real estate such as office property with the loan capping out at $2 million. Interest rates are not set in stone and are negotiated between the lender and the borrower, but are subject to SBA maximums, which fluctuate with the Prime Rate. Fixed or variable interest may apply to the loan and will be based on the loan amount and length.

To learn more about the BORSA Plan and how you can combine it with an SBA 7(a) loan to get the start-up capital you need to get your small business off the ground call 281-954-6023 or visit the DRDA/CPAs website at www.drdacpa.com. Find the help you need to open your business today!