Wondering about the differences between the SBA 7(a) and Express loan programs?

While 7(a) loans can go up to $5 million, Express loans top out at $500,000.

We’ll cover the key attributes of each program and how to make the right choice for your specific goals.

What Is an SBA Loan?

The U.S. Small Business Administration is an independent agency of the federal government that assists small businesses and entrepreneurs. The SBA partners with local lenders (banks and credit unions) to provide affordable loans for a range of business purposes, including startup costs, working capital, real estate and equipment purchases, and debt refinancing.

The SBA guarantees a portion of each loan to mitigate lender risk and enable more small business owners – including those in underserved communities – to access the capital they need.

Reasons to Consider an SBA Loan

SBA loans offer small businesses big advantages, including:

• Competitive rates: Because they’re a lower risk for lenders, SBA loans often feature lower interest rates.
• Lower fees: SBA loans may involve an upfront and/or yearly service fee, but these are generally nominal.
• Longer terms: Maximum maturities range from 10 years (for working capital, inventory, and equipment) to 25 years (for real estate).
• More flexibility: Loan amounts range from $500 to $5.5 million, depending on your needs and capacities.
• Continued support: The SBA and its local partners offer free and low-cost business training and counseling.

7(a) vs. Express

The 7(a) – officially named the Standard 7(a) – is the most popular SBA loan program. In fact, it’s what many people mean when they say, “SBA loan.” The agency administers several other loans under the 7(a) umbrella, including the Express, which features an accelerated turnaround time for SBA review.

Their purposes and processes are similar, but 7(a) and Express loans differ in four important areas:

• Turnaround time: The SBA reviews Express applications within 36 hours, which means you can get funded and get to work sooner. The entire Express process generally takes 45 to 60 days, versus 60 to 90 for 7(a) loans.
• Buying power: While 7(a) loans can go up to $5 million, Express loans top out at $500,000.
• Interest rates: In either case, lenders and borrowers can negotiate rates up to SBA maximums, but because the SBA guarantees a smaller portion of each Express loan, those rates tend to be slightly higher.
• Options for exporters: If you’re in the export business, the SBA’s Export Express program can enable you to obtain an Express loan with increased SBA backing (up to 90%) and decreased response time (within 24 hours).

What’s the Best Fit?

It really all comes down to timing. Borrowers seek SBA Express loans when there’s a business opportunity they have to act on quickly. If you’re not in a hurry, you might get a slightly better rate with a 7(a) loan. And if your funding needs exceed $500,000, you’ll need to take advantage of the 7(a) program’s higher limit.

Am I Eligible?

Specific eligibility requirements for 7(a) and Express loans can vary by lender. For instance, the SBA doesn’t designate a minimum credit score or length of time in business, but individual lenders can and do set their own rules. In nearly all cases, though, your business needs to:

• Physically operate as a for-profit company in the U.S. or its territories
• Pursue a sound business plan in an eligible industry (e.g., excluding lending and gambling)
• Meet SBA size standards (which depend on your industry and annual revenue)
• Show owner equity (time and money you’ve invested in the business)
• Be in good standing on all existing government debts
• Demonstrate a need for funds and the ability to repay them from projected business cashflow

How Can I Use It?

SBA 7(a) and Express loans can be used for a variety of purposes, including:

• Working capital
• Revolving funds (based on the value of existing inventory and receivables)
• The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
• The purchase of real estate (including land and buildings)
• The construction of new buildings or the renovation existing buildings
• Establishing a new business or acquiring or expanding an existing business
• Refinancing existing business debt (under certain conditions)

How Do I Apply?

You can work directly with your chosen lender to get the 7(a) or Express application process started. True to their name, Express loans usually require somewhat less paperwork than Standard 7(a) loans, but in either case you’ll need to gather documents for your lender to review. Here are some of the things you may need to provide:

• Profit and loss statements (current within 180 days)
• Projected financial statements (one year)
• Ownership and affiliations
• Business license or certificate
• Loan application history
• Income tax returns (three years)
• Resume
• Business overview and history
• Business lease

How Do I Pay It Back?

As with eligibility requirements and application processes, repayment terms for SBA 7(a) and Express loans can vary by lender. They’re normally structured as term loans that are repaid with monthly payments of principal and interest.

With a fixed rate, you’ll pay a set amount every month until the end of the agreed-upon term, much like a standard residential mortgage or auto loan. With a variable rate, the amount you pay may change from one month to the next.

SBA prohibits lenders from charging fees for processing, origination, application, or brokerage. However, you may pay an upfront guaranty fee and an annual service fee. Borrowers may also be subject to a prepayment penalty depending on the loan’s maturity date and the amount of time that’s elapsed since disbursement.

What Are My Other Options?

You may want to consider a few other types of SBA loans, including:

• 504 loans, which can be used for long-term fixed assets like real estate and major equipment
• Microloans, which provide up to $50,000 for smaller startup and expansion needs
• Disaster loans, which help businesses overcome economic injury or damage in the wake of a declared disaster

Your lender can also help you to investigate non-SBA loan products and weigh all the pros and cons.

Take the First Step Today

To explore all your small business financing options, including SBA loans, consult your financial institution.

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