Benefits of SBA 7a Loans

Benefits of SBA 7a Loans

The Small Business Administration (SBA) offers a 7a loan program that offers numerous benefits over other types of loans. As a qualified applicant, you can receive up to $5 million in loan proceeds to jumpstart your working capital. The SBA 7(a) loan comes with lower interest rates and more generous repayment terms than most other types of business loans as well.

The SBA does not act as an official lender for this loan. Instead, the organization provides financial backing to pre-approved lenders. The organization will cover up to 85 percent of your SBA 7(a) loan balance should you default on repaying the debt. Backing by the SBA significantly reduces lender risk and makes it much more likely you will receive approval for the SBA 7(a) loan.

You Don’t Have to Include Business Loan Proceeds as Taxable Income 

The Internal Revenue Service (IRS) doesn’t require you to report loan proceeds as income since you must pay the money back. You may be able to write off some of the interest on your business tax return text year. However, you need to meet the following criteria before doing so:

  • You legally took out the loan on behalf of your business and have a written agreement to repay it. 
  • The IRS doesn’t allow you to claim a deduction if you assumed property or debt from a previous business owner. You will need to depreciate these items on your tax return instead. 
  • Should you choose to refinance the SBA 7(a) loan, you can’t deduct interest on the second loan if you use it to pay off the original loan. 
  • You cannot deduct any capitalized interest. 
  • Money you have available on standby cannot be part of your interest deduction.  

The way the SBA has structured this loan means you can claim more deductions upfront and fewer deductions when you get close to paying it in full. You could also receive a tax credit for taking an SBA 7(a) loan, but eligibility requirements vary by state.

Please don’t hesitate to contact our finance company with additional questions or to complete an SBA 7(a) loan application.