SBA 7(A) Loans Are An Attractive Option For Small Businesses Needing Capital. CPAs Can Speed The Process

The value of working with an accountant for your business extends well beyond filing annual returns on April 15. An important skill that an accounting professional brings is the ability to legitimately decrease a company’s tax obligation. However, equally important is helping a business owner forecast cash flow, look for ways to find cost savings, and ultimately reduce expenses. Further, accounting professionals can be instrumental in projecting expenses, helping clients maximize profits, and successfully growing a business.

Increasingly, business owners are working with their accounts on securing financing. During the Paycheck Protection Program (PPP), they were instrumental in helping small business owners submit their applications. Later, they helped their clients with loan forgiveness.

In 2021, CPA.com launched CPA Business Funding Portal, a cloud-based platform powered by Biz2Credit’s Biz2X technology, which streamlined the application process during PPP. Use of the cloud-based platform later expanded so that accounting firms could help clients secure other financing options, including working capital, term loans, Employee Retention Credit (ERTC), and, most recently, SBA 7(a) loans.

Continuously rising interest rates and the tightening of lending at big banks, as well as small and midsized banks, have combined to create a credit crunch for small business owners in need of capital. SBA 7(a) loans, which are offered by SBA-approved lenders and are backed by government guarantees, are an important source of capital for small businesses during these challenging times. The CPA Business Funding Portal supports the accountant’s role as an advisor in the lending process and provides a 100% online financing application process to benefit their clients. Meanwhile, the platform offers CPA firms a dashboard for client management, as well as time-saving integrations with client payroll and bank accounts, and application preview and modification features.

“In an increasingly complex economic environment, small and midsize businesses need a trusted advisor to help navigate complexity and manage cash flow,” said Erik Asgeirsson, President and CEO of CPA.com. “Financing advisory is a growing area within client advisory services (CAS) practices, and the addition of the SBA lending option to the CPA Business Funding Portal better positions firms to deliver more holistic financing guidance and secure the capital their SMB clients need to run their businesses and invest in future growth.”

The SBA 7(a) loan option is ideal for smaller businesses due to its lower down-payments, competitive interest rates, and longer-term financing. These loans provide opportunities for small business owners who may not be eligible for other lending options to secure funding.

Available in amounts up to $5 million, SBA 7(a) loans can be used for short- and long-term working capital, refinancing current business debt, purchasing and installation of machinery and equipment, and purchasing furniture, fixtures, and supplies.

SBA lenders are incentivized to give fund applicants they normally might not finance because the government guarantees the majority of the loan. For example, the SBA guarantees 85% on standard 7(a) loans up to $150,000 and 75% on loans greater than $150,000. In the event that a borrower defaults, the lender — often a small to midsize bank — still be able to recoup the bulk of its money. While interest rates vary on a lender-by-lender basis, the SBA does set caps on what financiers are allowed to charge.

The current SBA 7(a) loan interest rate is Prime + 2.75% for loans of $50,000+, Prime + 3.75% for loans of $25,001 to $50,000, and Prime + 4.75% for loans of $25,000 or less. With the Prime Rate at 8.25% as of May 2023, business owners can expect to pay between 11% and 13% interest on SBA loans right now. While the rates are much higher than they were in pre-pandemic days, SBA loans are available at a time when banks are not looking to make term loans to small businesses. Further, these rates are lower than the cost of capital from alternative lenders, which can charge 30% or more for their financial products.