Loans Business Loans 2 — Questions and Answers
Question 1: What is the maximum SBA 7(a) standard loan amount?
- $250,000
- $500,000
- $1,000,000
- $5,000,000 (Correct answer)
Correct answer: $5,000,000
The maximum loan amount for a standard SBA 7(a) loan is $5,000,000, with the SBA guaranteeing up to 85% of loans up to $150,000 and 75% of larger loans.
Question 2: What is a personal guarantee on a business loan?
- A pledge by a business partner to match all loan payments
- A promise by the business owner to personally repay the loan if the business cannot (Correct answer)
- A guarantee provided by the SBA on all small business loans
- A co-signer agreement between two business entities
Correct answer: A promise by the business owner to personally repay the loan if the business cannot
A personal guarantee requires the business owner to personally assume liability for the loan, allowing the lender to pursue personal assets if the business defaults.
Question 3: Equipment financing differs from a business line of credit because:
- Equipment financing is only available for machinery over $1 million
- Equipment financing uses the purchased equipment as collateral (Correct answer)
- A line of credit requires physical collateral; equipment financing does not
- Equipment financing is provided only by the SBA
Correct answer: Equipment financing uses the purchased equipment as collateral
Equipment financing uses the purchased equipment itself as collateral, meaning the lender can repossess the equipment if the borrower defaults.
Question 4: A startup business with no revenue history will most likely qualify for funding through which source?
- Conventional bank term loan
- SBA Microloan Program or personal business credit (Correct answer)
- SBA 504 loan
- Commercial real estate loan
Correct answer: SBA Microloan Program or personal business credit
Startups without revenue history often rely on SBA Microloans, personal credit, or alternative lenders since conventional lenders require demonstrated cash flow.
Question 5: The SBA 504 loan program is specifically designed to fund:
- Short-term working capital needs
- Owner-occupied commercial real estate or major fixed assets for business expansion (Correct answer)
- International trade transactions
- Franchise start-up costs only
Correct answer: Owner-occupied commercial real estate or major fixed assets for business expansion
The SBA 504 program provides long-term, fixed-rate financing for major fixed assets such as commercial real estate and heavy equipment.
Question 6: What is working capital, and why is it important in business loan underwriting?
- Total revenue minus cost of goods sold
- Current assets minus current liabilities, representing short-term liquidity (Correct answer)
- The owner's equity investment in the business
- Long-term debt divided by total assets
Correct answer: Current assets minus current liabilities, representing short-term liquidity
Working capital (current assets minus current liabilities) measures a business's short-term liquidity and ability to meet day-to-day obligations.
Loans Business Loans 2
What is the maximum SBA 7(a) standard loan amount?