The post How to Buy Out a Business Partner with an SBA 7(a) Loan appeared first on Grasshopper.

A Practical Guide to Using an SBA 7(a) Loan for Small Business Working Capital

Struggling to manage cash flow? Leveraging an SBA 7(a) loan for working capital helps small businesses bridge funding gaps, cover operating expenses, and keep day-to-day operations running smoothly. This guide explains why SBA 7(a) loans are ideal for supporting working capital needs, how they compare to other financing options, and whether it’s the right fit for your business.

Unexpected gaps in cash flow can put pressure on even the most established small businesses. SBA 7(a) loans provide flexible funding to help bridge these gaps by  giving business owners the resources they need to manage essential operations while preserving capital for other priorities. But to use this type of funding effectively, it helps to understand the purpose of working capital and how it supports your business’s long-term growth.

What Is Working Capital 

Working capital refers to the money a business uses to handle its day-to-day operations. In simple terms, it’s the difference between what a company has readily available— like cash and incoming payments — and what it needs to pay in the short term, such as payroll, rent, inventory, utilities, and supplier invoices. When working capital is healthy, a business can comfortably cover routine expenses without scrambling for funds.

Unlike funds reserved for expansion or long-term investments, working capital is focused on covering immediate operational needs so the company can maintain consistent day-to-day performance. Because revenue and expenses don’t always line up perfectly, short-term liquidity can become strained. Strong working capital helps smooth out those timing differences so operations can continue without disruption.

Choosing the Right Way to Fund Working Capital

Financing decisions affect more than access to capital — they directly influence cash flow stability, operational flexibility, and financial risk. When it comes to funding working capital needs, businesses typically have two options: using cash reserves or taking out a loan. Using cash reserves avoids interest and debt but can deplete funds that might be needed for unexpected expenses or growth opportunities. On the other hand, taking out a loan, such as an SBA 7(a) loan or Innovator Term Loan, provides access to funds without drawing down reserves. 

Knowing when — and when not — to rely on financing versus internal cash reserves is critical. Choosing the right approach ensures that short-term operational needs are met without creating long-term financial pressure. To decide whether to rely on cash reserves or a loan to support working capital, businesses should start by reviewing their cash flow forecast, upcoming obligations, and current liquidity cushion. If using reserves would leave the company with limited flexibility to handle unexpected expenses or invest in growth, financing may provide a more balanced approach.

It’s also helpful to consider the purpose and duration of the need. Short-term, predictable gaps may be manageable with available cash, while larger or recurring working capital pressures might justify structured financing. Weighing the cost of borrowing against the strategic value of preserving cash can help determine which option supports both immediate stability and longer-term financial health.

Benefits of Using a SBA 7(a) Loan for Working Capital

Cash flow gaps are a frequent challenge for small businesses. Even profitable companies can experience financial strain when expenses come due before revenue is collected. To better understand how an SBA 7(a) loan can help stabilize working capital, consider the following advantages:

• Supports both operational and strategic needs: Can be structured to cover short-term cash flow gaps or free up funds for growth initiatives.
• Less restrictive lending qualifications: Easier eligibility compared to traditional bank loans, making it more accessible for small businesses.
• Longer repayment terms: Provides breathing room compared with typical short-term loans, helping to avoid cash flow strain.
• Competitive interest rates: Often lower than alternative financing options for similar loan amounts.
• Predictable repayment schedule: Helps businesses plan around their cash flow while managing working capital effectively.

Common Uses of SBA 7(a) Loans for Working Capital

SBA 7(a) loans can support a wide range of working capital needs. Below are some of the most common ways small businesses use an SBA 7(a) loan to support working capital.

• Payroll: Ensuring employees are paid on time even when client payments are delayed.
• Rent and utilities: Covering fixed overhead that must be paid regularly.
• Inventory and supplies: Purchasing materials needed for production or sales.
• Short-term operational costs: Marketing campaigns, software subscriptions, or seasonal staffing needs.
• Accounts payable gaps: Paying suppliers or vendors when timing mismatches occur.
• Emergency operational expenses: Unexpected costs that could disrupt day-to-day operations if not covered.

Trade-Offs to Consider

While an SBA 7(a) loan can be a versatile tool for supporting working capital, it comes with trade-offs that require careful planning. Common considerations include:

• Application and approval process: SBA 7(a) loans typically involve more documentation and a longer approval timeline than other short-term financing options.
• Eligibility requirements: While less restrictive than traditional bank loans, there are still qualifications that must be met, which can limit accessibility for some businesses.
• Loan size and structure: SBA 7(a) loans can fund both operational needs and larger initiatives, but they are often best suited for expenses that can be repaid over the loan term; using them for very short-term gaps may not be ideal.

Because of these characteristics, SBA 7(a) loans are most effective when used to support working capital in a planned and structured way, rather than as a quick fix for urgent, short-term cash flow shortages.

SBA 7(a) Loan vs. Innovator Term Loan

To see how a Grasshopper SBA 7(a) loan can support working capital compared with our Innovator Term Loan, it’s helpful to review a side by side comparison of their features, repayment terms, and ideal use cases.

Common Mistakes to Avoid

SBA 7(a) loans are most effective for working capital when used intentionally and with a clear plan. Common missteps include:

• Using long-term financing for expenses that don’t require extended repayment, which can tie up capital unnecessarily.
• Underestimating the timing and impact of repayment, even with favorable terms,
  on monthly cash flow
• Overleveraging with multiple loans, creating unnecessary complexity or strain on operations

Avoiding these pitfalls helps ensure that an SBA 7(a) loan serves as a stabilizing tool for daily operations rather than a source of ongoing financial pressure.

The Bottom Line

Working capital isn’t a growth strategy — it’s the foundation that makes growth possible. When cash flow timing creates pressure, the right financing doesn’t just fill the gap; it gives your business the stability to keep moving without making reactive decisions. 

An SBA 7(a) loan can be a powerful tool for managing working capital, but only when it’s matched to the right need. When considering taking out a loan to fund working capital,  the most important question isn’t which loan has the best rate — it’s whether the structure, timeline, and repayment terms align with how your business actually generates and spends cash. Reactive financing decisions made under pressure rarely lead to the best outcomes. Intentional ones do.

Don’t wait for a cash flow crisis to evaluate your options. Explore Grasshopper’s SBA 7(a) loan and start building the financial foundation your business needs to operate with confidence — and grow without compromise!

Grasshopper Bank is a delegated SBA Lender. Please note that the eligibility requirements and loan terms listed on this page are specific to Grasshopper Bank’s internal lending criteria. These requirements may differ from the general guidelines and program requirements set forth by the U.S. Small Business Administration (SBA) for the 7(a) Loan Program.

The post A Practical Guide to Using an SBA 7(a) Loan for Small Business Working Capital appeared first on Grasshopper.

During a government shutdown, essential federal employees—such as TSA agents, Air Traffic Control, active duty military, and federal law enforcement—are still required to work, but their pay is delayed until funding is restored and/or the shutdown ends. Employees in roles not classified as  essential are temporarily furloughed, halting their work for the period until the government reopens. 

For small business owners, this matters because the Small Business Administration (SBA)—a key resource and partner for many entrepreneurs—is not considered an essential agency. 

How a Shutdown Affects Your SBA Loan

• New applications will not be processed by the SBA: Once a loan is approved internally by the bank’s credit team, it is submitted to the SBA for final approval and a loan number. Preferred Lenders, such as Grasshopper Bank, work tirelessly in the wake of a shutdown to submit all complete applications before it begins. However, once the shutdown is in effect, the SBA can not issue new approvals or loan numbers, meaning no loans can move to closing until operations resume.
• EIDL Loan Staffing is limited: Since Economic Injury Disaster Loans (EIDL) are tied to disaster recovery, that department is deemed essential and continues to operate, but with reduced staffing. You can still expect activity around EIDL subordinations, change-of-ownership requests, payments, and payoffs though processing times may be slower than usual.
• Payments are still due: Even during a shutdown, existing borrowers are still responsible for making regular loan payments. Most SBA loans are held and serviced by banks and private lenders, so those  operations continue without interruption.
• Bank and Private Lender Operations Continue: Banks and private lenders, including Grasshopper, continue to review, underwrite, and approve applications during a shutdown. However, if the SBA approval and loan number weren’t issued before the shutdown began, the loan can’t officially close until the government reopens. Borrowers are encouraged to keep submitting underwriting and closing documentation so that once the SBA is back online, approvals can forward quickly.  

What Borrowers Can Expect

During a shutdown, congressional leaders work towards reaching an agreement to fund the federal government. The longest shutdown to date occurred in 2018 and lasted for 35 days. The government can only reopen once a funding bill is passed and funding is restored, and even then, it often takes time for operations to fully return to normal. 

For SBA loan borrowers, this means there may be continued delays even after the government returns to work, as SBA employees catch up on the backlog. Partnering with an SBA Preferred Lender like Grasshopper, can help keep your funding timeline on track. Preferred Lenders are authorized to approve many loans without an extensive review by the SBA, minimizing disruption where possible. 

How to Stay Prepared as a Borrower

• Stay in touch with your lender. Check in to understand how a shutdown may affect your loan status and any applications in progress.
• Complete documentation early. If you are in the underwriting or closing phase, get all the required documentation to your lender as soon as possible. This ensures your loan can move forward quickly once the SBA reopens. 

At Grasshopper, we know that uncertainty around government operations can create stress for business owners, especially when your business plans are tied to SBA funding. The good news is you’re not in it alone. Our SBA Lending team is here to answer questions, help you prepare, and make sure your application is ready to move forward the moment things are back up and running.

The post What a Government Shutdown Means for SBA Loan Borrowers appeared first on Grasshopper.

In the meantime, here is what we know about the SOP 50 10 8 at a high level:

• The new SOP will become effective June 1, 2025 and will apply to all applications that are issued a loan number on or after that date.
• SBA is largely re-implementing requirements that were in place before January 2021, including restoring 7(a) underwriting criteria, reinstituting the SBA Franchise Directory, re-affirming that SBA lenders determine whether an applicant is eligible for a loan guaranteed by the SBA, and eliminating the “do what you do” philosophy from the SOP.

Below, we take a deeper look at many of the key changes to the SOP 50 10 8, particularly those changes that will impact processing and loan structuring. It should be noted that while the new SOP 50 10 8 covers both the 7(a) and 504 loan programs, the summary below is focused on changes impacting the 7(a) loan program.

SBA 7(a) Small Loans

The 7(a) Small Loan size threshold is being decreased from $500,000 to $350,000, meaning a more traditional approach to underwriting will be needed on all loans over $350,000. Lenders will still be able to use a credit scoring underwriting approach on loans up to $350,000, however, the SBA’s proprietary Small Business Scoring Service (SBSS) score minimum is increasing from 155 to 165. The SBA has also changed equity injection requirements on small loans and those changes are summarized in the Equity Injection section below.

Equity Injections

The outgoing version of the SBA SOP (50 10 7.1) required less equity into projects from the applicant than SBA had historically been willing to accept. SOP 50 10 8 largely returns equity injection requirements to historical precedents and the end result, regardless of loan size, is shown below:

• Start-up businesses (i.e. those generating revenue for their operations for 1 year or less) require an equity injection of at least 10% of the total project costs.
• Complete changes of ownership (excluding ESOPs) require an equity injection of at least 10% of project costs.
  • In changes of ownership across the board, subordinated seller debt may only be used to satisfy 50% of the injection requirement and is only able to count towards the injection if the seller debt is on full standby (no payments of principal or interest) for the life of the loan.
• Expansion loans are eligible for as little as $0 cash equity injection from the applicant when:
  • Applicant and seller business operate in the same 6-digit NAICS code.
    • If asset purchase, ownership in the applicant is the same pre-close as post-close.
    • If stock purchase, applicant and selling entities are co-borrowers.
  • Applicant and selling business are in the same geographic area, meaning the acquiring entity is located within a reasonable distance of the selling business, allowing management to exercise similar daily control over both locations.
• SBA loans may finance more than 90% of the purchase price of a partner buyout if:
  • The remaining owner(s) certify that they have been actively participating in the business operation and held the same or an increasing ownership for at least the past 24 months AND the applicant’s balance sheets for the most recently completed fiscal year and current quarter reflect a debt-to- worth ratio of no greater than 9:1 prior to the change of ownership
    • If the above conditions are not met, the buyer(s) must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change of ownership OR in an amount equal to at least 10% of the purchase price of the business as reflected in the purchase agreement, whichever is less.
• SBA loans may finance more than 90% of the purchase price of a partial change of ownership if:
  • The business balance sheets for the most recently completed fiscal year and current quarter reflect a debt-to-worth ratio of no greater than 9:1 prior to the change of ownership.
    • If the above condition is not met, new and/or existing owners must contribute cash either sufficient to reflect a debt-to-worth ratio of no greater than 9:1 on the business’s balance sheet for the current quarter prior to the change of ownership OR in an amount equal to at least 10% of the purchase price of the business as reflected in the purchase agreement, whichever is less.

Citizenship Requirements

The new SOP will include the citizenship requirements previously announced via SBA Policy Notice 5000-865754 which updated policies to comply with Executive Order 14159 regarding citizenship requirements for obtaining 7(a) and 504 loans. In short, SBA financing will be limited to businesses with 100% direct and/or indirect owners (previously referred to as beneficial owners) and SBA-required guarantors who are U.S. Citizens, U.S. Nationals, or Lawful Permanent Residents.

SBA Franchise Directory

The SBA Franchise Directory will be restored and will list brands meeting the Federal Trade Commission’s (FTC) definition of a franchise that are eligible for an SBA loan. If a brand meets the FTC definition of a franchise, it must be on the Franchise Directory to qualify for franchisee SBA financing. At the request of a brand, SBA will include brands on the Franchise Directory that do not meet the FTC definition of a franchise but are eligible for SBA loans. Franchise brands can interface with franchise@sba.gov to complete the Franchise Directory registration process.

Debt Refinancing

SBA has removed Merchant Cash Advance and Factoring agreements from the list of loans and debt facilities eligible for refinancing.

Partial Changes of Ownership

Any buyer in a partial change of ownership who is gaining any amount of direct or indirect ownership interest in the operating company will need to be a co-borrower on the loan with the operating company. The SBA will now require any seller(s) who remain a direct or indirect owner of less than 20% to provide a limited guaranty for the full loan amount for a period of two years after loan disbursement. All 20%+ post-close owners must fully guarantee the SBA loan. Additionally, the SBA will no longer allow multi-step partial changes of ownership and has clarified that while 7(a) loans can fund a partial change of ownership in an operating company, they cannot finance a partial change of ownership in an eligible passive company in an EPC/OC structure transaction.

Loan Processing

SBA lenders with delegated authority—like Grasshopper—meaning the ability to approve SBA loans without submission of the loan approval request to a specialist with the SBA for concurrence, will be required to approve all loans using their delegated authority with minimal exceptions. This change appears to be geared towards leaving the SBA’s general processing center capacity for those lenders without delegated authority.

In addition to the topics covered above, SBA used SOP 50 10 8 to implement standards around review of management agreements, requirements for business property hazard insurance, equity injection verification, credit elsewhere discussion, tenant improvement reimbursement policies, among other items.  The article above provides a summary of many large changes to the SOP, but loan program participants are advised to fully read SOP 50 10 8 to ensure an understanding of all changes.

Have questions about the latest SOP changes or want to explore how SBA lending can support your business goals? Connect with Justin Whitson, Business Development Officer, at justin.whitson@grasshopper.bank.

Grasshopper Bank is a delegated SBA Lender. Please note that the eligibility requirements and loan terms listed on this page are specific to Grasshopper Bank’s internal lending criteria. These requirements may differ from the general guidelines and program requirements set forth by the U.S. Small Business Administration (SBA) for the 7(a) Loan Program.

The post New SBA SOP: What You Need to Know About 50 10 8 appeared first on Grasshopper.

Traditional Banks Still Miss the Mark

Most banks still struggle to lend fairly and effectively to small businesses. Especially if you don’t fit into a neat little box. Why? Many institutions still rely on outdated systems, biased criteria, and a limited understanding of the diverse businesses they’re supposed to serve. Whether you run a dental clinic or an Etsy store, your financing needs matter. But too often banks only feel comfortable lending to industries they know. This leaves countless entrepreneurs without real options, or worse, turning to predatory lenders. We think small businesses deserve better.

A Smarter, More Equitable Approach 

At Grasshopper, we’re building a different kind of digital bank, one designed for modern small business owners. That means creating lending practices that are:

1. Accessible: As a digital bank, financial inclusion is at the core of what we do. We’re committed to breaking down traditional barriers by providing intuitive tools, educational resources, and expert guidance to help you better understand your financing options.
2. Efficient: By leveraging technology and real-time data, our digital-first experience streamlines the application process. Applicants can easily upload docs and receive personalized prequalification offers in minutes–not days–so you can focus on running your business, not chasing paperwork.
3. Equitable: We use real data, not outdated assumptions. Our technology helps remove human bias from the process so more small business owners, especially those in underserved communities, can get the funding they deserve.

Digitizing SBA Lending 

Securing an SBA loan doesn’t have to mean mountains of paperwork and weeks of waiting. At Grasshopper, we offer a fully digital SBA 7(a) loan application, designed to save you time and reduce friction, and we’re just getting started. We’re committed to further digitalizing the SBA lending process to help more small business owners access the capital they need, faster and more equitably.

Lending That Meets You Where You Are

Running a small business is hard enough. Getting a loan shouldn’t be. That’s why we’re focused on making lending simpler, faster, and more transparent. From easy online applications to human support when you need it, we’re here to make sure you feel confident, not confused, when it comes to financing. And because we’re 100% digital, you don’t need to drive to a branch to talk to someone who may or may not understand your business. You can connect with real experts who do, right from your laptop or phone.

The Bottom Line

You’re building something important, and you deserve a bank that gets it, one that’s committed to equitable small business lending and built to support your goals from day one. At Grasshopper, we believe that when small businesses thrive, communities do too. That’s why we’re using technology and data to make lending more inclusive, more efficient, and more aligned with your goals.

Ready to work with a bank that’s rethinking small business lending from the ground up? We’re ready when you are.

The post Why Small Businesses Deserve Better Lending appeared first on Grasshopper.

Understanding 9SBA 7(a) Loans

The SBA 7(a) loan program is the SBA’s most popular loan offering, providing financial assistance for various business purposes. For restaurant owners, this loan offers flexibility and favorable terms.

Key Features:

• Loan Amounts: Up to $5 million
• Repayment Terms: Up to 25 years for real estate; up to 10 years for equipment and working capital
• Interest Rates: Based on the prime rate plus a markup, varying by loan size and term length
• Guarantee: The SBA guarantees up to 85% for loans up to $150,000 and 75% for larger loans

What can an SBA loan be used for?

SBA 7(a) loans can be utilized for a variety of purposes within the restaurant industry:

• Purchasing Equipment: Acquire essential kitchen appliances like ovens, fryers, and refrigerators, as well as smaller items such as utensils and linens
• Real Estate: Buy, build, or renovate restaurant spaces, including purchasing land or existing buildings
• Working Capital: Cover day-to-day operational expenses, including inventory and payroll
• Refinancing Debt: Consolidate existing debts to improve cash flow and reduce interest rates
• Buying an Existing Business: Purchase an established restaurant to expand your business portfolio

Benefits of an SBA loan

Why should you choose to get an SBA loan rather than more traditional forms of financing?

• Low Down Payment: SBA 7(a) loans can require down payments as low as 10%, depending on the size and purpose of the loan
• Longer Repayment Terms: Terms can extend up to 25 years, making monthly payments more manageable
• Competitive Interest Rates: SBA loans often have lower rates than traditional or alternative lending options

What About the Restaurant Revitalization Fund (RRF)?

In 2021, the SBA launched the Restaurant Revitalization Fund (RRF) as part of the American Rescue Plan Act. This program provided emergency grants to help restaurants and other eligible food and beverage businesses recover from the financial impact of COVID-19.

RRF grants could be used for payroll, rent, utilities, outdoor seating construction, food and beverage inventory, and other operational expenses. Unlike loans, the funds did not have to be repaid, provided they were used for eligible costs by March 11, 2023.

While the program delivered over $28 billion in relief, it was quickly oversubscribed, and many eligible restaurants were unable to receive funding before it closed.

SBA Loans as the Next Best Option

For restaurants that missed out on the RRF – or for those that received some help but still need capital to grow – SBA loans have become a strong alternative. Programs like the SBA 7(a) loan offer flexible funding for equipment, expansion, hiring, refinancing, and more, all with competitive terms backed by the federal government.

While not a direct replacement for the RRF, SBA loans provide restaurants with long-term, strategic funding to continue recovering and growing in a post-pandemic landscape.

Eligibility Requirements

To qualify for an SBA 7(a) loan, restaurant owners must meet certain requirements:

• Operate a for-profit business located in the U.S.
• Qualify as a small business under SBA size standards
• Have invested equity in the business
• Demonstrate a need for the loan
• Show good character and the ability to repay the loan
• Have explored alternative financing options

How to Get an SBA Loan

The process of getting an SBA loan for your restaurant can be broken down into five simple steps:

1. Create a Business Plan
   Summarize the key aspects of your business, including financial projections, marketing strategies, sales plans, and competitive analysis. This is often a requirement from lenders.
2. Determine Your Funding Needs
   Identify how much money you need and exactly what it will be used for – this will help shape your loan request.
3. Check Your Eligibility
   Make sure your restaurant meets the SBA’s requirements for size, location, and business type.
4. Gather Required Documentation
   Commonly requested documents include:
   • Three years of personal and business tax returns
   • Year-to-date profit and loss (P&L) statements
   • Year-to-date balance sheet
   • Recent business bank statements
   • Personal financial statement
5. Find a Lender
   SBA loans are issued through private lenders. At Grasshopper, our digital application makes the process fast and straightforward. As an SBA Preferred Lender, we offer a streamlined experience backed by our knowledgeable SBA Lending team.

Securing an SBA 7(a) loan can provide the financial support needed to start, maintain, or grow your restaurant. Whether you’re replacing equipment, opening a new location, or simply building working capital, SBA loans offer a flexible and accessible solution. If you missed out on RRF funding or need additional support, now may be the perfect time to explore SBA loan options.

The post A Restaurant Owner’s Guide to SBA Loans appeared first on Grasshopper.