SBA Loans: What They Are and How to Get One
Landing a Small Business Administration (SBA) loan is a big win for business owners — it gives them access to funds guaranteed by the federal agency, which in turn means relatively low interest rates and long terms.
However, the process can be lengthy and involve a lot of paperwork. We’ll explain the different types of SBA loans, basic requirements plus rates and fees for each and how to increase your chances of being approved for one.
What is an SBA loan?
An SBA loan is a government loan from a commercial lender that can finance real estate, equipment purchases, startup costs and more. These loans don’t come directly from the SBA — instead, they’re made by SBA-approved lenders. The federal government guarantees the loans, paying the lender up to 85% of the remaining loan balance if the borrower defaults.
There are several types of SBA loans, including 7(a) loans, 504 loans and microloans. Whichever loan type you choose, SBA-guaranteed loans are designed to offer competitive rates and fees, low down payments and flexible underwriting requirements. Some SBA loans even come with small business counseling and education to help you start or run your business.
SBA loan requirements: How to qualify
Because SBA loans are issued by many different lenders, there’s no singular set of guidelines for how to qualify. Check with your lender to see what specific additional requirements it might have. Many may want you to have good credit (a score of 680 or better), a couple of years of business operation and strong revenues.
At minimum, though, you’ll need to meet the SBA’s basic loan requirements:
- Own a for-profit business based in the United States.
- Have invested equity in your business in the form of time or money.
- Have exhausted other financing options with commercial lenders.
- Meet the SBA’s small business size standards
Types of SBA loans
SBA loans come in several different flavors, each with different purposes and featuring different repayment terms. Here’s a look at some of the most popular SBA loan programs.
Loan program | Amounts | Repayment terms | Maximum interest rates | Fees | Best for |
|---|---|---|---|---|---|
| 7(a) | Up to $5 million | 5 to 10 years for equipment loans
25 years for real estate loans | Variable:
Base + 2.25% to 4.75%, depending on loan amounts and maturity
Fixed: Prime + 5% - 8%, depending on loan amounts | Fees up to 3.75% on guaranteed portion of larger loans, plus ongoing fee of 0.55% |
|
| 504/CDC | $5 million to $5.5 million | 10, 20 or 25 years | Approximately 3% of loan
Pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues | Upfront guarantee fee of 0.5% Annual service fee of 0.4517% of the outstanding balance | Financing major fixed assets, such as equipment or real estate |
| Microloan | Up to $50,000 | No longer than 6 years | Varies with intermediary lender, generally between 8% and 13% | No guarantee fee | Working capital, suppose, machinery, equipment, furniture or fixtures, refinancing other debt |
| Disaster loans | Up to $2 million | Up to 30 years | 4% | No upfront fees | Working capital for organizations located in a declared disaster area that suffered substantial economic injury |
Things to know: SBA loan interest rates
One of the reasons that SBA loans are so attractive is their low interest rates, as compared to online or alternative lenders. The 7a and 504 loan programs each have different maximum interest rates, depending on whether the rate is fixed or variable, the loan term and loan amount.
7(a) loan
The 7(a) loan is the SBA’s main loan program for providing small business funding. It offers loan amounts up to $5 million and businesses can use the funds to expand, buy land or buildings, purchase equipment or inventory or for working capital.
- Rates: Interest rates on SBA 7(a) loans may be fixed or variable and maximum interest rates vary depending on the loan amount.
- Terms: Loan terms vary depending on the borrower’s ability to repay the loan. However, the maximum loan term is normally five to 10 years for machinery and equipment and 25 years for real estate.
-
Fees: The SBA charges guarantee fees so that borrowers (rather than taxpayers) cover the cost of providing loans. Guarantee fees can be financed with loan proceeds. Guarantee fees are:
- 2% of the guaranteed amount for loans of $150,000 or less
- 3% of the guaranteed amount for loans of $150,001 to $700,000
- 3.5% of the guaranteed amount for loans of $700,001 to $1 million
- 3.75% of the guaranteed portion over $1 million
Lenders cannot charge a separate loan origination fee on SBA loans, though packaging fees may be involved.
Different types of 7(a) loans
Under the umbrella of the 7(a) loan program are SBA Express loans, Export loans, Community Advantage and CAPLines. Terms and conditions, including guarantee percentage and loan amount, may vary.
The SBA has some basic loan requirements, but borrowers also need to meet lender requirements, which might be more stringent than those established by the SBA. However, lenders are not allowed to charge higher interest rates than the maximums established by the SBA.
7(a) program | Maximum amount | Percentage of guarantee | SBA turnaround time | Loan maturity |
|---|---|---|---|---|
| 7(a) small loan | $350,000 | 85% for loans up to $150,000
75% for loans greater than $150,000 | 5 to 10 business days | Same as standard 7(a) |
| SBA Express | $1,000,000 | 50% | Within 36 hours | Same as standard 7(a) loan for term loans
Up to 10 years for lines of credit |
| Export Express | $500,000 | 90% for loans of $350,000 or less
75% for loans greater than $350,000 | 24 hours | Same as standard 7(a) loan for term loans
Up to 7 years for lines of credit |
| Export Working Capital | $5 million | 90% (up to $4.5 million maximum) | 5 to 10 business days | Usually one year or less, 3 years maximum |
| International Trade | $5 million | 90% (up to $4.5 million maximum; up to $4 million maximum for working capital) | 5 to 10 business days | Up to 25 years |
| Community Advantage | $250,000 | Same as 7(a) loans | 5 to 10 business days | Same as standard 7(a) loans |
Note that the Community Advantage loan program is a pilot program that is scheduled to expire on Sept. 30, 2022, unless it’s extended or made a permanent part of the SBA’s loan programs.
Besides the loan programs mentioned above, there are other types of 7(a) loan programs, including ones designed to help veteran-owned businesses and those with seasonal or short-term working capital needs.
- Veterans’ Advantage: Veterans Advantage loans offer reduced fees for veteran-owned businesses. To be eligible, the business must be at least 51% owned and controlled by an eligible veteran.
-
CAPLines: Loan amounts up to $5 million with terms that may not exceed five or 10 years, depending on the specific loan. There are four different types:
- Contract loans: May be used to perform contract work. The maximum term is 10 years.
- Builders line: Designed for construction contractors or homebuilders, this loan term may not exceed five years.
- Seasonal line of credit: Businesses that have been in operation for at least a year may use proceeds for seasonal inventory increases or to maintain activity during slow times. The maximum term is 10 years.
- Working capital line of credit: A loan for working capital and operations over a short term; proceeds cannot be used to pay for items like delinquent taxes or floor planning. The maximum term is 10 years.
CDC/504 loan
The CDC/504 Loan Program provides long-term, fixed-rate financing via loans made available through Certified Development Companies, SBA partners that regulate nonprofit organizations and promote economic development in their communities. These loans are designed to help organizations finance major purchases of real estate or equipment that will promote business growth and create jobs.
- Rates: Lenders set their own rates for 504 loans, which are pegged to an increment above the rate for 5- and 10-year U.S. Treasuries.
- Terms: 10-, 20- and 25-year loan terms are available.
- Fees: The SBA charges an upfront guarantee fee of 0.50% of the loan amount. There’s also an annual service fee of 0.4517% of the outstanding balance.
Microloans
The SBA’s microloan program provides loans up to $50,000 to help small business and certain nonprofit child care centers start up and expand.
- Rates: Interest rates will vary depending on the lender, but generally range from 8% to 13%
- Terms: The maximum loan term is six years.
- Fees: No guarantee fee.
Disaster loans
The SBA offers four different types of disaster loans for business owners that need financial assistance during periods of hardship.
- Business Physical Disaster Loans. These loans provide up to $2 million to help cover repairs and replacement of physical assets damaged in a disaster and not covered by insurance. Collateral is required for loans above $25,000.
- Mitigation assistance loans. The loans help make small businesses stronger by financing flood, wildfire, wind or earthquake mitigation improvements when rebuilding after a disaster. The program increases another SBA disaster assistance loan by up to 20% of the business’s verified physical damages.
- Economic Injury Disaster Loans (EIDL). These loans provide up to $2 million to help small businesses and nonprofit organizations meet financial obligations and cover operating expenses after suffering damage to their premises or personal property in a declared disaster area. Collateral is required for loans above $25,000.
- Military Reservists Economic Injury Disaster Loans. These loans provide up to $2 million to eligible small businesses to cover operating expenses while military reservist employees are on active duty. Collateral is required for loans above $50,000.
During the COVID-19 pandemic, the SBA’s COVID-19 EIDL program provided funding to help small businesses recover from the economic impacts of the pandemic. This program is no longer accepting new applications as of Jan. 1, 2022.
Pros and cons of an SBA loan
Understanding the pros and cons of an SBA loan can help you decide if SBA funding is the right choice for your business.
Pros
Cons
How to get an SBA loan
If you’re interested in applying for an SBA loan, here are four simple steps to take.
1. Decide what loan is right for you.
The SBA offers a variety of loan programs, each with different loan limits, terms, eligibility requirements and purposes. Review the different loan options above to choose the specific loan program that’s right for your needs.
For example, if you need to purchase real estate for your business, a 7(a) or 504 loan might be right for you. However, if you need help financing a small amount of furniture, equipment and inventory, an SBA Express or microloan might be a better fit.
2. Choose a lender.
Remember that the SBA is not a lender — so if you want to get most SBA loans, you’ll first need to find a lender. Most major banks offer SBA loans, but you can also use the SBA’s lender match, too.
You may want to choose a bank that handles SBA loans regularly. Among the top SBA lenders are Live Oak Banking Company, Newtek Small Business Finance, Inc., Huntington National Bank, Celtic Bank Corporation and Wells Fargo.
But no two lenders are alike, so take some time to shop around for a lender that’s a good fit. Be on the lookout for unusually high interest rates or fees, and always ask for the loan’s APR and payment schedule. It’s worth your time to find a lender who’s not only offering good loan terms, but one that also understands your business and goals.
3. Get your application documents ready.
Not every loan will have the same requirements, but in many cases, you’ll need to pull together the same kind of documents. A business plan is an important part of your application: You’ll want to describe your business and its products or services, define and analyze your market and articulate your management structure.
Take a look at the SBA’s Loan Submission Checklist to get an idea of what you’ll need to apply — here are some commonly required documents:
- Business debt schedule (a look at your existing debt and the schedule of how it’s being paid off)
- Personal financial statement
- Current income statement and balance sheet
- Cash flow projections for one year (this is required for all new businesses)
- Business valuation
- Copies of lease agreements
- Real estate appraisals
- Three years’ worth of personal and business tax returns
- One year of personal and business bank statements
4. Wait.
Depending on the type of loan and your lender, the approval process could take about 60 to 90 days. If you’re turned down for an SBA loan, you may want to consider a loan from an online lender; those loans may be easier to get, though they’ll likely come with higher interest rates. Other options include invoice financing — where you use your accounts receivable as collateral to secure a loan or line of credit — or a loan from friends or family.
And of course, you always have the option to reapply for an SBA loan, either with the same lender or a different one. This might make sense if you think there’s room to strengthen your loan application or improve your credit score.
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