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The Small Business Owners’ Guide to Getting an SBA Loan
SBA loans have low rates and long terms, making them a desirable option for small business owners. Learn which types of SBA loans are available and how to apply for one.
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When small business owners need additional funding for needs such as fixed asset investment, working capital or debt refinancing, they may initially seek loans from banks, friends and family, and other outside investors. If they’ve exhausted these options, however, it may be time to look into SBA loans. There are many different loan types available through the SBA, including options for small businesses that have been affected by a natural disaster or a global event.
What is the SBA?
The Small Business Administration (SBA) is a federal government agency that offers small businesses counseling and education, contracting, and access to capital. One function of the SBA is to help America’s small businesses secure the funding they need to operate and grow. A primary way the SBA does this is through the SBA loan program, which extends guaranteed financing to small businesses through participating lenders.
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What is an SBA loan?
The SBA does not lend small businesses money directly. Instead, it sets guidelines for loans that are made by its partners, including banks, credit unions, community development organizations and microlending institutions. The SBA guarantees that a portion of these loans granted by these groups will be repaid, eliminating some of the risk for lenders.
With an SBA loan, the SBA regulates the amount of money you can borrow and guarantees certain interest rates that are competitive with what a bank would typically offer. For some borrowers, the lender may have been unwilling to provide a loan initially. However, when the government is backing a major portion of the loan, the lender may decide the risk is more acceptable.
“The SBA works with lenders to provide loans to small businesses,” reads the SBA website. “The SBA reduces risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.”
How do SBA loans work?
SBA loans and lines of credit are similar to conventional business loans from banks. The process starts when business owners apply; once approved, the borrower secures funding and then pays it back over time with interest.
Types of SBA loans
You can find a complete list of SBA loans on the agency’s website. Here’s an overview of SBA loans, including typical interest rates, amounts and qualifications.
7(a) loans
The SBA’s primary business loan is called a 7(a) loan. It is the most basic and flexible type of long-term SBA loan. The maximum lending amount is $5 million, and the interest rate may be fixed or variable. Interest rates are based on the amount you’re looking to borrow, and the rates are lower for larger loans. The loan can be used for working capital, business expansions and more. Loan maturity ranges up to 10 years for working capital and up to 25 years for fixed assets. You can apply through a participating SBA lender.
7(a) small loans
The 7(a) small loan program directly mirrors the regular 7(a) program but for loans of $500,000 or less.
SBA Express loans
This loan program is for businesses looking to borrow up to $500,000 for up to 10 years. The interest rate is negotiable but cannot exceed the SBA maximum. You can use the money as a revolving line of credit or a term loan, which is a similar structure to 7(a) loans. SBA Express lenders can lend money without SBA review, making it possible for you to receive funding sooner.
SBA Veterans Advantage loans
The Veterans Advantage Loan Program is part of the SBA 7(a) loan process. These loans are designed for small businesses owned by veterans and their families. The maximum amounts vary between the SBA Express and 7(a) packages. These loans are processed as a subset of those two loan packages, so many of the same rules apply. The main advantage is that as a veteran, you have access to reduced guaranty fees. It can take longer to get funding with a Veterans Advantage loan, however.
CapLines
This loan package is for working capital loans, including loans that finance the costs of specific contracts, seasonal capital needs, and real estate constructions or rehabilitation. The same qualifications for the 7(a) loans are required. Like the 7(a), the maximum loan amount is $5 million. In addition to meeting the 7(a) requirements, borrowers must file SBA Form 750 and Form 750B.
International trade loans
International trade loans are for 7(a) qualifiers who engage in international trade. The maximum borrowing amount is $5 million, and the loan can be used for a range of expenses, from working capital to equipment purchasing.
Export Working Capital Program
This loan program is for short-term borrowers with businesses in indirect or direct exporting. There is no cap on the interest rate, but the SBA monitors which rate you receive. The maximum loan amount is $5 million, and the funds can be used as a short-term working capital loan.
Export Express loans
This loan program is similar to the SBA Express loan package, but it’s geared toward businesses looking to expand into the export markets. The maximum loan amount is $500,000.
504 loans
Along with 7(a) and SBA Express loans, this is one of the most common SBA loan types. It’s for property and other fixed-asset loans. The maximum loan amount ranges from $5 million to $5.5 million, depending on business size and project. Interest rates vary by situation, but you’ll most likely have a fixed rate. Available maturity dates include 10-, 20- and 25-year options.
504 loans are provided through Certified Development Companies (CDCs). To qualify, a business must have a tangible net worth of less than $15 million and an average net income of less than $5 million after federal income taxes for two years before the application is submitted.
504 refinancing program
This program mirrors the 504 loan program, but it is for refinancing existing long-term fixed-asset loans. To qualify, you must be current on all your payments for 12 consecutive months before applying.
Non-7(a) microloans
This program offers very small loans to newly established or growing small businesses. The loans can be used for working capital or to purchase inventory, supplies, furniture, fixtures, machinery or equipment. The SBA makes funds available to specially designated intermediary lenders, which are nonprofit organizations with experience in lending and technical assistance. Those intermediaries then make loans of up to $50,000, with the average loan being about $13,000. SBA microloans cannot be used to pay existing debts or to purchase real estate. Interest rates generally range from 8% to 13%. You must meet the 7(a) requirements to qualify and must personally guarantee the loan.
Disaster loans
The SBA offers this option to businesses, homeowners, renters and private nonprofit organizations that have been impacted by a declared disaster. These low-interest loans can be used to repair or replace damaged real estate, personal property, machinery, equipment, inventory and business assets. Read our guide to creating a disaster plan for your business.
You can find further details on each type of SBA loan program on the SBA website.
What do you need to be eligible for an SBA loan?
To get an SBA loan, you must provide financial documentation about your company to both the bank and the SBA. This allows the SBA to determine your eligibility and see if the loan is a good fit for both the agency and your business.
The SBA has different qualifications for each of its loans. While there are numerous loan types available — from international trade loans to veteran-focused lending programs — the most common SBA loans are the 504 and 7(a).
Typical documentation needed for an SBA loan
The SBA requires extensive financial documentation because SBA loans are usually the main option for small businesses that can’t otherwise qualify for loans from traditional banks. The SBA guarantees a portion of the loan with the bank you’re working with. That means it wants a comprehensive picture of your business’s finances, how your company has performed in the past and where your business is headed in the future.
It also means the SBA requires personal financial information from you and the major stakeholders in your company. This is because many of these loans require the borrower to sign a personal guarantee for the loan.
It’s important to learn what you need to submit before you start the process. These documents can include the following.
Personal statements
- Personal financial and background statements
- Statement of personal history (SBA Form 912)
- Personal financial statement (SBA Form 413)
- Personal records of past loans you’ve applied for
- Names and addresses of all your subsidiaries and partners
- Resumes for all business principals
Business financial statements
- A profit and loss statement current within 90 days of your application
- Supplementary profit and loss schedules from the last three fiscal years
- Business records of loans you’ve applied for
- Three years’ worth of signed business and personal tax returns for all of the business’s principals
- Business certificate and license
- Copy of property leases or deeds
- List of debts
- Resumes of key team members
- Business overview and history
- Business plan
Projected financial statements
- One-year projection of income and finances
- Written plan that explains how you will reach revenue projections
Additional considerations
The SBA also advises small businesses applying for a loan to prepare their answers to relevant questions, such as these:
- Why are you applying for this loan?
- How will you use the loan proceeds?
- What assets do you need to purchase, and who are your suppliers?
- What other business debt do you have, and who are your creditors?
- Who are the members of your management team?
Why your business plan matters
Whether you’re a new startup or an established company, you have a higher chance of your application being approved if you have a well-written business plan.
“The business plan not only is the road map that will guide the business from planning to startup to (hopefully) success, but also will show any potential lender that the potential business owner does have a clear view and understanding of the business, how to run it and, most importantly, how the loan will be repaid,” said David Hall, former public affairs specialist with the SBA in Washington, D.C., in an email interview with Business News Daily.
Kale Gaston, head of Small Business Lending at LendingClub Bank agreed, noting that lenders want to know how knowledgeable you are about your business and the market.
“The concept may be great, but what the lender is looking for is that the individual is driven, capable and determined,” he said. “You really need to understand what you are doing every step of the way and be able to convey that to the lender during the application process.”
Hall also recommended taking full advantage of the business planning resources offered by the SBA and its partners, such as SCORE, Small Business Development Centers and Women’s Business Centers.
Costs of an SBA loan
Like other business loans, SBA loans come with costs — most notably interest. Borrowers pay several loan fees, including application fees, appraisal fees (if a loan is being collateralized by assets such as real estate) and perhaps a credit check fee.
In addition to conventional fees, SBA loans have a guaranty fee. This is what borrowers pay in exchange for the SBA guaranteeing a portion of their loan. The guaranty fee applies only to the portion of the loan being guaranteed by the SBA.
Benefits of an SBA loan
The choice between an SBA loan and a conventional loan may come down to something outside of a conventional benefits list. Gaston said SBA loans “do a great job of helping lenders say ‘yes’ to borrowers.” He also noted that SBA programs provide better access to capital and credit enhancement for small business owners. For example, since the SBA guarantee lowers the risk in case of a loan default, lenders can provide funding when the down payment available is too low or the business cash flow is not high enough for traditional lending options.
The biggest advantages of SBA loans can include the following:
Lower interest rates
As an example, the maximum interest rate on a 7(a) SBA loan over $50,000 and up to $250,000 is the base rate plus 6.0%. The rates are lower for higher amounts; for example, for loans greater than $350,000, the maximum rate is the base rate plus 3.0%. This cap means you generally receive a lower interest rate than standard banking interest rates. The rate is used to entice lenders, but it also entitles the borrower to offer a fair market rate.
The SBA publishes the maximum fixed interest rate on FTA Wiki. As of July 2024, for a loan greater than $25,000 and up to $50,000, you could get the best possible business loan at 15.50% interest. For loans greater than $250,000, the maximum rate is 13.50%. That’s well below what many banks offer small businesses, especially those that are struggling financially.
Flexible payment options
Due to the nature of the SBA’s loan program, you may get flexibility when repaying your loan. This is especially true for disaster relief loans. Companies may be able to defer SBA loan payments, refinance the loan or schedule interest-only payments until more normal economic times resume. Keep in mind that this is highly specific to your business’s situation. The minimum down payment is 10%.
Easier qualifications
Credit score requirements are lower with SBA loans than the standards for conventional business loans. If you meet the SBA standards, you can get a loan. This makes it a good option for new businesses and other companies facing financial hardship that could not otherwise qualify for a typical bank loan. It also changes the vetting process, so the bank is working with SBA to obtain and interpret your financial information. By going through the SBA, you’re establishing your credibility as a borrower, so you have more credit options later.
Longer terms
SBA lenders can provide longer terms as well. Instead of five or 10 years for a real estate purchase with a balloon (final) payment at the end, the lender can give 25-year terms, eliminating the balloon payment or need to refinance every few years, Gaston said. For shorter-term assets, like equipment, terms could be up to 10 years instead of the usual three to five years.
Longer loan terms mean you have more time to repay what you’ve borrowed. Depending on your business situation and the amortization schedule of your loan, a longer loan could be advantageous. It could provide lower monthly payments and give your business more flexibility down the line.
More opportunity
Depending on the state of the economy and world, you may have a better chance of getting an SBA loan compared to a regular loan. In areas that have experienced a crisis, for example, SBA disaster assistance loans are designed to save small businesses impacted by those events. Business owners can work with local lenders to get the funding they need.
Drawbacks of an SBA loan
These are some downsides of funding from the SBA, such as:
- It can take 60 to 90 days to close on the loan — much longer than loans from alternative lenders take. (Express loans may take far less time.)
- Your business must have been operating for at least two years to qualify.
- You must have a sound business plan and demonstrated industry expertise.
- A personal guarantee is required from all partners who own 20% or more of the business.
- A guarantee fee is charged for the portion of the loan being guaranteed by the SBA.
Steps to get an SBA loan
Different routes you can take to get an SBA loan include the following.
1. Apply through your local bank.
This is one of the most common ways to apply for an SBA loan. Working closely with your local bank allows you to quickly get in touch with the SBA, as banks often have a designated employee or representative who deals directly with the agency and can help you get the process started.
If you’re working with a bank that you do business with regularly, it’ll be easier to get your documentation submitted and work on subsequent steps. If you don’t already have a relationship with a local bank and the banks you’ve visited can’t provide you with a loan option, there are other routes to finding the right lender for your small business.
There are two main types of SBA loans you can get through a local bank: 7(a) and 504 loans. The 7(a) loans encompass standard business financing, while the 504 loans are geared more toward long-term real estate purchases. Within both these types are a few different loan products. You can talk with your lender about which one is right for you. These loans include standard-term loans of varying sizes and more unique loan products like the Builders CAPLine.
2. Visit a Small Business Development Center.
Use the SBA website to find your nearest Small Business Development Center. These centers not only provide a great first step toward finding the right lender, but they can help small businesses in other ways, as well.
By meeting with an SBA representative, you can take the first step in getting funding. While you’re at the center, take advantage of some of the agency’s other services:
- Business plan development
- Manufacturing assistance
- Financial packaging and lending assistance
- Exporting and importing support
- Disaster recovery assistance
- Procurement and contracting aid
- Market research help
- Healthcare guidance
3. Use Lender Match.
Sometimes you may not be able to work with a local bank or make it to your nearest Small Business Development Center. If that’s the case, the SBA still has you covered.
The SBA provides an online tool called Lender Match that processes your claim and matches you with several SBA-approved partners. You can find a match in as little as two days and start the funding process immediately afterward.
However, before you use Lender Match, gather some documentation and information about your business. While the program is quick and easy, it doesn’t guarantee you’ll be matched with a lender. Make sure you have the following ready for your potential lender:
- Your business plan
- The amount of money you need and how you’ll use the funds
- Your credit history
- Financial projections
- Some form of collateral
- Industry experience within your field
A lot of this documentation and information will be required when you apply for an SBA loan, whether or not it’s online. Lender Match is a great tool for small business owners looking to quickly connect with funding options and evaluate their choices.
Best lenders for SBA loans
The SBA offers a number of alternatives to working with a bank. As you begin the process of applying for an SBA loan, it is important to know what each lender has to offer. This makes choosing the right SBA partner a much easier process. Here are examples of lenders who offer SBA 7(a) loans. Details may vary for other types of SBA loans.
| OnDeck | Rapid Finance | SBG Funding | |
|---|---|---|---|
| Monthly revenue required | $8,333 | $10,000 | $30,000 |
| Minimum credit score | 650 | 550 | 600 |
| Pro | Prepayment benefits | Immediate quotes | Fast funding |
| Con | Business lien required | Minimal customer support | High revenue required |
| Loan limit | $250,000 | $1 million | $5 million |
| Funding time after approval | Same business day | Same day | 24 hours |
OnDeck
If you need funds immediately, OnDeck is worth considering. OnDeck is most popular for short waiting times, with some businesses receiving funds on the date of approval. This lender doesn’t require high credit scores, but it does require a general lien on the assets of a business and personal guarantee from applicants. You can apply for an OnDeck line of credit or a lump-sum longer term loan. OnDeck requires more frequent payments than many other lenders as well as a minimum of $100,000 in annual revenue to qualify for funding. You must have been in business for at least one year.
Rapid Finance
Rapid Finance, a great option for new businesses that are growing, is known for flexibility. This lender offers small business owners more input than most lenders when it comes to loan types, amount and repayment terms.
SBG Funding
SBG Funding is an alternative lender, not a bank. It offers flexible loan options depending on your needs, and it doesn’t charge additional fees. SBG Funding is our top choice of alternative lenders for business owners seeking flexibility.
Repayment terms range from six months to 10 years, but you can always pay loans off sooner with no prepayment penalties.
Startup businesses may not be able to get an SBG Funding 7(a) loan. The business must have almost $30,000 in monthly income to qualify.
SBA loan FAQ
- Your company must operate in the United States.
- It must be a for-profit company.
- There must be reasonable equity for you (the owner) to invest.
- You should use financial resources (other than the loan), including personal savings and assets, before seeking funding from the SBA.
- Floor plan financing, such as for retailers or auto dealers
- Real estate development or investment (e.g., buying a rental property)
- Lending money to other businesses or individuals
An SBA loan can make a difference for your business
It takes money to run and grow a business. Traditional lenders are not always willing to risk lending to small businesses without a guarantee they will recoup at least most of their capital. That’s where government-backed SBA loans can make a difference. With the right financing in place for your needs, you can take advantage of opportunities and help guide your business to success.
Sally Herigstad and Max Freedman contributed to this article. Source interviews were conducted for a previous version of this article and related articles.
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- How to Get a Bank Loan for Your Small Business
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- Small Business Financing Options That Bypass Traditional Banks
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