SBA Loans: What They Are and How to Get One

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Landing a Small Business Administration (SBA) loan is a big win for business owners because 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's an SBA loan?

SBA loans are those guaranteed by the U.S. Small Business Administration. The SBA doesn’t loan the money directly, but works with lending partners like banks and credit unions to provide the loans.

The SBA guarantees a portion of the loan, as much as 85% for the SBA’s popular 7(a) loan, in case the borrower defaults. This reduces the risk for lenders, giving them a safety net to recoup some of their money. As a result, business owners are able to obtain funds for a variety of uses at competitive rates and fees.

There are several types of SBA loans, including export assistance loans, short-term and working capital loans, but three of its more popular programs are the 7(a) loan, 504/CDC loan program and microloans. Each loan type varies greatly and is made to serve different purposes.

What are the different types of SBA loans and do you 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. You must:

  • 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.

Additional requirements for these loans include:

Loan ProgramDetailsEligibility
SBA 7(a) Loan
  • Borrowing capped at $5 million
  • Loan terms up to 25 years
  • Interest rates may be fixed or variable, see the rate chart below for more.
  • Be an eligible business
  • Demonstrated ability to repay the loan
  • Good character and credit management
  • Not delinquent on any debts to the government
SBA Express 7(a) Loan
  • Borrowing capped at $350,00 with a 50% loan guaranty
  • Same terms and interest rates as the 7(a) loan
  • Be an eligible business
  • Demonstrated ability to repay the loan
  • Good character and credit management
  • Not delinquent on any debts to the government
CDC 504 Loan
  • Borrowing capped at $5 million to $5.5 million
  • Loan terms between 10 and 25 years
  • Can’t be used for real estate speculation or investment
  • Interest rates are based on current market rates, but are typically lower than those for 7(a) loans.
  • Net worth of less than $15 million and net income of less than $5 million for the past two years
  • Personal guarantee of owners
  • Not have funds available from other sources, including personal sources
  • Demonstrated ability to repay the loan
  • Good personal character
SBA Microloan
  • Borrowing capped at $50,000
  • Can’t be used to buy real estate
  • Maximum repayment terms 6 years
  • Be an eligible business
  • Demonstrated ability to repay the loan
  • Good character and credit management
  • Not delinquent on any debts to the government
Community Advantage SBA Loan
  • Borrowing capped at $250,000
  • Maximum repayment term of 25 years
  • May not be used for revolving line of credit
  • Be an eligible business
  • Targeted toward underserved markets
  • Demonstrated ability to repay the loan
  • Good character and credit management
  • Not delinquent on any debts to the government
SBA CAPLines
  • Borrowing capped at $5 million
  • Four distinct loan programs under one umbrella:
    • Contract Loan
    • Builders Line
    • Seasonal Line of Credit
    • Working Capital Line of Credit
  • Targeted at seasonal and short-term working capital needs
  • Demonstrated ability to repay the loan
  • Good character and credit management
  • Be an eligible business
  • Not delinquent on any debts to the government
SBA Disaster Loan Assistance
  • Only SBA loan program open to homeowners and renters, in addition to business owners
  • Borrowing capped at $2 million
  • Collateral for loans over $25,000
  • Repayment terms of up to 30 years
  • Physical Disaster Loans: Must be affected physically by declared disaster
  • Business Economic Injury Disaster Loans: Small business, agricultural cooperatives, and private non-profits affected economically by a declared disaster; not able to get funding elsewhere
  • Express Bridge Loan Pilot Program: Any small business located in Primary Counties declared Disaster Areas or in any Contiguous Counties operating during the time of disaster

7 (a) loan

The SBA’s flagship loan program, it can be used to fund almost any business expense with borrowing amounts up to $5 million. The maximum term is 10 years, unless the loan finances or refinances real estate or equipment with a useful life exceeding that time; in that case, loan terms may stretch to 25 years. Last year, the SBA approved 60,353 7(a) loans, totaling nearly $25.4 billion, with an average approved loan amount of about $420,000.

Under the umbrella of the 7(a) loan program are the SBA Express Loan, Community Advantage and CAPLines. Terms and conditions, including guaranty percentage and loan amount, may vary. Let’s break down these as well:

  • SBA Express. This loan may be used for the same purposes as the 7(a): expansion, renovation, new construction, the purchase of equipment or for working capital at the same terms. The biggest difference, however, is that borrowing is capped at $350,00 with a 50% loan guaranty, instead of the 85% for a 7(a) loan. The SBA approved nearly $2 billion in SBA Express loans in fiscal year 2018.
  • Community Advantage. Like the Express loan, Community Advantage loans may be used for the same purposes, but was designed for a faster approval process (5 to 10 days) and for underserved businesses. Those may include:
    • Businesses with 50% or more of full-time workers who live in low-to-moderate income communities.
    • Businesses in Empowerment Zones and Enterprise Communities; HUBZones; Promise Zones; Opportunity Zones and rural areas.
    • Start-ups — firms in business less than two years.
  • 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 5 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 delinquent taxes or for floor planning. The maximum term is 10 years.

CDC/504

Also called a Certified Development Company loan, these long-term loans are meant to help businesses expand or modernize. They are offered with 10-, 20- or 25-year terms and typically provide financing for major fixed assets such as land, buildings, equipment and machinery. The CDC provides up to 40% of the loan amount, with a third-party lender providing 50%. You would be expected to contribute the remaining 10% as a down payment and make two payments: one to the bank, which may set its own terms, and another to the CDC, which has a fixed interest rate. Although interest rates are typically lower than a 7(a) loan, expect to pay about 5% of the loan amount in fees.

Microloans

These are small loans ($50,000 or less) aimed at helping start or expand a business. They are designed to assist women, veterans, minorities and low-income entrepreneurs. The average microloan in 2018 was $14,071 with a 7.6% interest rate, according to the Congressional Research Service. Unlike the other loans we’ve described, the SBA does not guarantee these loans — instead, it provides loans to nonprofit intermediaries, which in turn administer funds to businesses. These intermediaries typically require collateral as well as the personal guarantee of the business owner.

Disaster loans

During fiscal year 2018, the SBA approved more than 140,000 disaster loans for nearly $7 billion; this amount went not just to business owners, but also to homeowners and renters affected by natural disasters. Disaster loans are direct loans, meaning they are processed through the SBA, rather than through lenders whose loans are guaranteed by the agency. There are four categories of disaster loans, three of which may be used for businesses:

  • Business Physical Disaster Loans — Used by businesses of any size in a declared disaster area to repair or replace real property, machinery, equipment, fixtures, inventory or leasehold improvements.
  • Economic Injury Disaster Loans — Used by eligible small businesses and agricultural cooperatives plus most nonprofit organizations in a declared disaster area.
  • Military Reservists Economic Injury Loans — Used by eligible small businesses affected by essential employees being called to active duty in the military reserves.

The SBA Express Bridge program is designed for those in a declared disaster area who were already enrolled in the SBA Express program. Loans up to $25,000 are available.

SBA loan rates

The interest rates from participating SBA lenders will be determined by the lender, but they must be within certain maximums.

For variable 7(a) loans, those maximums are determined in part by the prime rate (currently 5.50%), plus a set markup rate. The rates vary depending on whether the loan will be paid off in more or less than seven years. Fixed-rate loans tend to have higher rates.

Note that these are interest rates, not APRs — meaning they don’t include the fees you pay to a lender. Your APR rate will ultimately vary based on the fees the lender charges. For example, a guaranty fee may range from 0.25% to 3.75% of the loan amount.

7(a) variable loan interest rates

Loan AmountLess than 7-Year RepaymentGreater than 7-Year Repayment
$25,000 or less
  • Prime Rate + 4.25%
  • (5.50% + 4.25% = 9.75%)
  • Prime Rate + 4.75%
  • (5.50% + 4.75% = 10.25%)
$25,000-$50,000
  • Prime Rate + 3.25%
  • (5.50% + 3.25% = 8.75%)
  • Prime Rate + 3.75%
  • (5.50% + 3.75% = 9.25%)
More than $50,000
  • Prime Rate + 2.25%
  • (5.50% + 2.25% = 7.75%)
  • Prime Rate + 2.75%
  • (5.50% + 2.75% = 8.25%)

7(a) fixed loan interest rates

Loan AmountInterest rate
$25,000 or lessMaximum of 13.50%
$25,000-$50,000Maximum of 12.50%
$50,000-$250,000Maximum of 11.50%

SBA Express interest rates

Loan AmountInterest rate
$50,000 or less
  • Prime Rate + 6.5%
  • (5.50% + 6.5% = 12%)
More than $50,000
  • Prime Rate + 4.5%
  • (5.50% + 4.5% = 10%)

CDC 504 loan interest rates

CDC 504 loans are fixed, meaning the interest rate doesn’t change over the life of the loan. The interest on these loans will vary because they are based on the fluctuating 10-year and 5-year U.S. Treasury bill rates and three fees: a CDC servicing fee, a Central Servicing Agent (CSA) fee and a borrower SBA fee. The below is an example of rate ranges for May 2019.

10-year terms20-year terms25-year terms
4.365% to 5.166%4.265% to 5.420%4.391% to 5.152%

SBA Microloan

Interest for the SBA’s microloans usually range from 6.5% to 9%. The average interest rate charged in 2018 was 7.6%.

Disaster loans

The maximum interest rate depends on the type of disaster loan:

  • Business Physical Disaster Loans — Interest rate is capped at 4% for loan applicants without credit elsewhere or 8% for applicants who are able to access credit elsewhere.
  • Economic Injury Disaster Loans — Interest rate is capped at 4%.
  • Military Reservists Economic Injury Loans — Interest rate is set at 4%. Collateral is required for loans for more than $50,000.

How to get an SBA loan

Remember that the SBA is not a lender. So to get most SBA loans, you’ll first need to find a lender. Most major banks offer SBA loans, or you can use the SBA’s lender match, too.

You may want to choose a bank that handles SBA loans regularly; some of the top SBA lenders include Live Oak Banking Company, Wells Fargo, Huntington National Bank, Newtek Small Business Finance, Inc. and Byline Bank.

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. Here is an in-depth guide on how to write your business plan.

Take a look at the SBA’s Loan Submission Checklist to get an idea of what you’ll need to apply. But 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.

Because no two lenders are alike, 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 not only is offering good loan terms, but also understands your business and goals.

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, but will 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.

The rates and fees mentioned in this article are accurate as of the date of publishing.

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