SBA Loans: What They Are and How to Get One

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SBA loans are the first loans any small-business owner should consider when exploring small-business financing as they are the most consistently low-priced loans in the market. The most common forms of SBA loans are called 7(a) loans, but there are plenty of other types of SBA loans. While they may come with lengthy applications and prolonged funding times, the benefits of SBA loans make long applications entirely worth it.

Loan ProgramHighlights
SBA 7(a) Loan
  • Max: $5 million
  • Capped at 6.75%-9.25%
  • Flagship SBA loan
  • Variety of uses
SBA Express 7(a) Loan
  • Max: $350,000
  • Capped at 9.00%-11.00%
  • Similar to standard SBA 7(a) loan but decision comes in 36 hours
Community Advantage SBA Loan
  • Max: $250,000
  • Capped at 10.50%
  • For startups and underserved businesses (in low-income communities, veteran-owned, etc.)
SBA CAPLines (line of credit)
  • Max: $5 million
  • Capped at 6.75%-9.25%
  • Contracting
  • Seasonal inventory
  • Construction
  • Working capital
SBA Microloan
  • Max: $50,000
  • Capped around 8.00%-13.00%
  • Working capital
  • Inventory or equipment
CDC/504 Loan
  • Max: $5 million-$5.5 million
  • Capped around 4.00%-5.00%
  • Land/building purchase
  • Land/lot improvements
  • Construction or remodeling
  • Construction equipment
Disaster Loan
  • Max: $2 million
  • Capped at 4.00%-8.00%
  • Business physical disaster
  • Economic injury
  • Military reservists economic injury

Table of Contents

What is the SBA?

The Small Business Administration (SBA) is the federal arm in charge of small-business financing. While the SBA provides a number of services like advisory and mentor programs for small businesses nationwide, it is most well known for creating highly competitive loans called SBA loans. The SBA's flagship and most common loan is called the SBA 7(a) Small Business Loan. The organization doesn't usually provide financing directly to small businesses but it does work with a large variety of lenders that do.

Why are SBA Loans so Competitive?

The SBA guarantees significant portions of each SBA loan. This means that lenders may be willing to lend to borrowers who don't fully meet their strict criteria and/or lend to borrowers at a reduced rate. Lenders incur reduced risk because they are paid by the SBA in the case of defaults.

So SBA loans may give borrowers the ability to borrow from traditional lenders like banks who they may not normally be able to borrow from, and even if they could initially qualify, they might get an even cheaper loan because of the guarantee.

How Much do SBA Loans Cost?

Interest rates on 7(a) loans are pegged to a prime rate (most commonly the Wall Street Journal Prime Rate) plus an additional markup percentage determined by the SBA, which is based on the loan amount and repayment terms.

For example, if you're looking for a 7(a) loan that's more than $50,000 with a repayment plan less than seven years, your loan would be capped at 7.25%. On the other hand, if you wanted the same loan with a repayment plan over seven years or more, your loan would be capped at 7.75%.

7(a) Loan AmountLess Than seven-Year Repayment TermSeven-Year or More Repayment Term
$25,000 or lessPrime Rate + 4.25%

(0.055 + 4.25% = 9.25%)

Prime Rate + 4.75%

(0.055 + 4.75% = 9.75%)

$25,000-$50,000Prime Rate + 3.25%

(0.055 + 3.25% = 8.25%)

Prime Rate + 3.75%

(0.055 + 3.75% = 8.75%)

More than $50,000Prime Rate + 2.25%

(0.055% + 2.25% = 7.25%)

Prime Rate + 2.75%

(0.055 + 2.75% = 7.75%)

Additional details on the cost of all SBA loans can be found here.

Choosing the Right SBA Loan

Choosing the right lender is arguably more important than choosing the right SBA loan. Most businesses will find that their needs are met by the SBA 7(a) loan, and a good lender with plenty of SBA experience should be able to point you in the right direction. We suggest you make sure the lender has years of experience with SBA loans and that they clearly state their rates before signing.

SBA loans can be found at almost every corner. Nearly any traditional lender, from large commercial banks to local community banks will likely offer SBA loans. However, only a few online lenders offer SBA loans.



Traditional Lenders

  • SBA works with lenders like banks, credit unions, and local nonprofits to loan out popular loans like the standard SBA 7(a) loan

SBA Disaster Loans

  • If applying for a SBA disaster loan, you will need to borrow from the SBA directly

Live Oak Bank

Live Oak Bank
Live Oak Bank
  • Live Oak is only behind Wells Fargo with number of SBA loans lent out

Celtic Bank

Celtic Bank
Celtic Bank
  • Requires minimum of $350,000 loans

Smart Biz 7(a) Loans

  • Loans less than $300,000

SmartBiz Real Estate 7(a) Loans

  • Low typical cost per dollar borrowed around $1.06

How Can I Get an SBA Loan?

SBA loans, while great in many ways, tend to be difficult to qualify for. With the exception of the Community Advantage (CA) loan, SBA loans usually aren't designed for startups and newer businesses. In fact, the SBA doesn't really list strict requirements. It does list some basic requirements that borrowers need to meet for its SBA 7(a) loans, but the real difficulties come from lenders themselves and their own application requirements.

Generally, borrowers need credit scores above 680, they should be able to put up collateral for their SBA loan, they should be able to demonstrate a minimum level of cash flow, and they should have been profitable for at least a few years. Traditional lenders tend to be difficult to qualify with, and this is why many borrowers instead turn to online lenders.

Requirements Set by SBACommon Lender Requirements
  • For-profit company located in the U.S.
  • Meet small business size requirements
  • Plans to use funds for approved purposes
  • No funds from other sources, including personal sources
  • Ability to repay loan on-time with good projected cash flow
  • No delinquencies on any debt to the U.S. government
  • Good personal character
  • Management expertise and commitment
  • Feasible business plan
  • A good to excellent credit score (defined as any FICO score from 690-850)
  • The ability to put up collateral for the loan
  • No recent derogatory marks on credit history (bankruptcies, liens, foreclosures, etc.)
  • At least two years in business
  • Profitability in past one to two years
  • Minimum annual revenue

Documents Needed to Qualify

The application process for SBA loans can be long and the funding time can typically take several weeks, with the exception of SBA Express Loans. In order to shorten the application process, we recommend you have the following documents and information ready:

  • Personal background and financial statements
  • Business financial statements
  • Business license or certificate
  • Ownership or affiliation information
  • Personal and business income tax returns
  • Loan application history
  • Personal resume(s)
  • Business description and history
  • Commercial lease agreement
  • Required documents will vary by lender.

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