SBA loan guide: What they are and how to apply
Key takeaways
SBA loans have set maximum interest rates, making them a flexible and affordable business lending option.
It can take 30 to 90 days for SBA loan approval and funding.
Beyond loans, the U.S. Small Business Administration offers mentorship and other programs for small business owners.
SBA loans can be a good way to fund working capital and other business expenses if you’ve exhausted other lending options. They are partially guaranteed by the Small Business Administration and designed to be affordable for small businesses. SBA loans often have competitive rates and low down payments, and some loans come with continued financial counseling to help you start and/or run your company. However, SBA loans may take more time to apply for, given their strict guidelines, and are often more difficult to qualify for than loans not backed by the SBA.
What is an SBA loan?
An SBA loan is a term loan or line of credit offered by a bank, credit union or alternative lender and backed by the Small Business Administration (SBA). There are several types of SBA loans, but all are designed to cover working capital, expansion and large purchases for small businesses.
SBA loan statistics
According to the SBA, at the end of 2023 fiscal year:
$27.5 billion in SBA 7(a) loans was approved
Almost 70 percent of 7(a) loans were for amounts under $350,000
35 percent of microloan funding went to Black-owned businesses
$6.4 billion for 504 loans was approved
How do SBA loans work?
In some ways, SBA loans work like conventional business loans. You apply through a lender, and if approved, you’ll receive funds that must be paid back at fixed intervals.
SBA loans tend to be more affordable and have more favorable terms like longer repayment periods and lower credit score requirements than other business loans.
Why are SBA loans more affordable than other business loans
These loans are more affordable because most SBA loans are backed by the federal government, which provides an SBA loan guarantee. Depending on the type of loan, the SBA may take on anywhere from 50 percent to 90 percent of the borrower’s debt if they fail to pay back the loan.
Any business owner who owns at least 20 percent of the business must also provide an unlimited personal guarantee, meaning a lender can go after your assets if you default on the loan. And since the guarantee is unlimited, a lender could also take enough assets to cover the full loan amount, interest and even legal fees.
You’ll also likely need to provide a down payment of 10 percent to 30 percent. With all these assurances, a lender takes on less risk when lending, which is why SBA loan rates and terms are more favorable.
How long does it take to get an SBA loan?
Most SBA loans take a considerable amount of time to process. All told, it can take anywhere from 30 to 90 days to receive funds. Loans from a lender who is a part of the SBA’s Preferred Lender Program tend to be faster since they do not require SBA approval before moving forward with the process.
Bankrate insight
SBA Preferred lenders can approve loans in-house without going through the SBA first. Popular Preferred Lenders include:
Types of SBA loans
There are many types of SBA loans. Here’s a look at the most common types.
SBA loan type | Purpose |
|---|---|
7(a) loans | Almost any purpose – working capital, payroll, expansion, equipment |
504 loans | Long-term financing for real estate and large equipment |
Microloans | Working capital, inventory, supplies, equipment |
Express loans | Faster response times |
Economic Injury Disaster Loans (EIDL) | To cover expenses that would have been met had a disaster not occurred |
CAPLines | To help with bidding on specific contracts or cover seasonal expenses |
7(a) loans
Loan amount | Up to $5 million |
|---|---|
Maximum SBA guarantee | 85% of loans under $150,000, 75% for loans over $150,000 |
Interest rates | Cannot exceed SBA set maximum |
Repayment terms | 5 to 10 years for working capital loans, 25 years for real estate loans |
Down payment | 10% |
SBA 7(a) loans are the most common option for business owners. Though some might require collateral, they are generally unsecured and are designed for working capital expenses. But you can use the funding for whatever your business needs, like payroll, expansion or new equipment.
The SBA caps both fixed and variable rates, and in many cases, they can be lower than the interest rates for other types of business loans.
Express loans
Loan amount | Up to $500,000 |
|---|---|
Maximum SBA guarantee | 50% |
SBA approval time | 36 hours |
Interest rates | Cannot exceed SBA set maximum |
Repayment terms | Up to 10 years for revolving lines of credit, 5 to 10 years for working capital loans, 25 years for real estate loans |
Down payment | 10% |
Express loans are a type of 7(a) loan. They are functionally the same as 7(a), but the application process is expedited for quick funding. While it can sometimes take one to five days for the SBA to process its portion of the application, an SBA Express loan provides a faster turnaround time of 36 hours or less.
504 loans
Loan amount | Up to $5.5 million |
|---|---|
Maximum SBA guarantee | Up to 40% |
Interest rates | Approximately 3% of debt; based on an increment above current market rate for 10-year U.S. Treasury issues |
Repayment terms | 10-, 20- and 25-year maturity terms |
Down payment | 10% |
The 504 SBA loan program is long-term financing for constructing or purchasing buildings, land and large equipment or machinery. They are funded through Certified Development Companies (CDCs), which are certified by the SBA.
The SBA has a tool to find a local CDC. A 504 loan will also be partially funded by a third-party lender, which will set the loan’s primary terms and interest rates.
Microloans
Loan amount | Up to $50,000 |
|---|---|
Maximum SBA guarantee | N/A |
Interest rates | Varies depending on lender, usually between 8% and 13% |
Repayment terms | Up to six years |
Down payment | None |
Microloans are the smallest funding option offered by the SBA.
Like 7(a) loans, SBA microloans are meant for working capital and other expenses like inventory, supplies and equipment. They cannot be used to repay existing debts or for real estate.
While they are open to every small business, they are geared toward underrepresented groups, such as woman- or minority-owned businesses.
Economic Injury Disaster Loans
Loan amount | Up to $2 million |
|---|---|
Maximum SBA guarantee | N/A |
Interest rates | Not to exceed 4% |
Repayment terms | Up to 30 years |
Down payment | None |
Economic Injury Disaster Loans (EIDLs) are meant to help companies impacted by a disaster in a declared disaster area. They’re available to small businesses, agricultural cooperatives and most private nonprofits.
The SBA will offer funding at low interest rates, with the amount you can borrow determined by your actual economic injury and financial needs. Loans over $25,000 require some form of collateral, preferably real estate.
CAPLines
Loan amount | Up to $5 million |
|---|---|
Maximum SBA guarantee | 85% of loans under $150,000, 75% for loans over $150,000 |
Repayment terms | Up to 10 years; up to 5 years for Builders CAPLine |
Down payment | None |
SBA CAPLines are lines of credit that come in four different forms:
Seasonal CAPLine: Used for financing seasonal increases in costs, such as inventory or labor.
Contract CAPLine: Used to help finance the labor and material costs of specific assignable contracts
Builders CAPLine: Used to finance labor and material costs for a contract or builder renovating or constructing a building.
Working CAPline: Designed for businesses that can’t meet long-term credit standards.
SBA interest rates
SBA loan rates vary by lender but are based on the daily prime rate plus a set rate determined by your lender, which can’t exceed predetermined rates set by the SBA. Here’s a look at the maximum variable rates for select SBA loan types, calculated using the SBA set rates added to a current prime rate of 8.50 percent. For more information on how rates are set, check out our guide on SBA loan rates.
7(a) loans and CAPLines
SBA loan size | Fixed interest rates | Variable interest rate |
|---|---|---|
$25,000 or less | 16.50% | 15.00% |
$25,001 to $50,000 | 15.50% | 14.50% |
$50,001 to $250,000 | 14.50% | 13.00% |
$250,001 or more | 13.50% | 11.50% |
Rates current as of December 2023; calculated with current prime rate of 8.50%.
SBA Express loans
SBA loan size | Maximum interest rate |
|---|---|
$50,000 or less | 15.00% |
$50,001 to $250,000 | 14.50% |
$250,001 to $350,000 | 13.00% |
$350,001 or more | 11.50% |
Rates current as of December 2023; calculated with current prime rate of 8.50%.
Pros and cons of SBA loans
SBA loans are one of the best funding options available because of the cap on interest rates and the reduced risk to business owners. But that doesn’t mean they’re a good fit for everyone. Here’s a look at the pros and cons of SBA loans.
Pros of SBA loans
Open to a variety of businesses
Capped interest rates
Limited fees
Access to multiple resources
Cons of SBA loans
Strict eligibility requirements
Down payment and collateral may be necessary
Application can be time-consuming
How to qualify for an SBA loan
Because an SBA business loan is offered through an individual lender, requirements vary widely. Eligibility depends on your business’s industry, size and ability to repay. Your business will have to meet the small business size standard for its industry; depending on the loan type, there may be caps on the number of employees, net worth and income.
That said, the SBA has a few basic requirements. You must be a for-profit business that operates in the U.S. The person or people applying for the loan must have equity in the business.
How to apply for an SBA loan
Although the SBA guarantees its loans, you still apply for these loans like you would with any other business loan.
Check eligibility requirements. To qualify for an SBA loan, you will need to meet common eligibility requirements — in addition to having good personal credit and strong revenue.
Find a lender. Use the SBA’s Lender Match Tool to find a lender that fits your business’s needs. Since some lenders may have other criteria your business needs to meet, check with them before you apply.
Gather your documents. As with any loan, you must provide financial and legal documents. Tax returns, profit and loss statements, a business plan and other information are frequently required when you apply.
Submit the application. SBA loans typically take longer to process than other business loans. Because they are more involved, double-check your application before submitting it and ensure you have all your documents in order. It may take between 30 and 90 days to be approved and funded.
If your SBA loan is denied, you can reapply in 90 days.
Alternatives to SBA loans
If you don’t qualify for an SBA loan or are denied, other funding options are available. Some options to explore are:
Business credit cards. Business credit cards are a revolving line of credit that are good for emergency needs and some day-to-day spending. You may be able to earn points or get introductory rates with some cards.
Grants. You don’t have to pay back grant money, making it appealing for small businesses. However, it takes time to apply and get approved for grants, so they are not a great solution for businesses who need money soon. Grants are available at the local, regional and federal level from government and private sources.
Crowdfunding. You may also want to explore setting up a crowdfunding page online for a startup business. You can do so through a platform like GoFundMe, which facilitates small donations from private donors. You don’t have to pay the money back but may not be able to receive the funds if you don’t meet a minimum percentage of your goal set by the platform.
Business loans from traditional or online lenders. Even if you’ve been denied for other business loans, it’s worth exploring more traditional and online lenders. Loans from online lenders are particularly appealing because they don’t have a traditional underwriting process and can often payout within a few days.
Frequently asked questions about SBA loans
Do SBA loans have to be paid back?
Yes. While the SBA offers some grants, its loans do have to be repaid. Terms range from six to 25 years.
Are SBA loans hard to get?
The SBA makes qualifying easier than most traditional lenders by offering lower credit score minimums and guarantees to reduce lenders’ risk. This allows them to offer longer repayment terms and better interest rates.
What do you need to qualify for an SBA loan?
Your business will need to be profitable and have steady revenue. Each business owner will need to have good finances and financial history as well as a good to excellent credit score.
