💳 Save money on credit card processing with one of our top 5 picks for 2025
Understanding how SBA loans work can be tricky. Find out what SBA loans are, how they work, and if an SBA loan is right for your business.
WRITTEN & RESEARCHED BY
Editor & Senior Staff Writer
Last updated onUpdated
REVIEWED BY
Expert Contributor
In June 2024, the SBA announced plans to launch a new working capital pilot program. This new program will provide revolving lines of credit up to $5 million for eligible borrowers. The program is designed to make lines of credit more accessible and affordable than CAPLines or SBA Express lines of credit. Merchant Maverick will continue to monitor the status of this program and will provide updates after it goes live.
Small business owners that need low-interest, long-term loans should look to an SBA loan to get the funding they need. But what is an SBA loan, and is it the right choice for your business?
SBA loan borrower requirements are difficult to meet, and the application process can be time-consuming. However, for most borrowers, the effort is worth the access to low-cost loans they couldn’t get elsewhere. Keep reading to learn more about SBA loans to determine if it’s the right funding option for you.
Table of Contents
The Small Business Administration (SBA) is an indispensable resource for business owners in need of financing. The SBA offers a variety of loan programs according to business needs. Its flagship program is the 7(a) loan program, which offers loans for most general business purposes. The SBA also offers special programs such as microloans and disaster loans.
Below is a summary of the types of loans offered by the SBA:
| Loan Program | Description |
|---|---|
| 7(a) Loans | Flexible loans that can be used for many purposes, including working capital, equipment, inventory, business expansion, and real estate |
| Microloans | Small loans up to $50,000 that can be used for working capital, inventory, equipment, and other expenses |
| 504 Loans | Large loans used to acquire or update fixed assets such as real estate. 504 loans are offered in partnership with Community Development Companies (CDCs) or banks. |
| Disaster Loans | Loans used to rebuild or maintain a business following a disaster |
Between its four main loan programs, SBA loan products can be used for most purposes. Borrowers can use loans for expenses, including:
The SBA does not originate business loans. Instead, the agency guarantees a portion of loans offered by partner banks, credit unions, non-profits, and other financial institutions. In the event the borrower defaults, the lender can collect lost funds from the SBA. Because loans backed by the SBA are lower risk, banks, and other partners are able to offer low rates and fees.
However, government-backed loans are not without their downsides. Because they involve a joint effort between multiple institutions, SBA loans tend to have long application processes with a lot of paperwork and lengthy approval times. While SBA partners like SmartBiz have found ways to speed up the process, you will still have to have a fairly strong borrower profile and be willing to wait several weeks or longer to get your funds.
The SBA offers a variety of loan programs to best fit the needs of a variety of small businesses, from startups to franchises. Before meeting with a lender, determine which SBA loan is right for you. Here are the types of SBA loans your business may be eligible to receive:
In addition to its excellent loan programs, the SBA provides a number of other resources for small businesses, including the SBA 8(a) program that helps socially and economically disadvantaged businesses qualify for federal contracts.
The SBA sets limits on loan interest rates their partners are able to charge on a loan. SBA interest rates for microloans, 504 loans, and disaster loans are fixed, but 7(a) loans generally carry variable interest rates.
For 7(a) loans, your interest rate is determined by a base rate (normally the WSJ prime rate) plus a markup. Your interest rate will change when the base rate changes. Consequently, your monthly payments and total borrowing amount might change while you are repaying the loan.
Your interest rate might also vary according to how much you are borrowing. For example, here are the base rates and markups for standard 7(a) loans:
| Loan Amount | Less Than 7 Years | More Than 7 Years |
|---|---|---|
| Up to $25,000 | Base rate + 4.25% | Base rate + 4.75% |
| $25,000-$50,000 | Base rate + 3.25% | Base rate + 3.75% |
| Over $50,000 | Base rate + 2.25% | Base rate + 2.75% |
Along with interest rates, you might be charged other fees by the SBA and its partners. This may include but isn’t limited to:
Fees vary based on factors including the type of loan and the borrowing amount. Your lender should explain any fees that are applicable to your loan throughout the application and underwriting process.
Along with interest rates and fees, the SBA sets limits on term lengths and repayment terms.
For general 7(a) loans, term lengths are set at 10 or 25 years:
SBA 504 loans carry similar term lengths:
Microloans and some specialized 7(a) loans have shorter term lengths. For example, the maximum term length for microloans is six years.
Generally, SBA loans are repaid on a monthly basis.
To get an SBA loan, the SBA requires that all business owners sign a personal guarantee — an agreement stating that you are personally responsible for repaying the loan if your business no longer can. Any person that owns at least 20% of the business will be required to sign a personal guarantee.
Collateral may also be required in order to secure your loan. In some cases, the equipment or real estate you are purchasing can be used as collateral. In other cases, you will have to put up assets that you already have. Collateral requirements vary by factors including the type of loan, the amount, and the lender’s requirements.
You may also have to pay a down payment to receive an SBA loan. For example, CDC/504 loans require that you pay a small amount (usually 10%) of the cost of the project you are undertaking.
A borrower must meet certain requirements to receive an SBA loan. SBA loan applicants must:
Businesses in certain industries are ineligible for SBA loans. Ineligible industries include:
Your SBA partner lender may also have additional requirements that must be met in order to receive an SBA loan.
You will be required to submit financial documents with your application to show that you can repay the loan. Startup businesses that lack required documentation such as prior years’ tax returns will need to provide business plans, industry experience, and other information.
The SBA and your lender will evaluate your credit history and score. Business owners with bad credit will have a hard time qualifying for an SBA loan. Most eligible SBA loan borrowers have a credit score in the high 600s or higher.
If you don’t meet the credit requirements for an SBA loan, you can take steps to improve your credit score to qualify in the future. If you need funding now, you may qualify for funding with an online lender that provides loans for borrowers with bad credit.
In 2021, the SBA provided $44.8 billion through over 61,000 small business loans.
A wide variety of industries have taken advantage of these loans, from convenience stores and restaurants to doctor’s offices and daycare centers. Based on data from 2010 to 2019, there are a few specific industries that have been approved and funded through the SBA at higher rates than other industries.
The top industries include:
The SBA might not be your best option if you need a loan quickly or you don’t meet the requirements set by the SBA and its partner lenders.
Fortunately, if you fall into either of those camps, you have other options. Many of the best small business loans are available to businesses that don’t qualify for a loan from the SBA or banks. Many of these lenders have lower credit score requirements and faster approvals than SBA loans.
In addition to loans, be sure to check if your small business qualifies for the employee retention tax credit. Through the ERC, you could be eligible for up to $26,000 per employee in a tax credit refund. Here are the best ERC companies for applying for this tax credit.
To receive an SBA loan, you’ll have to demonstrate that you are willing and able to repay your loan. This is proven by submitting documentation to accompany your completed loan application.
Start the SBA application process by applying directly to the SBA’s partner lenders. If you don’t know which lender to apply for, the SBA offers a Lender Match platform, which matches borrowers up with the lenders best suited for their business.
The documents required will vary according to your business and the loan you are applying for, but you can expect to have to submit documents and fill out forms such as:
Depending on the loan you are applying to receive, you may have to submit additional documentation, including:
The SBA and the lender will process this information and decide if you’re eligible for a loan. During this phase, you might be asked to submit additional paperwork. Submitting this documentation and responding to the lender in a timely manner will help prevent delays in approving, processing, and funding your loan.
After submission, the lender and the SBA will also evaluate your creditworthiness by pulling your credit score and report.
If you are approved by all parties, the funder will send your loan, and you’ll be able to use your funds for your business.
Unfortunately, not every business is qualified for an SBA loan. To qualify, you need a strong credit history and strong financials (or a strong business plan).
If you are denied an SBA loan, your best bet is to apply to an online lender. Although the rates and fees will be higher, online lenders have fewer requirements (and shorter application processes) than an SBA loan.
The timeline for an SBA loan varies, but the process generally takes a couple of months.
In addition to requiring a lot of paperwork and documentation, your loan application has to be processed by the SBA and your lenders before your application is approved or denied. These institutions all tend to take a while to process and disburse your loan.
Borrowers looking for $500,000 or less have a couple of options to speed up the process.
Express Loans are 7(a) loans in which the SBA offers an expedited turnaround time. An approval decision is guaranteed within 36 hours. However, processing and disbursement will take several weeks. Additionally, interest rates are higher than standard 7(a) loans, and borrowing amounts are lower.
Another option is to use a lender like SmartBiz, an SBA loan intermediary that offers standard 7(a) loans. This lender uses technology to speed up and simplify the application process to help you get the funds you need in a shorter time.
While the process for receiving an SBA loan can be quite lengthy, qualified business owners will be rewarded for their patience with low-interest rates, long repayment terms, and high borrowing amounts.
Although SBA loans may be easier to qualify for than traditional bank loans, not every business will qualify. Before applying, make sure to assess your credit profile and ability to repay the loan, and make sure that you meet all requirements of the SBA.
Want to help shape the future of the Merchant Maverick website? Join our testing and survey community!
By providing feedback on how we can improve, you can earn gift cards and get early access to new features.
Our expert reviewers found BusinessLoans.com to have a quick and easy application process alongside excellent support and guidance for borrowers.
Start A Quick Application
Help us to improve by providing some feedback on your experience today.
The vendors that appear on this list were chosen by subject matter experts on the basis of product quality, wide usage and availability, and positive reputation.
Merchant Maverick’s ratings are editorial in nature, and are not aggregated from user reviews. Each staff reviewer at Merchant Maverick is a subject matter expert with experience researching, testing, and evaluating small business software and services. The rating of this company or service is based on the author’s expert opinion and analysis of the product, and assessed and seconded by another subject matter expert on staff before publication. Merchant Maverick’s ratings are not influenced by affiliate partnerships.
Our unbiased reviews and content are supported in part by affiliate partnerships, and we adhere to strict guidelines to preserve editorial integrity. The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.
Our expert reviewers found BusinessLoans.com to have a quick and easy application process alongside excellent support and guidance for borrowers.
Start A Quick Application
