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SBA Loans

What is a SBA Loan?

SBA Loans are bank and commercial loans provided to new and existing small businesses that are backed by the United States Small Business Administration. The purpose of SBA lending is to provide financing for small companies that haven’t been able to secure traditional bank financing. The bank or SBA lender provides enhanced financing to the small business, while the government agrees to shoulder the great majority of the lenders’ losses should the small business default on the loan. In theory, by reducing risk to the lending institutions with the SBA guarantee, the banks and lending institutions are more inclined to approve loans they would not normally fund. Since the government is taking the majority of risk with this type of financing, the SBA requires the small business and the commercial lender to meet certain guidelines before they will get an SBA guarantee before funding.

SBA 7(a) Financing

  • Loan Amounts: Up to $5,000,000
  • Rates: 5-8%
  • Terms: 3-25 years
  • Funding time: 30-60 days

The SBA 7(a) is the Small Business Administration’s largest lending program which is an umbrella for a number of other SBA financing options. SBA 7(a) loans can be as much as $5 million, but the government will only guarantee up to $3.75 million for any one small business. Other debt finance programs under the 7(a) program include: SBA Express Lender Structured Loans, Export Express lender structured loans and lines of credit, International Trade Loan, Export Working Capital Loan, CAPLines (Seasonal, Contract, Builders, Working Capital). Use of SBA 7(a) loan proceeds include starting a business, purchasing an existing business, purchase a building, construct new buildings, working capital, purchasing of inventory, fixed assets and raw materials, leasehold improvements and, in some qualifying situations, refinancing and consolidation of business debt. SBA 7(a) financing is offered as both a term loan facility and also as a line of credit

SBA 504 Financing

  • Loan Amounts: Up to $10,000,000
  • Rates: 5-7%
  • Terms: 10-20 years
  • Funding time: 30-60 days

The SBA 504 program was created to help small business owners finance long term fixed assets (such at commercial buildings and business equipment) and in some cases refinance long-term equipment loan terms at market or below market prices. While there isn’t a limit on the SBA 504 commercial loan size, the SBA will only guarantee $5 million of the facility. The SBA 504 loan is administered through three parties: the small business owner, a conventional bank lender and a non-profit Community Development Corporation lender. Under this program the borrower would agree to put up 10% of the loan facility, the bank would agree to put up 50% and the CDC would agree to put up the remaining 40% of the loan.

SBA Microloan Program

  • Loan Amounts: Up to $50,000
  • Rates: 6-13%
  • Terms: Up to 6 years

The SBA Microloan program provides loans up to $50,000 to small business owners and non-profit childcare centers. Qualification and use-of-funds for the SBA microloan program are similar to the 7(a) program in that there are a wide uses allowed. The major difference in the microloan program as opposed to the 7(a) program is how its administered: the SBA provides funding to non-profit micro-lenders who then disperse the funds to qualified companies.

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Approval Rates

Traditional Banks45%
Alternative Lenders70%
Cash Advance Lenders90%
Large Banks25%

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Eligible Businesses

  • Must be for-profit
  • Meet SBA’s definition of small business
  • Must have reasonable amount of equity
  • Exhausted all other finance options
  • Can not be delinquent on government debt
  • Purpose for the SBA loan must be for a valid business purpose
  • Have a valid need for the SBA loan

Ineligible Businesses

  • Financial businesses
  • Developers and Rentals
  • Life insurance companies
  • Foreign Businesses
  • Businesses that are engaged in any illegal activity
  • Businesses principally engaged in religion or religious belief
  • Speculative companies

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