SBA Loans: Types, Requirements, and How to Apply

What Is an SBA Loan?

An SBA loan is not a loan directly from the government. The Small Business Administration guarantees a portion of a loan issued by an approved lender, usually a bank or credit union. That guarantee reduces risk for the lender, which means you get better terms than you would with a conventional business loan: lower interest rates, longer repayment periods, and smaller down payments.

The Main SBA Loan Programs

SBA 7(a) Loans

The 7(a) is the SBA's most popular loan program and the most flexible. You can use the funds for almost any business purpose, including working capital, equipment, inventory, real estate, or refinancing existing debt.

• Maximum loan amount: $5 million
• Repayment terms: Up to 10 years for working capital, up to 25 years for real estate
• Interest rates: Variable or fixed, typically tied to the prime rate plus a spread
• Down payment: Usually 10% to 20%
• Guarantee fee: The SBA charges a fee based on the loan amount and term

The 7(a) program also includes SBA Express loans, which offer faster turnaround (36 hours for SBA approval) with a maximum of $500,000.

SBA 504 Loans

The 504 program is specifically for major fixed assets like real estate, heavy equipment, or facility improvements. It involves a three-party structure: a Certified Development Company (CDC) provides 40% of the project cost, your lender covers 50%, and you put up 10%.

• Maximum CDC portion: $5.5 million (up to $5.5 million for certain energy or manufacturing projects)
• Repayment terms: 10 or 20 years
• Interest rates: Fixed rate, typically below market
• Best for: Purchasing commercial property or expensive equipment

SBA Microloans

Microloans are designed for very small businesses and startups that need smaller amounts of capital. The SBA lends to nonprofit intermediary lenders, who then lend to you.

• Maximum loan amount: $50,000 (average is about $13,000)
• Repayment terms: Up to 6 years
• Interest rates: Typically 8% to 13%
• Best for: Startups, sole proprietors, very early-stage businesses

SBA Disaster Loans

If your business is in a federally declared disaster area, you may qualify for low-interest disaster loans to repair or replace damaged property, equipment, inventory, or to cover economic injury.

Eligibility Requirements

To qualify for an SBA loan, your business generally must:

• Be a for-profit business operating in the United States
• Meet SBA size standards (varies by industry, but most businesses with fewer than 500 employees qualify)
• Have invested your own time or money into the business
• Have exhausted other financing options (the SBA is not a first resort)
• Demonstrate ability to repay through cash flow and financial projections
• Have no delinquent federal debt
• Owners must have good personal credit (typically 680+ for 7(a), though some lenders will work with lower scores)

What You Need to Apply

Prepare these documents before approaching a lender:

1. Business plan with financial projections for at least three years
2. Personal financial statement for each owner with 20% or more ownership
3. Three years of personal and business tax returns
4. Profit and loss statement and balance sheet (year-to-date and prior year)
5. Business debt schedule listing all current debts
6. Collateral list documenting assets available to secure the loan
7. SBA Form 1919 (Borrower Information Form)
8. Business licenses and legal documents (articles of incorporation, leases, contracts)

The Application Process

Step 1: Find an SBA-Approved Lender

Start with the SBA's Lender Match tool at sba.gov or contact your local SBA district office. You can also work with a SCORE mentor who can recommend lenders experienced with SBA programs.

Step 2: Pre-Qualification Discussion

Meet with the lender to discuss your needs, financials, and eligibility. This is not a formal application, but it helps you understand your odds and what additional documentation you might need.

Step 3: Submit Your Application Package

Provide all required documents to the lender. Be thorough. Incomplete applications are the number one reason for delays.

Step 4: Lender Review and SBA Approval

The lender underwrites your loan and, if approved, submits it to the SBA for their guarantee. For SBA Express loans, this can happen in 36 hours. For standard 7(a) loans, expect 5 to 10 business days for SBA approval after the lender submits.

Step 5: Closing

Once approved, you will review and sign loan documents, pay any required fees, and receive your funds. Total timeline from application to funding is typically 30 to 90 days.

Tips for a Stronger Application

• Get your personal credit in order before applying. Pay down credit card balances and resolve any errors on your credit report.
• Show strong cash flow. Lenders want to see that your business generates enough revenue to cover loan payments with room to spare.
• Have collateral ready. While SBA loans do not always require full collateralization, having assets to pledge strengthens your application.
• Work with a SCORE mentor. They can review your business plan and financials for free before you submit.
• Apply to multiple lenders. Different lenders have different appetites for risk, so a rejection from one does not mean rejection from all.

Common Mistakes to Avoid

• Applying without a business plan or with outdated financials
• Underestimating how long the process takes
• Borrowing more than you can comfortably repay
• Ignoring the SBA guarantee fee when calculating total loan cost
• Not shopping around for the best lender and terms

When an SBA Loan Is the Right Choice

SBA loans are ideal when you need significant capital at favorable terms and you have the time to go through the application process. They work well for established businesses with at least two years of operating history, strong cash flow, and good personal credit. If you need money fast or your credit is weak, explore alternative lending options first while you work on qualifying for an SBA loan down the road.