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Understanding SBA Loans

Key Takeaways:

  • SBA loans are not direct loans from the SBA. They are guaranteed by the SBA and originated by partner banks or credit unions.
  • The most popular SBA loan program is the 7(a)
  • CDC/504 loans are targeted at real estate or equipment purchases rather than business start-ups.
  • SBA Export Loans provide up to $5 million to help U.S. businesses expand their export activities.
  • SBA loans for women are available through the 7(a) Loan Program.

An SBA loan is a type of business financing that’s backed by the U.S. Small Business Administration (SBA). The SBA was created in 1953 to help small businesses grow, compete and create jobs in America.

The agency provides many services to help entrepreneurs start and grow their companies—including loans, grants and counseling services.

Through its network of partner banks and other financial institutions, the SBA extends more than $100 billion every year in loan guarantees or direct lending to small businesses across all industries throughout the country.

The SBA doesn’t directly fund small businesses, but instead provides low-cost financing to small businesses through partner banks, credit unions and other financial institutions.

SBA loans are not direct loans from the SBA. They are guaranteed by the SBA and originated by partner banks or credit unions.

SBA Loan Requirements

Businesses applying for an SBA loan must have been in operation for at least two years and have a credit score of 680 or higher.

If you’ve found a lender that offers an SBA loan and your credit score is below 680, then it’s worth applying for a loan as long as the business itself meets all requirements. You will still get some of the benefits of being backed by the Small Business Administration, even if you don’t have a stellar credit history.

The SBA has some criteria for what constitutes “small” businesses, but it varies from industry to industry.

For example, a small business may be defined as having fewer than 500 employees or less than $7 million in annual revenue within two years of submitting an application.

In other industries it could be smaller—for example, with construction firms it might only be 20 employees or $2 million in annual revenue over two years; with restaurants and hotels it might be 50 employees or $5 million over two years; for manufacturing companies it could be 100 employees or $15 million within two years; etc.

The specific requirements vary depending on the type of SBA loan you apply for, with 7(a) loans often having more relaxed criteria than 504 loans.

If you’re not sure which type of SBA loan is right for your business, see the differences between the types of SBA loans below.

Need a traditional business loan? Compare business loans here.

Types of SBA Loans

There are several basic types of SBA loans available, including:

  • 7(a) loans
  • CDC/504 loans
  • CAPLines loans
  • Microloans
  • and more

Each of those programs offers different financing amounts and options designed to meet the needs of various types of small businesses.

The most popular SBA loan program is the 7(a). This type of loan is an SBA-guaranteed asset-based loan that provides up to $5 million in financing for new or growing businesses.

It’s also one of the easiest types of loans to obtain because you don’t need any collateral or personal guarantees from its borrowers in order to qualify for it.

CDC/504 loans are also used by small businesses but they’re targeted at real estate or equipment purchases rather than business start-ups or expansions like 7(a)s tend to be used for most often when it comes down to it.

SBA 7(a) Loan Program

SBA 7(a) LoansFeatures at a Glance
Interest Rates2.25% to 4.75% plus prime rate
(5.5% to 8% as of January 2022)
Loan AmountsUp to $5 million
Repayment TermsUp to 10 years for working capital loans
Up to 25 years for commercial real estate loans
Minimum Requirements680 credit score
10% to 20% down payment (may be higher for startups)
Some collateral (loan doesn’t have to be fully collateralized)
Personal guarantee
Use of Loan ProceedsWorking capital
Equipment purchases
Refinance debt
Buy a business or franchise
Buy commercial real estate
Leasehold improvements

Also known as a general business loan (GBL), this is the most popular form of assistance that small businesses have access to through the SBA’s lending programs. It offers low-interest rate financing and flexible repayment terms.

The maximum amount available through this program ranges from $5 million to $50 million depending on your size, number of employees and other factors.

Keep in mind that larger businesses may not qualify if their credit score or financial condition doesn’t meet certain standards by law.

💡 Apply for an SBA 7(a) loan online.

SBA Express Loans

SBA Express Loans are a cash advance that you can use to help fund your business. It offers an accelerated turnaround time and you will receive a response to your application within 36 hours.

You can use it to pay for a number of different things, including starting your business or buying equipment. The loan will be repaid through your business’s bank account over the course of six months.

To apply for an SBA Express Loan, you will need to fill out an application form and submit it online. You may also want to consider bringing in some additional collateral with your application, such as a credit card or car title.

Once approved, the funds will be deposited directly into your business’s bank account within 24 hours so they can be used immediately by you or another authorized party.

SBA 7(a) Community Advantage Loans

SBA 7(a) Community Advantage Loans are a loan program that allows small businesses in rural areas to access capital to expand their operations.

The SBA’s Community Advantage Loan program is designed to support “Main Street” businesses that have the ability to create jobs and stimulate economic growth in rural communities.

SBA 7(a) Community Advantage Loans are a good option for borrowers who can’t take advantage of traditional bank loans due to their size or location, but still need capital to grow their business.

The maximum amount you can borrow is $5 million, but the average loan size is between $50,000 and $200,000.

504 Loan Program

SBA 504 LoansFeatures at a Glance
Interest Rates2.7% to 3.1% (CDC portion)
4% to 9.75% (Bank portion)
Loan AmountsUp to $5 million
Repayment Terms10, 20, or 25 years
Use of Loan ProceedsOwner-occupied commercial real estate purchase, construction, or renovation
Purchase of other fixed assets

This type of financing is designed specifically for developers who want to rehabilitate commercial real estate projects located within designated “targeted areas,” which are determined by individual states’ redevelopment agencies (RDAs).

RDAs work closely with developers throughout every phase—from planning through construction—to ensure that they meet each state’s minimum requirements before releasing funds via a revolving line-of-credit secured by real property collateral such as buildings or land parcels.

In order for RDAs themselves to receive federal funding under Section 108(b)(4)(D) of Title 23 U S Code (and thereby benefit from any tax credits associated therewith), there must be at least 20% affordable housing units built per project site.

The SBA 504 loan program provides long-term fixed-rate financing at competitive interest rates, so you can keep your costs down while concentrating on growing your business.

💡 Apply for an SBA 504 loan online.

SBA CAPLines Loan Program

SBA CAPLines LoansFeatures at a Glance
Interest Rates5.50% to 8.00% (Prime plus 2.25% to 4.75%)
Loan AmountsUp to $5 million
Repayment TermsUp to 10 years for seasonal, working capital & contract CAPLines
Up to 5 years for builder CAPLines
Use of Loan ProceedsSupport short-term or seasonal working capital needs
Fulfill contracts or purchase orders
Perform construction or significant renovations on an eligible project

The Small Business Administration’s CAPLines Loan Program is a loan program that provides small businesses with a low-interest, long-term loan to finance the purchase or construction of fixed assets.

The SBA guarantees 75% of your loan, which means you can borrow up to $5 million in loans with a 7% interest rate.

Borrower must be an eligible business concern. An eligible business concern means an entity that:

  • is organized for profit;
  • has a place of business in the United States (including U.S territories);
  • operates primarily within the United States or makes a significant contribution to the U.S economy through payment of taxes or use of American products, materials or labor;
  • and employs individuals who are residents of the United States or its territories.

SBA Export Loans

SBA Export LoansFeatures at a Glance
Interest RatesSBA Export Express: 7.75% to 9.75%
SBA Export Working Capital: Typically 6% to 10% (no SBA limit but monitored for reasonableness)
International Trade: 7.50% to 10.00%
Loan AmountsSBA Export Express: Up to $500,000
SBA Export Working Capital: Up to $5 million
International Trade: Up to $5 million
Repayment TermsSBA Export Express: Up to 7 years for a line of credit—up to 10 to 25 years for a term loan
SBA Export Working Capital: Up to 3 years (typically 12 months)
International Trade: Up to 10 to 25 years (same as SBA 7(a))
Minimum Requirements680 credit score
Business must be involved in exporting goods or services to foreign countries
For Export Express, the business must be at least one year old
Use of Loan ProceedsTo develop or expand small business exporting and international trade

SBA Export Loans provide up to $5 million in funding to help American small businesses expand their export activities, engage in international transactions, and enter new foreign markets.

With SBA export financing, businesses can get funding that may not otherwise be available from a traditional loan or other sources.

SBA Export Loans provide up to $5 million in funding to help American small businesses expand their export activities, engage in international transactions, and enter new foreign markets.

With SBA export financing, businesses can get funding that may not otherwise be available from a traditional loan or other sources.

The SBA has two programs specifically designed to help American exporters: the 7(a) Loan Guaranty and the International Trade Loan Program (ITL).

7(a) Loan Guaranty

The 7(a) Loan Guaranty is a popular program that provides working capital for U.S. small businesses looking to expand their operations and enter new markets abroad.

Loans are guaranteed by the SBA with no collateral required, which allows businesses to secure funds they might not otherwise be able to access through traditional lending options such as banks or private lenders.

The 7(a) Loan Guaranty program includes both short-term (7A) and long-term (7B) loans ranging from $5,000 up to $5 million each year with repayment terms between five years up to 10 years depending on the amount borrowed and your business’ financial needs at the time of application submission.

SBA Microloan Program

SBA MicroloansFeatures at a Glance
Interest Rates6% to 9%
Loan AmountsUp to $50,000
Repayment TermsUp to six years
Minimum Requirements640 credit score but may vary based on lender
Nonprofit childcare centers are eligible in some cases
Use of Loan ProceedsTo start or expand a small business
Can’t be used to refinance debt or buy real estate
CollateralSome will be required; amount varies by lender
Personal GuaranteeRequired

The SBA Microloan program provides SBA loans to nonprofit intermediary lenders that subsequently lend amounts under $50,000 to for-profit small businesses and nonprofit childcare centers.

The program was created to increase access to capital for small businesses, especially those in rural areas. The SBA’s goal is to provide funds to intermediaries in order to increase their ability to lend money to small businesses.

The intermediaries are nonprofit organizations that have been certified by the SBA (SBA) as eligible for participation in the Microloan program.

The intermediaries make loans or lines of credit available for fixed periods of time and at interest rates that vary according to their risk assessment of the borrower.

Intermediaries charge fees for making their loans available; these fees vary according to the type and size of loan being made.

In addition to helping borrowers, participating intermediaries also receive training and technical assistance from the SBA on how best serve their communities’ needs.

💡 Find an SBA-approved intermediary in your area.

SBA Disaster Loans

SBA disaster loans are used for recovery from a declared physical or economic disaster. Each disaster loan can be used differently, and you can apply for multiple types of loans at the same time to meet your needs.

SBA Disaster Loan Types

SBA Economic Injury Disaster Loans

The SBA Economic Injury Disaster Loan Program is a low-interest, long-term loan that helps small businesses recover after a disaster.

This can include natural disasters like hurricanes and tornadoes, but also man-made disasters like terrorist attacks.

SBA Military Reservists Economic Injury Loans

SBA Military Reservists Economic Injury Loans are a type of government-backed loan that can be used to compensate for economic hardship that results from service in the military. These loans are designed to help with expenses such as lost wages, medical bills, and travel costs.

SBA Business Physical Disaster Loans

SBA Business Physical Disaster Loans are loans offered by the SBA that help businesses recover after a natural disaster. These loans are available to help businesses rebuild, replace inventory, and cover operating expenses.

To qualify for a loan, you must be a small business owner with an established lending relationship with the SBA. You must also meet all of the other eligibility requirements for SBA disaster loans.

SBA Loans for Women

Women looking to start their own businesses may be eligible for an SBA loan. The Office of Women’s Business Ownership (OWBO) is an agency within the U.S. Small Business Administration that was created in 1972 to help women start their own businesses.

The OWBO offers many resources to assist women in starting and growing their businesses, including low-interest SBA loans for women.

These loans are available through the SBA’s 7(a) Loan Program and can be used for a wide range of business needs, including working capital, equipment purchases and leasehold improvements.

OWBO also offers counseling, training and technical assistance with starting or expanding a small business, as well as initiatives like the Women’s Business Center Network that serve women entrepreneurs around the world.

OWBO also offers counseling, training and technical assistance with starting or expanding a small business, as well as initiatives like the Women’s Business Center Network that serve women entrepreneurs around the world.

Benefits and Drawbacks of SBA Loans

SBA loans are attractive because they don’t require perfect credit or collateral – instead, they often give you access to more favorable terms and lower interest rates than traditional bank loans offer.

Additionally, SBA loans are also less risky for lenders, which means they are easier to qualify for than traditional bank loans.

Businesses also like these government-backed loans because they’re easier to qualify for than traditional bank loans. The SBA offers a variety of loan programs, and they have more favorable terms and lower interest rates than most other types of loans.

However, SBA loans typically have longer turnaround times and more stringent requirements than traditional bank loans do. Some lenders may charge fees in addition to the interest rate on your loan. These additional fees can add up if you’re not careful.

Summary

If you’re looking to start or grow your business, an SBA loan could be a great option for you. They don’t require perfect credit or collateral and they are much easier to qualify for than traditional bank loans.

However, these advantages come with some potential downsides as well—SBA loans have longer turnaround times than traditional bank loans and often come with more stringent requirements for applicants.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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Last Updated: May 23, 2022

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