SBA Loans FAQs

According to the National Small Business Association, one in four small business owners still struggle to secure financing. This challenge is especially pronounced with large banks, where only 15% of businesses manage to obtain bank-backed loans.

An SBA loan offers a viable solution, providing competitive terms and the capital necessary to foster business growth.

Utilize your SBA loan to cover daily business expenses, refinance debt, or facilitate business growth. SBA loans offer flexibility with few restrictions, allowing funds to be applied in various ways.

Here are some examples of how an SBA loan can support and expand your business:

1. Payroll Costs: During the coronavirus pandemic, funds from programs like the Paycheck Protection Program can cover essential payroll expenses. This includes salaries, wages, tips, commissions, paid leave benefits, employer-paid health insurance premiums, and state and local payroll taxes.
2. Working Capital: Maintaining adequate working capital is crucial for sustaining day-to-day operations and managing unforeseen financial obligations. A long-term, low-interest SBA loan can serve as a reliable source of working capital to support ongoing business needs and growth.
3. Debt Refinancing: By refinancing high-interest loans with a low-interest, long-term SBA loan, businesses can significantly reduce costs and improve cash flow. This strategic move can strengthen the financial health of your business and free up resources for other initiatives.
4. Business Expansion: Whether expanding product lines or opening new locations, business growth requires capital investment. Opting for the right SBA loan ensures access to necessary funds without burdening the business with expensive debt, enabling effective execution of growth strategies.

In summary, an SBA loan provides a versatile financial resource to manage expenses, refinance debt, and facilitate strategic growth initiatives, supporting businesses in achieving their operational and expansion goals effectively.

SBA 7(a) loan program

When most small business owners think of an “SBA loan,” they usually refer to the SBA 7(a) loan program. This program’s popularity stems from its flexibility, as it imposes few restrictions.

Funds from SBA 7(a) loans can be utilized for nearly any business purpose. Whether you need working capital to maintain operations, funds to consolidate existing debt, or capital to expand your business, this program offers versatile financing solutions.

Here are three of the most sought-after loan programs under the SBA 7(a) umbrella:

Standard 7(a) loans

You can borrow up to $5 million through the standard SBA 7(a) loan program. Interest rates are negotiable, and loan terms typically range from 7 to 25 years depending on the purpose of the funds.

For loans over $150,000, the SBA guarantees 75%, and for loans up to $150,000, the guarantee is 85%. SBA loan interest rates are often variable, based on the current Prime rate plus an additional lender rate.

The timeline to complete a standard SBA loan, from application to funding, varies by lender but generally ranges from 60 to 90 days.

SBA 7(a) loans at a glance:

• Loan Amount: Up to $5 million
• Interest Rate: Prime (+ a maximum of 4.75% in lender interest)
  
• Term: 7-25 years
• Time to Funding: 60-90 days

SBA Express loans

If you’re seeking prompt SBA loan financing, you may be discouraged by the typical lengthy process. However, the SBA Express program offers an expedited option for obtaining a quick SBA loan. With an SBA Express loan application, you can expect a decision within 36 hours. Funds can be deposited into your business bank account in as little as 7 days.

The trade-off for this accelerated process includes lower borrowing limits and slightly higher interest rates. Under the SBA Express program, you can secure up to $350,000 with a repayment term ranging from 5 to 10 years. The SBA guarantees up to 50% of this amount, and there may be an additional interest rate ranging from 4.5% to 6.5%, depending on the loan amount.

SBA Express loans at a glance:

• Loan Amount: Up to $350k
• Interest Rate: Prime (+ a maximum of 6.5% in lender interest)
• Term: 5-10 years
• Time to Funding: 7-60 days

SBA lines of credit (CAPLines)

CAPLines are designed for business owners facing short-term or cyclical working capital needs. These credit lines offer up to $5 million and can be repaid within a maximum term of 10 years.

Here are the five distinct lines of credit available under the CAPLine program:

1. Seasonal CAPLine
2. Contract CAPLine
3. Builders CAPLine
4. Asset CAPLine
5. Working Capital CAPLine

Each program allocates funds for specific expenses, restricting their use to projects falling under their designated categories. For instance, funds from a seasonal CAPLine cannot be utilized for purposes like storefront renovations.

SBA CAPlines at a glance:

• Loan Amount: Up to $5 million
• Interest Rate: Prime (+ a maximum of 4.75% in lender interest)
• Term: Not to exceed 10 years (5 years for Builders CAPLine)
• Time to Funding: 60-90 days

SBA CDC/504 loans

The CDC/504 program is the second most popular type of SBA loan and is ideal for acquiring or improving major fixed assets such as land, real estate, or equipment.

SBA CDC/504 programs are structured uniquely. A lender collaborates with a certified development company (CDC)—a specialized non-profit corporation—to finance the loan. In this arrangement, the lender funds 50% of the total project cost, the CDC funds 40%, and the borrower contributes the remaining 10% as a down payment. The SBA guarantees only the CDC portion of the loan.

While there is no maximum loan amount for this program, the SBA sets limits on what the CDC can contribute and guarantee, with a maximum of $5 million.

The interest rate for the lender’s portion of the loan is negotiated between the lender and the borrower, subject to an interest rate cap. The rates on the CDC portion are based on the current 5- or 10-year Treasury rate.

SBA CDC/504 at a glance:

• Loan Amount: Unlimited
• Interest Rate: Negotiable (third-party lender)/ 5- or 10-year Treasury + 0.38% – 0.48% (CDC)
  
• Term: 10 or 20 years
• Time to Funding: 60-180 days

SBA micro loans

If you’re a solo entrepreneur in need of a modest amount—typically a few thousand dollars—to finance a project, consider applying for an SBA microloan.

Microloans, facilitated by non-profit, community-based organizations experienced in lending, offer borrowing limits up to $50,000, with the average loan amount typically around $13,000.

While SBA-backed microloans can be utilized for various purposes, they are not intended for real estate acquisitions or refinancing existing debts.

Interest rates for microloans vary but generally fall between 8% to 13%.

SBA micro loans at a glance:

• Loan Amount: Up to $50,000
• Interest Rate: 8% – 13%
• Term: 6 years
• Time to Funding: 30-60 days

SBA loan requirements emphasize the financial health of your business. Here’s what this entails:

Firstly, to qualify for an SBA loan, business owners typically need a personal credit score of 650 or higher.

Secondly, while certain SBA loans, like microloans, cater to startups, most lenders require a minimum of 2 years of business history.

Moreover, applicants must demonstrate a consistent positive cash flow history and sufficient capital reserves to sustain operations, meet monthly SBA loan payments, and cover other financial obligations.

Additionally, SBA loan requirements necessitate a clean track record devoid of recent bankruptcies, foreclosures, and outstanding tax liens.

What you’ll need to qualify:

• 
  Time in business
  2+ years
• 
  Annual revenue
  $50K+
• 
  Credit score
  650+

Keep in mind that certain SBA lending options may impose an origination fee or loan packaging fee.

Moreover, borrowers are subject to an SBA guarantee fee, which varies based on the loan amount. Below are the SBA guarantee fees corresponding to different loan amounts:

*For 7(a) loans in an eligible Rural Area or HUBZone, the guarantee fee is reduced by about 67%.
To estimate your total cost of borrowing, use our SBA loan calculator.

To estimate your total cost of borrowing, use our SBA loan calculator. 

SBA loans function by reducing the risks that lenders assume when extending credit to small business owners. How? These loans are partially guaranteed by the Small Business Administration and are exclusively provided to small business owners by lenders approved by the SBA.

If a borrower defaults on their loan, the SBA reimburses the lender for up to 85% of the loan amount.

Consequently, participating lenders can consider a broader range of applicants and offer competitive terms. This results in increased access to long-term financing, lower interest rates, extended repayment periods, and affordable loan payments under the SBA program.

To apply for an SBA loan, you’ll be required to submit the following documents:

• 2 years of business and personal tax returns
• The 4 most recent months of bank statements
• Current year’s financial statements (including income statement and balance sheet)
• Details of current outstanding debt or loan obligations

Applying is quick, simple—and crucially—will not affect your credit score.