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SBA Loans: A Financing Guide

By Elise Moores Updated on May 03 2021

How much do you need?

Obtaining small business funding can be challenging. According to the Federal Reserve, 3 out of 10 small business financing applications are denied. 

So what options do you have when you aim to sustain operations or grow, but you don’t have enough capital on hand?  Enter SBA loans. 

An SBA loan can provide you with the funds you need to grow your business with competitive rates and terms.

What Are SBA Loans?

SBA loans are government-guaranteed financing programs with capped interest rates and fees. There are short-term working capital and long-term financing programs available to businesses who qualify.  SBA loans are issued exclusively to small business owners by SBA-approved lenders.

How Do SBA Loans Work?

SBA loans work by lowering the risks lenders face when extending credit to small business owners. How? Should a borrower default on their loan, the Small Business Administration reimburses the lender up to 85% of the loan amount.

As a result, participating creditors consider a larger pool of applicants and offer competitive terms. All this translates into greater access to long-term financing, lower interest rates, longer repayment periods and affordable SBA loan payments.

What Are the Different Types of SBA Loans?

SBA 7(a) Loan ProgramWhen most small business owners think of an “SBA loan,” the SBA 7(a) loan program is what comes to mind. Its popularity is due to its flexibility since these types of SBA loans have few limitations.

Funds can be used for almost any business purpose, whether you require working capital to sustain your operations, a loan to refinance existing debt or cash to invest in the expansion of your business.

Here are 3 of the most popular 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 loans typically reach maturity in 7 years or 25 years depending on how the money is used.

The SBA guarantees 75% for loans greater than $150,000 or 85% for loans up to $150,000. SBA loan interest rates are most often variable based on the current Prime rate plus an additional lender rate.

The amount of time it takes to finalize a standard SBA loan (from application to funding) varies by lender but is usually between 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 looking for quick SBA loan financing, you might be disappointed to find that the SBA funding process is lengthy. However, SBA Express financing short-cuts this process and is the best choice for a fast SBA loan. When you submit an SBA Express loan application, you’ll receive a decision from your lender within 36 hours. Funds are deposited within your business bank account in as little as 7 days. 

The trade-off for this speed is less borrowing potential and higher interest rates. Through the SBA Express program, you can acquire up to $350,000 over a 5- to 10-year term. The SBA will back up to 50% of this amount and lenders can tack on an additional 4.5% to 6.5% in interest depending on the amount borrowed. 

  • 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 ideal for business owners with short-term and cyclical working capital needs. Credit lines go up to $5 million and are available with a maximum repayment term of 10 years. 

Here are the 5 distinct lines of credit offered under this program:

  • Seasonal CAPLine
  • Contract CAPLine
  • Builders CAPLine
  • Asset CAPLine
  • Working Capital CAPLine

Funds from each program are expense-specific, meaning they can only be used to fund projects that fall within the credit line’s classification. For example, funds from a seasonal CAPLine cannot be used to finance 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 second most popular type of SBA loan is the CDC/504 program. You should consider this program if you’re looking to acquire or improve a major fixed asset, such as land, real estate or equipment.

SBA CDC/504 programs are unique in the way they’re structured. A lender partners with a certified development company (CDC)—a specialized non-profit corporation—to finance a loan request.  In this agreement, a lender funds 50% of the total project cost and the CDC funds 40%, with the borrower responsible for the remaining 10% as a down payment. The SBA backs only the CDC portion of the loan.

There is no maximum loan amount for this program, but the SBA sets a limit for what the CDC can contribute and is willing to guarantee. That maximum is $5 million.

The interest rate on the lender-portion of the loan is negotiated between the lender and the borrower and is 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 an entrepreneur—particularly a solopreneur—and require only a few thousand dollars to finance a project, consider an SBA micro loan.

What is a micro loan? In short, SBA micro loans are issued by non-profit, community-based organizations with experience in lending. You can borrow up to $50,000, but the average micro loan issued is $13,000.

Though SBA-backed micro loans can be used to fund a variety of projects, they cannot be used to acquire real estate or to refinance existing debt.

Interest rates vary, but in general, range 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

How Much Will an SBA Loan Cost Me?

You’d be hard-pressed to find a program with more favorable terms. Aside from a conventional bank loan, SBA loan interest rates tend to be the lowest of all financing options available to small businesses.

Your SBA loan payment will depend on the program, the amount borrowed and the term.

SBA lending partners charge a variable interest rate as follows:

SBA loan typeLoan amountInterest rate
SBA ExpressUp to $50,000Prime plus 3.75%
SBA Express$50,000-$350,000Prime plus 2.75%
SBA commercial real estate loans$500,000-$5,000,000Prime plus 1.5%

Be aware that some SBA lending partners charge an origination fee or loan packaging fee. 

Additionally, the SBA charges a guarantee fee, which is passed on to the borrower.  SBA guarantee fees by loan amount are outlined below.

Loan amountSBA guarantee fee*
Up to $150,0001.7% of the loan amount (or 2% of the guaranteed portion)
$150,001-$700,0002.25% of the loan balance (or 3% of the guaranteed portion)
$700,000+3.5% of the guaranteed portion up to $1 million, plus 3.75% of the guaranteed portion exceeding $1 million

*For 7(a) loans in an eligible Rural Area or HUBZone, the guarantee fee is reduced by about 67%.  

What Are SBA Loan Requirements?

SBA loan requirements call for your business to be “financially healthy.” What does this mean?

For starters, business owners might need a personal credit score of 650 or better to qualify for an SBA loan.

Second, while some SBA loans (like the micro loan) are suitable for startups, most lenders require at least 2 years of business history.

Additionally, an applicant must demonstrate a history of positive cash flow, with enough capital on hand to sustain operations and cover monthly SBA loan payments and other debt obligations.

SBA loan requirements also stipulate that your track record must be free of recent bankruptcies, foreclosures and open tax liens.

How Can I Apply for an SBA Loan?

To apply for an SBA loan, you must work with an SBA-approved lender—funders who have demonstrated a thorough understanding of program requirements.

 The application process will vary from lender to lender and from program to program, but at minimum, be prepared to supply: 

  • 2 years of business and personal taxes
  • Recent bank statements
  • Current year’s financials (i.e., income statement and balance sheet)
  • Current outstanding debt or loan information

  • Complete our simple and secure application, and we’ll pair you with lenders for SBA loans.

    Applying is fast, easy — and most importantly — won’t impact your credit.

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