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What Is an SBA Loan?

SBA loans are business loans guaranteed by the Small Business Administration. With their multiple SBA funding programs, this government agency provides SBA loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender—typically banks. The three main SBA loan programs let you borrow money for nearly any business purpose—including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate—through these SBA-guaranteed loans.

The Fundamentals of SBA Loans

The “SBA” in SBA loans stands for the Small Business Administration.

The Small Business Administration is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to conventional small business loans.

The SBA uses federal money to guarantee a percentage of loans administered by traditional banks, so those financial institutions have more incentive to lend money to small businesses.

Simply put, the SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders. And less risk for lenders means that more small business owners will be considered for the traditional longer-term, lower-rate financing that comes from banks.

Because of this guarantee, banks are more inclined to lend you money even if you don’t fit their strict credit criteria. They can service a whole different set of customers than usual—without making too many sacrifices.

SBA Loan Details

Max. Loan AmountLoan TermInterest RatesSpeed
$5K - $5M5 - 25 yearsStarting at 6%As fast as 2 weeks
Green checkmarkPros
  • Lowest down payments
  • Longest payment terms
  • Reasonable interest rates
  • Suitable for a wide range of business purposes
Red X markCons
  • Lengthy paperwork
  • Longer approval times
  • May require collateral

The Top SBA Lenders

Cadence Bank

Best for: SBA 7(a) loans for newer businesses.

First Home Bank

Best for: SBA 7(a) loans from an established 7(a) lending program.

SBA Loan Types

There are many different types of SBA loans programs out there, with three programs being the most popular:

  • The 7(a) Loan Program
  • The Microloan Program
  • The CDC/504 Loan Program

How do you know which one is right for you?

The SBA loan program you’ll want to apply for depends on the size, age, and goals of your business.

Here’s the breakdown on all three:

Loan Type Loan Amount Repayment term Interest Rate Fees Best For
7(a) Program
Up to $5 million
10 – 25 years
Prime rate + 2.25% – 4.75% (depending on loan amount and repayment terms)
A guarantee fee of 1.7% for loans up to $150,000, and 2.25% for any SBA 7(a) loan greater than $150,000
General business financing needs
Microloan Program
Up to $550 – $50,000
1 – 6 years
8% – 13%
Starting or expanding a new business
CDC/504 Program
Up to $5 million
10 – 20 years
5% – 6%
3% of loan amount
Purchase of major fixed assets

If you’re unsure about which SBA loan program makes sense for your needs, keep reading for a more in-depth breakdown of each loan program.

SBA 7(a) Loan Program

SBA 7(a) loans are loans of up to $5 million that are partially backed by the Small Business Administration. This is the most popular of all the SBA loan programs because the capital can be put toward a wide range of business purposes. Depending on what you need your loan for, there are a variety of different SBA 7(a) loans you can apply for, including:

  • Standard 7(a) Loan
  • SBA 7(a) Small Loan
  • SBA Express Loan
  • Export Express Loan
  • Export Working Capital
  • International Trade Loans
  • SBA CAPLines Line of Credit

Here are the details you need to know about the 7(a) program:


Guarantee fee of 1.7% for loans up to $150,000 and 2.25% for any SBA 7(a) loan greater than $150,000. Be aware that your guarantee fee might be included in the total cost of the loan.

The SBA charges a guarantee fee for the service of guaranteeing the loan. The lender originally pays the guarantee fee, but it also can just pass that expense on to the borrower.

Some partnered banks might also charge an origination fee or a loan packaging fee, depending on which banks you’re working with.

Interest Rates

Prime rate + 2.25% – 4.75%

SBA 7(a) loans come with interest rates in either fixed or variable (typically adjusted quarterly) varieties. Your bank lender determines which it will offer.

To protect borrowers, the SBA puts a ceiling on 7(a) loan rates by limiting the “spread” a bank is allowed to apply on top of the loan’s base interest rate.

In other words, the SBA restricts how much a bank can make off your SBA loan.

If your loan amount is more than $50,000 and the term is less than seven years, your rate will be set by the prime rate and the maximum spread will be at most 2.25 percentage points. For SBA loans of more than $50,000 and seven years or longer, your rate will still be determined by the prime rate, but that spread increases to 2.75 percentage points. Like all types of loans, the interest rate you end up paying depends on your credit score and the length of your repayment term.

And finally, when you get your offer, be sure to calculate your APR. The APR will be different than your interest rate, incorporating any guarantee fees or origination fees you’re charged to get the true cost of the SBA loan.

See all current SBA loan rates here.


Up to 10 years for working capital loans and equipment loans, and 25 years for commercial real estate loans.

What would a SBA 7(a) loan mean for your business’s cash flow? You can expect monthly payments for 25 years for real estate, 10 years for equipment, and generally up to seven years for working capital.

Keep in mind: these are the longest terms you’ll find, giving you plenty of time to figure out how to make each payment and spreading those large, long-term loans over many years.

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SBA CDC/504 Loan Program

An SBA 504 loan is a type of SBA loan that can be used to purchase fixed assets or upgrade existing assets. Typically with a 504 loan, a bank extends half the total loan amount, SBA-approved certified development companies (CDC) extend 40% of the loan amount, and the borrower puts down a down payment to cover the rest.


SBA CDC/504 loan fees are usually about 3% of the loan amount—and can sometimes be financed with the loan.

Also, be aware that you’ll need to put around 10% of your purchase down to secure SBA 504 financing.


You can probably expect an interest rate of 5% – 6% on your loan. You won’t know the exact rate until roughly 45 days after the fact, though.

That’s because the 504 loan program involves two individual loans—one from a bank and one facilitated by a certified development company. The latter gets grouped together when all CDCs pool their projects, and through underwriters, auction the pool to investors.

That means you don’t get to know the exact rate until the sale of the pool—which is approximately 45 days after you’ve closed with the CDC. Based on historical data, you can expect a pool rate between 4% – 5%. When blended with your bank rate, the total should come out to around 5% – 6%.


Unlike other types of business loans, SBA CDC/504 loans come with either a 10- or a 20-year term.

Microloan Program

An SBA microloan is a loan between $500 and $50,000 from an intermediary nonprofit to the owner of a small business or startup. The money originates from the SBA, which initially lends the money at a discounted rate to the intermediary.

Businesses can use SBA Microloans for a range of purposes, including working capital or buying equipment, machinery, or supplies.


There are no fees associated with microloans.


Rates range between 8% – 13 % for the microloan program.

Microloans are administered by partnering financial institutions. The institution you work with is the one that sets the interest rate on the microloan, depending on your creditworthiness and the specifics of your small business.


Up to 6 years with monthly repayments.

Loan repayment terms depend on the loan amount, use of funding, and other criteria, but the maximum repayment term allowed for an SBA microloan is six years.

As for the repayment schedule: like with other SBA loans, you can expect monthly charges.

How to Apply for an SBA Loan

At plenty of major banks, getting an SBA loan can be a lengthy, complicated process. Lenders want to review your credit and financial statements, and could expect you to have collateral to secure the loan. They’ll also look at a handful of other documents—from legal documents to business plans.

Even with the government guarantee on their side, many small businesses don’t wind up qualifying for SBA loans. And if they do, the process could take months.

On the other hand, an SBA loan’s low interest rates and long repayment terms are almost always worth the wait.

When applying for SBA financing, you can expect to complete an extensive SBA loan application. You’ll need to provide documents like financial statements, information on your collateral, a description of your business, and a statement of how you’ll use the loan proceeds, among others. The complete list of loan documents you may need are as follows:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit & loss statements
  • Business tax returns
  • Personal tax returns
  • Business plan
  • Business debt schedule

The participating bank will look for applicants with good credit, a solid business plan, profitable businesses (most of the time, not always), and a demonstrated ability to repay the loan.

Your borrowing history is especially important to the bank you’re working with for an SBA loan.


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