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SBA Loans

What are SBA loans?

SBA loans are longer term, small business loans partially guaranteed by the government. This 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.


SBA loan options and benefits

SBA 7(a) Business Loan, Key benefits

  • Loan amounts up to $5 million
  • Terms up to 10 years for business, acquisition, equipment or tenant improvement
  • Terms up to 7 years for working capital and inventory
  • Flexible collateral options

SBA 7(a) Business Loan*, Best for

  • Business acquisition
  • Equipment
  • Debt refinance, working capital and inventory
  • Tenant improvement, partner buyout
  • For-profit businesses

SBA 7(a) Real Estate Loans

Government-backed term loans for the purchase, refinance or construction of commercial real estate

SBA 7(a) Real Estate Loans, Key benefits

  • Loan amounts up to $5 million
  • Additional $2 million direct funding by U.S. Bank (SBA 7(a) Pari Passu loan)
  • Terms up to 25 years
  • Fully amortized, no balloon payments

SBA 7(a) Real Estate Loans, Best for

  • Owner-user commercial real estate purchase
  • Expansion
  • Refinance or construction
  • For-profit businesses

SBA 7(a) Real Estate-Business loans, Cons

  • Lengthy Paperwork
  • Longer approval times
  • May require collateral


Basics of SBA loans

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

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

The SBA is able to guarantee a percentage of the loans administered by traditional banks through their use of federal money, so those financial institutions have more incentive to lend money to small businesses.

The SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders. This leads to lenders considering more small business  for loans.

This makes Banks 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.


Cost of SBA Loans


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.



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.

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.

Who Qualifies for an SBA Loan?

Annual Revenue
Over $180K
Credit Score
Time In Business
Over 4 Years

*Based on past Customers

How to Apply for an SBA Loan

Getting an SBA loan can be a lengthy and complicated process. Lenders typically review your credit and financial statements, and sometimes expect you to have collateral to secure the loan. They’ll also look at a handful of other documents that give more insight into the business.

Many small businesses don’t wind up qualifying for SBA loans and if they do, the process could take months.

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

An SBA application is lengthy, typically you’ll need to provide documents like financial statements, information on your collateral, a description of your business (how you plan on generating revenue), and a statement of how the loan proceeds will be used, among others information. Here is a complete list of loan documents you may need:

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

An SBA lender will look for applicants with good credit, a stable business plan, profitable businesses (usually, but not always), and businesses that demonstrate ability to repay the loan. Having a good borrowing history helps with favoring your chances.

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