SBA Loan Program

How do SBA loans work?

To get an SBA loan, you must apply with the bank or credit union of your choice, which then applies to the SBA for a loan guarantee. The SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in the company, which means that each owner’s personal assets may be used to satisfy whatever isn’t covered by the SBA guarantee if the loan goes into default.

These two guarantees combined greatly reduce the risk for lenders, making them more willing to work with small business applicants.

Once you’re approved, an SBA loan functions like any other term loan. Your lender closes the loan, disburses the proceeds, and you repay the lender directly based on the terms of the loan agreement. (Usually, it’s in monthly payments.)

Since they’re partially guaranteed by the SBA and offer attractive perks like flexible terms and lower interest rates, SBA loans tend to have tighter standards than traditional loans. There are different standards for different types of loans, but at the bare minimum, businesses should:

• Have a personal credit score of at least 690 or a Small Business Scoring Service (SBSS) score of 155.
• Have positive cash flow and strong annual revenue projections.
• Have collateral-like property, equipment, or personal assets to put up, if necessary.

Types of SBA loans

There are several types of SBA loans designed for different small business types and sizes.

Standard 7(a)

The most common SBA loan is the standard 7(a) loan. These flexible loans have few restrictions on how you spend the money, making them very desirable for small businesses that need capital to grow. Individual lenders may have their own eligibility and qualification requirements, but 7(a) loans have generally simple eligibility requirements.

The 7(a) loan program has a few subtypes that we’ll soon get to, but these are the key points for the standard 7(a) program.

What it can be used for:

• Acquiring, refinancing, or improving real estate and buildings
• Short- and long-term working capital
• Refinancing current business debt
• Purchasing and installation of machinery and equipment, including AI-related expenses
• Purchasing furniture, fixtures, and supplies
• Changes of ownership (complete or partial)
• Multiple purpose loans, including any of the above

Typical interest rates (APR):

• 10.75% - 16.5%

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Unable to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources

Key terms and conditions:

• Turnaround time: 60-90 days
• Loan amount: No minimum - $5 million
• Guarantee: Up to 85% of loans of $150,000 or less, and up to 75% of loans above $150,000.

7(a) Small

The only real differences between a standard 7(a) and a 7(a) small are the loan size and interest rates. 7(a) small loans carry a maximum loan amount of $500,000, which can make them a little easier for lenders to turn them around. Small, lean businesses in need of fast capital can benefit from the 7(a) Small program.

What it can be used for:

• Acquiring, refinancing, or improving real estate and buildings
• Short- and long-term working capital
• Refinancing current business debt
• Purchasing and installation of machinery and equipment, including AI-related expenses
• Purchasing furniture, fixtures, and supplies
• Changes of ownership (complete or partial)
• Multiple purpose loans, including any of the above

Typical interest rates (APR):

• 14.5% - 16.5%

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Unable to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources

Key terms and conditions:

• Turnaround time: 60-90 days
• Loan amount: No minimum - $500,000
• Guarantee: Up to 85% of loans of $150,000 or less, and up to 75% of loans above $150,000.

7(a) Working Capital Pilot program

The SBA’s newest service, the 7(a) Working Capital Pilot program offers monitored lines of credit within the 7(a) loan program. Like a typical business line of credit, interest is only charged on drawn-upon funds, making it a flexible, fast funding option for small businesses.

The 7(a) WCP’s fee structure is based on the 7(a) Export Working Capital Program (EWCP), which establishes an annual guaranty that lets borrowers customize a line of credit to best suit their needs.

What it can be used for:

• Acquiring, refinancing, or improving real estate and buildings
• Short- and long-term working capital
• Refinancing current business debt
• Purchasing and installation of machinery and equipment, including AI-related expenses
• Purchasing furniture, fixtures, and supplies
• Changes of ownership (complete or partial)
• Multiple purpose loans, including any of the above

Typical interest rates (APR):

• 11% - 15%

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Unable to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources
• 12 full months of operations prior to filing application
• If supporting an acquisition, acquiring borrower must have a history of 12 full months of operations prior to filing application
• Businesses must:
  • Produce timely and accurate financial statements, accounts receivable and accounts payable agings, and inventory reports.
  • Provide annual financial statements to lender and submit to a full credit analysis as part of any renewal.

Key terms and conditions:

• Turnaround time: 60-90 days
• Loan amount: No minimum - $5 million
• Guarantee: Up to 85% of loans of $150,000 or less, and up to 75% of loans above $150,000.

SBA Express

Specifically designed for businesses that need cash fast, the SBA Express loan program is another sub-type of the 7(a) loan program. These loans have turnaround times within 36 hours for a maximum loan amount of $500,000.

If your business suffers a revenue-impacting accident like a machinery malfunction or struggles with seasonal lulls, SBA Express loans can help you get capital fast to cover all of your necessary expenses.

What it can be used for:

• Acquiring, refinancing, or improving real estate and buildings
• Short- and long-term working capital
• Refinancing current business debt
• Purchasing and installation of machinery and equipment, including AI-related expenses
• Purchasing furniture, fixtures, and supplies
• Changes of ownership (complete or partial)
• Multiple purpose loans, including any of the above

Typical interest rates (APR):

• 12.75% - 14.25%*

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Unable to obtain the desired credit on reasonable terms from non-Federal, non-State, and non-local government sources

Key terms and conditions:

• Turnaround time: Within 36 hours
• Loan amount: No minimum - $500,000
• Guarantee: Up to 50%

SBA Export Express

Small export businesses can benefit from utilizing the Export Express loan program. These loans are explicitly for export businesses that seek to expand to new markets or have been adversely impacted by international competition. The program has shorter repayment terms than other SBA loan programs and more restrictions but is a good resource for small businesses working in or seeking to expand into international trade.

What it can be used for:

• Acquire, construct, improve, or expand facilities and equipment to be used in the U.S. to produce goods or services involved in international trade.
• Develop and penetrate foreign markets.
• Refinance an existing loan.

Typical interest rates (APR):

• 13.5% - 16.5%*

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Your small business seeks to expand existing export markets or develop new ones OR your small business has been adversely affected by import competition and you can show the funds will improve your competitive position.

Key terms and conditions:

• Turnaround time: Varies by lender
• Loan amount: No minimum - $500,000
• Guarantee: 90% of loans of $350,000 or less, 75% of loans of more than $350,000

SBA Export Working Capital

Export Working Capital loans are catered towards small businesses on the brink of significant international expansion. Business owners may apply for these SBA loans ahead of finalizing an export sale or contract, giving them greater flexibility to negotiate export payment terms. With maximum loan amounts of $5 million, these loans are for larger export businesses that need working capital to support export operations.

What it can be used for:

• Acquire, construct, improve, or expand facilities and equipment to be used in the U.S. to produce goods or services involved in international trade.
• Develop and penetrate foreign markets.
• Working capital for export transactions.
• Refinance an existing loan.

Typical interest rates (APR):

• 13.5% - 16.5%* (no maximum)

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Your small business seeks to expand existing export markets or develop new ones OR your small business has been adversely affected by import competition and you can show the funds will improve your competitive position.

Key terms and conditions:

• Turnaround time: Varies by lender
• Loan amount: $5 million
• Guarantee: 90%

International Trade

The primary difference between International Trade loans and Export Working Capital loans is that International Trade loans are designed to help existing exporters improve their competitive position in international markets or facilitate expansion into new export markets.

What it can be used for:

• Acquire, construct, renovate, modernize, improve, or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade.
• Develop and penetrate foreign markets.
• Working capital for export transactions.
• Refinance an existing loan.

Typical interest rates (APR):

• 13.5% - 16.5%*

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements
• Your small business seeks to expand existing export markets or develop new ones OR your small business has been adversely affected by import competition and you can show the funds will improve your competitive position.

Key terms and conditions:

• Turnaround time: 5-10 days
• Loan amount: $5 million
• Guarantee: 90%

CapLines

CAPLines is the SBA’s program to help small businesses meet short-term and working capital needs. These loans can function traditionally or like revolving lines of credit, depending on the loan and lender terms. Different types are useful for different businesses:

• Seasonal CAPLine: For businesses that see most of their revenue during a specific season, Seasonal CAPLines finance the requisite increases of accounts receivable, inventory, and labor costs. These loans can be revolving or non-revolving.
• Contract CAPLine: For invoice- and contract-based businesses, Contract CAPLines finance the costs associated with one or more specific contracts. These loans can be revolving or non-revovling.
• Builders CAPLine: For general contractors and other construction-related businesses, a Builders CAPLine provides financing for constructing or rehabilitating residential or commercial property for resale.
• Working CAPLine: This asset-based revolving line of credit is designed for businesses and business owners with bad credit. It functions like a business line of credit and depends on continual servicing and monitoring of collateral.

What it can be used for:

• Acquiring inventory and processing large customer orders
• Supporting payroll during seasonal revenue fluctuations
• Business expansion during market opportunity
• Lower pricing structure than typical asset-based or finance company loans
• Ability to speed up collections and reduce average daily loan balances through lockbox/cash collateral accounts

Typical interest rates:

• 10.75% - 16.5%*

Primary eligibility requirements:

• Operate an eligible business for profit in the U.S.
• Small under SBA Size Requirements

Primary eligibility requirements:

• Turnaround time: 5-10 days
• Loan amount: $5 million

Pros and cons of SBA loans

SBA loans help thousands of businesses every year get the funding they need for a range of business purposes. They’re one of the best funding options for small businesses, but that doesn’t mean they’re without drawbacks.

How to apply for an SBA loan

Applying for an SBA loan is similar to applying for a regular term loan.

Determine Your Eligibility

First off, are you eligible for an SBA loan? Most small businesses are, but there are a number of ineligible business types.

Choose the Type of SBA Loan

The standard (7)a is the most common loan type, but if you need money fast, don’t need a huge loan, or operate an export business, a different loan may be better.

Find an SBA Lender

There are thousands of lenders that offer SBA loans nationwide. The SBA has a Lender Match tool on their website to help you find one that works for you.

Prepare and Submit Your Application

The SBA loan application is complex and will require extensive documentation of your business and your personal credit history. Give yourself at least a few days to complete the process.

If you’re feeling overwhelmed your accounting professional can use the CPA Business Funding Portal to streamline the financing application process.

Await Approval

Depending on the loan type and the lender, it could take as little as 36 hours or as long as 90 days to get approved for your SBA loan. Every lender works at different speeds.

SBA Loans vs. Other Options

If you aren’t sure you’ll qualify for an SBA loan or you don’t want to navigate the complicated application process, there are other options for financing.

SBA Microloans

SBA microloans offer similar flexibility as 7(a) loans in terms of how you use the money, but the program is designed for businesses that may not qualify for traditional business loans. Unlike standard SBA loans, you can’t refinance debt or buy real estate with a microloan, but you can get even lower interest rates than 7(a) loans and repayment terms up to six years.

These loans have a maximum amount of $50,000 and are provided by specially designated intermediary lenders that primarily serve at-risk communities.

Business Line of Credit

A cross between a traditional small business loan and a business credit card, a business line of credit provides small businesses with a line of credit that they can draw on to make purchases as needed. You’ll only pay interest on the amount of credit you use — not the full approved line of credit — so it gives you the flexibility to access capital only when you need it.

Equity Financing

The best money to borrow is money you don’t have to pay back! That’s a bit of an oversimplification of how equity financing works, but many small business owners will take on investors who share in profits instead of paying interest on a loan. However, this is usually only appropriate for early stage companies and is impractical for financing day-to-day operations or one-time projects.

Equity financing is the process of taking investment money in exchange for a percentage of ownership in the company. So, rather than having strict loan repayment terms, you pay distributions of profits or dividends to investors. Unlike a loan, you only pay your equity shareholders when your business earns money. But equity investors will also be part owners in your business, with all the rights and responsibilities that come along with that.

From friends and family to angel investors to equity crowdfunding sites like WeFunder, there are myriad ways to look for equity financing if you have a great, profitable idea.

Alternative Lenders

You don’t have to go to a bank or credit union to get a small business loan. (Although you do for an SBA loan.) There are many alternative lenders like online lenders, private lenders, and peer-to-peer lending sites. Typically, alternative lenders offer much easier qualifications, although they will likely have lower loan maximums and high interest rates — especially for borrowers with bad credit.