Cash vs. Credit: When Should Business Owners Use Each?

SBA Loans for Small Business: Who Qualifies for One

 SBA loans are available to registered for-profit companies in the United States that are wholly owned by U.S. citizens or lawful permanent residents.

To qualify, a business must be under the size laid out in the SBA’s size standards guide. For example, a soybean farm must be under $2.25 million in revenue, while a trucking company must be under $34 million in revenue. In some industries, “small” is defined by the number of employees, rather than their revenue. For example, new car dealers must have under 200 employees to qualify for an SBA loan for small businesses.

A good credit history may also be needed when seeking an SBA loan for small business. Often, a strong credit history is required for both the business and the owner(s) of the business.

To get an SBA loan for small business, you will also have to show that you can repay the loan.

Perhaps the most surprising requirement for SBA financing is that you must be able to show that you cannot get the necessary financing from other sources on reasonable terms.

Meeting these requirements is not a guarantee that you will be approved for SBA financing. However, you will need to meet these minimum requirements to get started. There may also be additional requirements that depends on the individual lenders.

In general, when you apply you’ll be asked to supply a business plan explaining how you’ll use the money and how you will repay the loan. In addition, you may be asked to provide collateral to cover a portion of the loan amount.

What Types of SBA Loans for Small Business Are Available?

SBA loans for small business are available in a variety of forms:

1. SBA 504 Loans 504 term loans offer long-term, fixed rate financing for small businesses. The goal of the 504 program is to promote economic development and job creation. The maximum amount available for 504 loans in 2026 is $5.5 million, and financing is only available to companies that have a tangible net worth of less than $20 million and an average net revenue over the previous two years of $6.5 million.

504 loans can be used for long-term machinery, existing buildings or land, qualified debt consolidation, and real estate improvements. But these loans cannot be used for working capital, real estate, speculation, AI-related working capital, or consulting soft costs.

Repayment terms are available with 10, 20, and 25-year repayment periods. The business must put up 10% of the total amount, a bank or traditional lender puts up 50%, and a Certified Small Business Development Center (CDC) puts up the remaining 40%, which is backed by the SBA. CDCs are nonprofits established by the SBA 504 program to provide local financing and support regional business development.

• Microloans
• Line of credit

2. SBA 7(a) loans 7(a) loans are the most popular SBA loan. They are flexible, and can be used to help meet a wide range of business needs, including:

• Real estate
• Short- and long-term working capital
• Refinancing business debt
• Purchasing machinery and equipment
• Purchasing furniture and supplies

The maximum amount a business can qualify for with a 7(a) loan is $5 million. Unlike 504 loans, with a 7(a) loan, a CDC is not required. For loans over $150,000, the SBA backs 75% of a 7(a) loan, and for loans under $150,000, the SBA backs 85%.

Business owners may also be interested in a subcategory of the 7(a) loan called the SBA express loan. These loans are capped at $500,000 and the SBA will only guarantee 50% of the loan, but loans may be approved in as few as two days, which may be appealing to some small businesses.

The SBA 7(a) program also includes a CAPLine program. This program offers lines of credit to help businesses meet their seasonal working capital needs. A line of credit is not a traditional loan. Rather, they function more like a credit card, where the lender qualifies you for a certain amount and you can draw against it as needed.

3. Microloans Microloans are another type of SBA loan for small businesses. These loans may be approved for amounts up to $50,000. Unlike 504 and 7(a) loans, funding is provided by the SBA to community-based intermediary lenders, who then disburse the money.

4. Disaster loans Unlike most other SBA loans, disaster loans are offered directly from the SBA. These low interest rate loan loans are available to businesses of all sizes, homeowners, renters, and private nonprofits located in declared disaster areas. SBA disaster loans can be used to cover damage that is not covered by insurance or FEMA, and can also be used to cover business expenses that would have been covered through normal business operations if the disaster had not happened.

There are four types of SBA disaster loans:

• Physical damage loans can be used to repair or replace physical assets that were damaged or destroyed in a formally declared disaster.
• Mitigation assistance loans can be used to improve your business or property to make it less vulnerable to future disasters.
• Economic injury disaster loans provide funding to cover expenses that would normally be covered by your routine business operations, but were disrupted by a disaster.
• Military reservist loans can be used to cover expenses that were incurred when employees who are military reservists are called up to active duty.

How to use SBA loans for Small Business Effectively

Like any type of debt, an SBA loan for small business should be used strategically. It’s a business investment, not free money. Here are a few SBA loan purposes that can help you use financing effectively:

1. Buy equipment that increases output. If your business or startup is stuck on a revenue plateau, an SBA loan for small business can help you buy equipment that will help you push through and reach new revenue goals.

2. Use it to buy inventory when demand increases. If you know that seasonal demand will increase, but you can’t afford the inventory during the slow season, an SBA loan for small business can help you purchase inventory in time to meet customer demand, growing your overall business.

3. Use it to improve your marketing. Even the best businesses need marketing. If your company has a loyal fan base but just isn’t reaching enough customers to maintain profit margins, SBA loans for small business can provide the capital needed to invest in marketing and reach new customers.

4. Use it for short term payroll needs. Sometimes you might struggle to maintain payroll while waiting for a large customer check to clear. SBA loans can help you cover the gap while continuing operations.

5. Open a new location to take advantage of opportunity. If you’re not focused on growth, you can be sure that your competitors are. In other words, if there’s an opportunity to expand your business, but you don’t have the capital, SBA loans for small business can help you take advantage of new opportunities, shutting out the competition.