SBA Small Loans: Affordable Funding Solutions for Growing Businesses

SBA Small Loans: What Are They?

It’s a common misconception that SBA small loans come from the SBA. The truth is, most SBA small loans are funded by banks and lenders. But they are partially backed by the SBA. This reduces the risk for lenders, resulting in more favorable terms for borrowers.

With a traditional bank loan, the lender provides the funding and bears the risk. As a result, fewer small businesses have access to capital because lenders view them as too risky. When a bank or credit union does offer financing, interest rates may be higher to compensate for the potential of increased risk.

SBA small loans create opportunities for small business owners by offering them access to capital that they might not otherwise have.

There are some types of SBA loans that are funded directly by the Small Business Administration, through community-based lending organizations. These types of loans include microloans and disaster relief loans.

Types of SBA Small Loans

SBA funding comes in several forms. If you need a large amount, SBA loans like the SBA 504 loan can be funded for up to $5.5 million, while SBA 7(a) loans are available in amounts up to $5 million. But if you only need a small amount, these loan programs may not be a good fit. The SBA 504 loan has a minimum loan size of $50,000, and while SBA 7(a) loans have no formal minimum size, many SBA lenders set their own minimum size of $25,000-35,000 to help cover their processing fees.

Thankfully, there is an SBA small loan program that offers funding in lesser amounts.

1. SBA Microloans

Where the SBA 504 program only offers loans larger than $50,000, the SBA microloan program only offers loans that are smaller than $50,000. In fact, the average size of a microloan is just $13,000.

Unlike larger loans, SBA microloans are not funded by banks or credit unions. Instead, the SBA provides funding to intermediate lenders—nonprofit, community-based organizations.

You can find a list of these organizations on the SBA website. While interest rates may vary for a microloan, in 2026, they typically range between 8%-13%.

These community-based organizations do more than act as lenders, however. The SBA microloan program is designed specifically for early stage and startup companies. The community-based organizations provide guidance and counsel before, during, and after the loan process. This ensures that the small businesses being funded have the greatest chance of success.

Often, the only alternative to an SBA small loan is credit card debt. And while credit cards have their place in most business operations, they also come with high interest rates, so if you fall behind on a payment, you can get trapped in a debt cycle.

SBA small loans may have lower interest rates, and the repayment period can be up to seven years, so companies are less likely to take on loans that they are unable to repay, especially since they have access to guidance.

2. SBA Disaster Loans

Disaster loans are available to businesses and individuals who reside in a declared disaster zone. Funds from a disaster loan can be used to repair or replace property damaged by the disaster and can also be used to help your business recover from the disaster.

For example, you can use disaster loan funding to cover operating expenses that would have been met through regular operations, had the business not been disrupted. Or you could use the funding to repair a building that was damaged during the disaster.

 SBA disaster loans are administered directly by the SBA. To apply, you can simply go to their website, fill out the application and the relevant paperwork and documents, and wait to hear back.

Of note, disaster loans are not grants—they must be repaid according to the terms set out in your agreement.

SBA disaster loans are available in amounts as low as $500 and as high as $2 million for businesses and $500,000 for individuals.

What Can SBA Small Loans Be Used For?

SBA small loans can be used for a wide range of purposes, as long as they are directly related to growing, improving, or re-opening a small business. Or in the case of a disaster loan, for rebuilding or recovering after a natural disaster. This includes things like:

• Working capital: This is funding for your business’ day to day expenses. Working capital is defined as current assets (cash, cash equivalents, inventory, accounts receivable) minus current liabilities (accounts payable, accrued expenses, and debt).

• Inventory: This includes purchasing finished products that are ready to sell, as well as raw materials that you need to create your finished products.

• Supplies: This includes the general goods that are needed to run your business on a day-to-day basis. Examples include things like computers, printing paper, printers, break room plates and silverware, janitorial tools, cleaning liquids, and more.

• Furniture: SBA small loans can be used for any furniture that is used in your business. They cannot be used for personal furniture, or furniture that is intended to be held as a passive asset.

• Fixtures: Fixtures include permanent and semi-permanent features of a property, things like shelving, blinds, lighting, cabinetry, and display cases.

• Machinery and Equipment: This refers to things like manufacturing equipment, commercial baking hardware, printing presses, tractors, and heavy operational equipment, including pickup trucks. All purchases must be used for the operation of your business, however, as SBA small loans cannot be used to finance machinery for personal uses.

Of note, SBA small loans like the microloan program cannot be used to buy real estate or to pay off old debt. However, you can use an SBA 7(a) loan to repay old debt, if the debt is business related and not personal debt.

What Are the Eligibility Requirements for SBA Small Loans?

Eligibility for SBA small loans is set by the intermediary lenders. In most instances, business owners will have to provide a personal guarantee, as well as collateral for the loan before they receive the SBA funding. Unlike many other types of loans, SBA small loans are designed first time business owners and owner/operators, making them a great way to access startup funding through the SBA.

As a result, SBA microloans often do not require a down payment.

Buying Real Estate as a Small Business

Microloans cannot be used to finance real estate purchases. Thankfully, there’s another option. Due to their flexibility, 7(a) loans can function as an SBA commercial real estate loan.

With an SBA 7(a) loan, you can purchase up to $5 million in real estate, as long as your company occupies at least 51% of the property. Unlike microloans, this type of loan does require a minimum 10% downpayment up front depending on the lender. But it can still be a useful financial vehicle when your company needs to expand or you decide to purchase your own building instead of leasing.