What is an SBA Loan?
Learn what SBA loans are, how the government guarantee reduces lender risk, and get an overview of the main SBA loan programs available to small businesses.
An SBA loan is a business loan partially guaranteed by the U.S. Small Business Administration. The SBA does not lend money directly to businesses (except for disaster loans). Instead, it guarantees a portion of loans made by approved banks and lenders, reducing their risk and making it easier for small businesses to qualify.
How the SBA Guarantee Works
When a lender makes an SBA loan, the SBA guarantees to repay a portion of the loan (typically 75-85%) if the borrower defaults. This guarantee encourages lenders to approve loans they might otherwise reject.
Because of the reduced risk, SBA loans typically offer lower interest rates, longer repayment terms, and smaller down payment requirements than conventional business loans.
Not Free Money
The SBA guarantee protects the lender, not the borrower. You are still fully responsible for repaying the loan, and defaulting can result in losing collateral and having your personal guarantee called.
Main SBA Loan Programs
The SBA offers several loan programs for different needs:
- SBA 7(a): The most common program. Up to $5 million for working capital, equipment, real estate, or refinancing. Terms up to 25 years for real estate.
- SBA 504: For major fixed assets like real estate and equipment. Typically combines a bank loan with a CDC (Certified Development Company) loan.
- SBA Microloan: Smaller loans up to $50,000 for startups and small businesses. Funds come through nonprofit intermediary lenders.
- SBA Express: Faster approval (within 36 hours) for loans up to $500,000, but with a lower guarantee percentage.
SBA Loan Requirements
To qualify for an SBA loan, businesses typically need:
- To be a for-profit business operating in the U.S.
- To meet SBA size standards for your industry
- To have exhausted other financing options (the "credit elsewhere" test)
- Good personal credit (typically 680+ for most programs)
- Demonstrated ability to repay the loan
- Collateral for larger loans
- Personal guarantee from owners with 20%+ stake
SBA Loan Rates and Fees
SBA loan interest rates are regulated and typically lower than conventional business loan rates. For SBA 7(a) loans, rates are based on the prime rate plus a spread that varies by loan size and term.
Borrowers also pay an SBA guarantee fee (typically 2-3.5% of the guaranteed portion) and may pay lender fees up to 3.5%.
Processing Time
SBA loans take longer to process than conventional loans due to additional paperwork and SBA review requirements. Standard SBA 7(a) loans typically take 30-90 days from application to funding. SBA Express loans are faster but have lower loan limits.
Start the SBA loan process early if you need funds by a specific date. Having all required documentation ready can speed up approval significantly.
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Related Articles
What is an SBA 7(a) Loan?
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Read more →What is an SBA 504 Loan?
Learn what SBA 504 loans are, understand their unique two-loan structure, and see when the 504 program makes sense for real estate and equipment purchases.
Read more →What is an SBA Microloan?
Learn what SBA Microloans are, understand the terms and requirements, and see how this program helps startups and small businesses access smaller amounts of capital.
Read more →What is an SBA Guarantee?
Understanding how SBA loan guarantees work, what percentage the SBA guarantees, and why this matters for your business loan.
Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.