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SBA Loan Overview:
Types, Pros and Cons, How to Apply
SBA loans are small-business loans offered by banks and online lenders and partly guaranteed by the government.
Check SBA loan rates for 2024SBA loans offer some of the lowest rates on the market, but rates can change based on the Federal Reserve's actions.
Rosalie Murphy covers small business topics for NerdWallet. Previously, she led editorial strategy for a local news startup and covered business at The Desert Sun. She holds a journalism degree from the University of Southern California and is currently pursuing an MBA.
Writer | Small business, business banking, business loans
Randa Kriss is a small-business writer who joined NerdWallet in 2020. She previously worked as a writer at Fundera, covering a wide variety of small-business topics including banking and loan products. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona College.
Sally Lauckner has over a decade of experience in print and online journalism. Before joining NerdWallet, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She has a master's in journalism from New York University and a bachelor's in English and history from Columbia University. Email: slauckner@nerdwallet.com.
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⏰ Estimated read time: 10 minutes
SBA loans are business loans partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, usually banks. These loans have tight lending standards, but if you can qualify for an SBA loan, their flexible terms and low interest rates can make them one of the best small-business loans.
Here’s an overview of how SBA loans work, the types of SBA loans that are available, what each loan type can be used for and how to get SBA financing for your small business.
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
What is an SBA loan?
An SBA loan is a small-business loan that can help cover startup costs, working capital needs, expansions, real estate purchases and more. This type of financing is issued by a private lender but backed by the federal government, specifically the Small Business Administration.
More than $23 billion in SBA 7(a) lending has been approved so far in the 2024 fiscal year
You apply for an SBA loan through a lending institution like a bank or credit union. That lender then applies to the SBA for a loan guarantee, which means if you default on an SBA loan, the government pays the lender the guaranteed amount.
The SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in a company. This guarantee puts you and your personal assets on the hook for payments if your business can't make them.
Both the government guarantee and the personal guarantee reduce the risk for lenders — making them more willing to work with small businesses.
Once you’re approved for an SBA loan, your lender is responsible for closing the loan and disbursing the loan proceeds. You repay the lender directly, usually on a monthly basis.
Types of SBA loans
There are several government small-business loan options available — each with its own terms and conditions. The best SBA loan for you will depend on what you plan to use the funding for.
Here’s a summary of the most common types of SBA loans.
SBA 7(a) loans
Up to $5 million.
Working capital, expansion and equipment purchases.
Per federal rules, participating lenders base SBA loan interest rates on the prime rate plus a markup rate known as the spread.
Note that the annual percentage rate on a loan is different from the interest rate. The APR is a percentage that includes all loan fees in addition to the interest rate.
APRs can vary substantially between SBA lenders and non-SBA lenders. For example, an online lender that specializes in SBA loans may cap its APR around
14.5
%, while major online small-business lenders that don't offer SBA loans have loans with APRs as high as 99%.
You can use NerdWallet’s SBA loan calculator to estimate your monthly payments and find out how much you’ll spend on interest based on different rates.
Low fees
Fees for SBA loans usually consist of an upfront guarantee fee, based on the loan amount and the maturity of the loan, and a yearly service fee — based on the guaranteed portion of the outstanding balance. The SBA reassesses its fee structure each year.
There are no upfront guarantee fees for SBA 7(a) loans of $1 million or less through September 2025
Another perk of SBA loans is that you get more time to repay them, which means you’ll have more money available for other business needs. The loan term will depend on how you plan to use the money. The current maximum maturities are:
Although the amount of funding you receive will vary based on the type of SBA loan and your business’s qualifications, SBA loans generally offer large loan maximums.
7(a) loans, for example, offer a maximum loan amount of $5 million
. Similarly, the 504/CDC program offers a maximum loan amount of $5 million, but provides up to $5.5 million for small manufacturers and eligible energy public policy projects
U.S. Small Business Administration. 504 Loans. Accessed Jul 29, 2024.
These are much larger loan amounts than are typically offered by online lenders or even banks — who generally max out at $500,000 and $1 million, respectively.
Cons of SBA loans
Hard to qualify
Although the government guarantee reduces the risk that lenders face when issuing loans to small businesses, you’ll still need to meet strict eligibility criteria to get an SBA loan. Typically, you’ll need several years in business, strong business finances and a good credit score to qualify.
Slow to fund
Depending on your lender and the type of SBA loan you apply for, it can take anywhere from one to three months to access funds. Plus, the SBA loan application process is detailed and requires extensive documentation.
SBA loans typically require an unlimited personal guarantee from anyone who owns 20% or more of the business. Lenders may ask that other business owners provide a limited or unlimited personal guarantee as well.
Depending on the loan and your business’s qualifications, you may also need to put up physical collateral or offer a down payment. SBA 504 loans, for example, will require a down payment of 10% or more.
ASK OUR NERDY EXPERTS
WHAT IF I CAN’T WAIT FOR AN SBA LOAN TO FUND?
Since I started covering SBA loans in 2019, one of the biggest complaints I’ve seen amongst business owners is the detailed and time-consuming application process. And despite recent SBA changes designed to expedite the process, it still can take months to get SBA financing.
Depending on how quickly you need money, I’d recommend turning to a local, community bank. Small banks have higher rates of approval and greater borrower satisfaction than other sources. And while the application process won’t be as fast as online alternatives, community banks are more likely to offer a personalized, customer-centric experience.
Since I started covering SBA loans in 2019, one of the biggest complaints I’ve seen amongst business owners is the detailed and time-consuming application process. And despite recent SBA changes designed to expedite the process, it still can take months to get SBA financing.
Depending on how quickly you need money, I’d recommend turning to a local, community bank. Small banks have higher rates of approval and greater borrower satisfaction than other sources. And while the application process won’t be as fast as online alternatives, community banks are more likely to offer a personalized, customer-centric experience.
SBA loan requirements vary based on the lender and the particular loan program, but you’ll typically need several years in business and a good credit history to qualify. Additional criteria from the SBA, include:
You must be a for-profit business operating in the U.S.
The business owner must have invested equity, such as their own time and money, into the business.
You must be able to demonstrate a need for financing and show the business purpose for which you’ll use the funds.
You must be able to show your creditworthiness — i.e. your business has the means to repay the loan.
If you don’t think you can qualify for an SBA loan — or need quicker funding — see our latest roundup of the best online business loans. It compares today’s top online lenders across the metrics that matter most to small-business owners: transparency of rates and terms, flexible payment options, fast funding times, and accessible customer service, among others. » MORE: Best online business loans
How to get an SBA loan
1. Make sure your business is eligible
To qualify for an SBA loan, lenders typically like to see at least two years in business, strong annual revenue and a good credit score, which starts around 690.
If your business is struggling, an SBA loan is probably out of the question. And if it falls into any of the ineligible categories, such as gambling or political lobbying, you shouldn’t apply.
2. Choose a lender
The SBA offers a convenient Lender Match tool to match potential borrowers with lenders within two days.
If you’re applying through a traditional bank, it helps to work with one that has a track record of processing SBA loans. Ask your potential lender these questions:
How many SBA loans do you make?
How often do you fund SBA loans?
How experienced is your staff in the process?
What is the dollar range of the loans you make?
In general, a bank with multiple years of SBA experience will be able to better guide you, including letting you know your chances of being approved. Banks will follow SBA guidelines but use their own underwriting criteria to evaluate loan applications.
For example, Newtek Bank, based in Florida, is the most active SBA 7(a) lender in the United States by lending volume so far in the 2024 fiscal year. Huntington National Bank, on the other hand, is the most active 7(a) lender by number of approvals so far this fiscal year
Both Newtek and Huntington are SBA Preferred Lenders. Preferred Lenders can make final credit decisions on loan applications without sending them to the SBA, thereby expediting the underwriting process.
3. Gather your documents
SBA loan applications can vary based on loan type, but your lender should be able to help you prepare your paperwork.
Here are some of the documents you will need:
SBA’s borrower information form.
Statement of personal history.
Personal financial statement.
Business financial statements.
Personal income tax returns.
Business tax returns.
Business license.
Loan application history.
Business owner resumes.
Lease agreement if applicable.
One-year cash flow projection.
4. Submit your application and wait
The time it takes to get approved for an SBA loan will depend on the lender you choose. With a bank, the entire process — from approval to funding — can take anywhere from 30 days to a couple of months.
If you’re short on time, you might opt for the SBA Express loan, which typically funds faster than other options. The maximum amount for this type of financing is $500,000 and the maximum amount the SBA guarantees is 50%.
In general, SBA loans are not as difficult to get as business bank loans. Because they’re backed by the U.S. government, they’re less risky for banks than issuing their own loans. But SBA loans are usually harder to get than online business loans, which may require less time in business and lend to borrowers with lower credit scores.
SBA stands for Small Business Administration. It is a federal agency dedicated to helping small businesses in the U.S. It does so through counseling, access to government contracts and loans and more.
Yes, you have to pay back an SBA loan. But the loan terms — the amount of time you have to pay your lender back — tend to be longer than other types of business loans.
Funding maximums vary based on the type of SBA loan. SBA 7(a) loans are available in amounts up to $5 million. CDC/504 loans are available up to $5 million, but offer up to $5.5 million for select projects. SBA Express loans are available up to $500,000 and microloans are available up to $50,000.