If you’re unsure about which SBA loan program makes sense for your needs, keep reading for a more in-depth breakdown of each loan program.
What Is an SBA Loan?
SBA loans are business loans guaranteed by the Small Business Administration. With their multiple SBA funding programs, this government agency provides SBA loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender—typically banks. The three main SBA loan programs let you borrow money for nearly any business purpose—including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate—through these SBA-guaranteed loans.
The Fundamentals of SBA Loans
The “SBA” in SBA loans stands for the Small Business Administration.
The Small Business Administration is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to conventional small business loans.
The SBA uses federal money to guarantee a percentage of loans administered by traditional banks, so those financial institutions have more incentive to lend money to small businesses.
Simply put, the SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders. And less risk for lenders means that more small business owners will be considered for the traditional longer-term, lower-rate financing that comes from banks.
Because of this guarantee, banks are more inclined to lend you money even if you don’t fit their strict credit criteria. They can service a whole different set of customers than usual—without making too many sacrifices.
SBA Loan Details
|Max. Loan Amount||Loan Term||Interest Rates||Speed|
|$5K - $5M||5 - 25 years||Starting at 6%||As fast as 2 weeks|
- Lowest down payments
- Longest payment terms
- Reasonable interest rates
- Suitable for a wide range of business purposes
- Lengthy paperwork
- Longer approval times
- May require collateral
The Top SBA Lenders
Five Star Bank
Best for: Low-rate SBA 7(a) loans.
First Home Bank
Best for: SBA 7(a) loans from an established 7(a) lending program.
SBA Loan Types
There are many different types of SBA loans programs out there, with three programs being the most popular:
- The 7(a) Loan Program
- The Microloan Program
- The CDC/504 Loan Program
How do you know which one is right for you?
The SBA loan program you’ll want to apply for depends on the size, age, and goals of your business.
Here’s the breakdown on all three:
|Loan Type||Loan Amount||Repayment term||Interest Rate||Fees||Best For|
|7(a) Program||Up to $5 million||10 – 25 years||Prime rate + 2.25% – 4.75% (depending on loan amount and repayment terms)||A guarantee fee of 1.7% for loans up to $150,000, and 2.25% for any SBA 7(a) loan greater than $150,000||General business financing needs|
|Microloan Program||Up to $550 – $50,000||1 – 6 years||8% – 13%||None||Starting or expanding a new business|
|CDC/504 Program||Up to $5 million||10 – 20 years||5% – 6%||3% of loan amount||Purchase of major fixed assets|
An SBA microloan is a loan between $500 and $50,000 from an intermediary nonprofit to the owner of a small business or startup. The money originates from the SBA, which initially lends the money at a discounted rate to the intermediary.
Businesses can use SBA Microloans for a range of purposes, including working capital or buying equipment, machinery, or supplies.
There are no fees associated with microloans.
Rates range between 8% – 13 % for the microloan program.
Microloans are administered by partnering financial institutions. The institution you work with is the one that sets the interest rate on the microloan, depending on your creditworthiness and the specifics of your small business.
Up to 6 years with monthly repayments.
Loan repayment terms depend on the loan amount, use of funding, and other criteria, but the maximum repayment term allowed for an SBA microloan is six years.
As for the repayment schedule: like with other SBA loans, you can expect monthly charges.