In This Article
What Are SBA Loans?
SBA loans are partially guaranteed by the U.S. Small Business Administration, which reduces risk for lenders and results in more favorable terms for borrowers. The SBA doesn't lend directly — instead, it partners with approved lenders (banks, credit unions, and CDFIs) who make the loans under SBA guidelines. The government guarantee (up to 85% of the loan) incentivizes lenders to approve borrowers who might not qualify for conventional financing.
SBA 7(a) Loan Program
The 7(a) is the SBA's flagship program and most versatile loan type. Maximum loan amount is $5 million. Use it for working capital, equipment, real estate, business acquisition, refinancing, and more. Terms range from 7 years (working capital) to 25 years (real estate). Interest rates are negotiated but capped — currently prime + 2.25% to prime + 2.75% for loans over $50,000. The SBA guarantees up to 85% for loans up to $150,000 and 75% for larger loans. This is the go-to program for most small business financing needs.
SBA 504 Loan Program
The 504 program is specifically designed for major fixed asset purchases — commercial real estate and large equipment. It involves a unique three-party structure: a Certified Development Company (CDC) provides 40% of the financing, a bank provides 50%, and the borrower puts down 10%. Maximum CDC portion is $5.5 million ($5 million for manufacturing). The 504 offers some of the lowest fixed rates available — often below conventional bank rates. The catch: it can only be used for fixed assets, not working capital or inventory.
SBA Express Loans
SBA Express is designed for speed. Lenders can use their own procedures and make decisions without prior SBA review, resulting in approvals in as fast as 36 hours. Maximum loan amount is $500,000. The SBA guarantees 50% (lower than standard 7(a)). Because of the reduced guarantee, rates can be slightly higher — up to prime + 4.5% for loans over $50,000. Express loans can be term loans or revolving lines of credit.
SBA Microloans
The Microloan program provides loans up to $50,000 (average is about $13,000) through nonprofit intermediary lenders. These are designed for startups and very small businesses that need smaller amounts of capital. Terms go up to 6 years, and rates are typically 8-13%. Microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery, and equipment. They cannot be used to pay existing debts or purchase real estate.
SBA Disaster Loans (EIDL)
Economic Injury Disaster Loans (EIDL) are the only SBA loans made directly by the SBA rather than through partner lenders. They're available to businesses affected by declared disasters. Loan amounts up to $2 million with rates as low as 3.75% for businesses and 2.75% for nonprofits. Terms up to 30 years. These became widely known during COVID-19 but are available for any declared disaster — hurricanes, floods, wildfires, etc.
Pros & Cons
Pros
- Lowest rates of any business financing
- Longest repayment terms (up to 25 years)
- Lower down payments than conventional loans
- Government guarantee reduces lender risk
- Builds strong credit history
Cons
- Longest application process (30-90+ days)
- Most documentation intensive
- Personal guarantee required
- Cannot be used for speculative purposes
- Slower funding than alternative options
Key Terms to Know
Best For
- Businesses wanting the absolute lowest rates
- Real estate purchases (504 program)
- Established businesses with strong documentation
- Companies willing to wait for the best terms
SBA Loan Types Explained vs. Business Term Loans
How do these two options compare?
SBA loans offer the best rates (prime + 2-3%) and longest terms (up to 25 years) but take 30-90+ days and require extensive documentation. Standard term loans from online lenders fund in 1-7 days at higher rates (8-30%). Choose SBA for long-term, large financing needs; term loans for speed and simpler applications.
Read about Business Term Loans