SBA Loans Guide

What is an SBA loan?

An SBA loan is a small business loan backed by the government. If your business can’t repay the loan, the government will cover up to 85% of the cost. This makes it easier for small businesses to qualify for funding.

The SBA also sets caps on loan amounts, interest, fees, requirements and terms, making it a low-cost option for small businesses. Here’s how SBA loans generally work:

• Loan amounts: Up to $5.5 million
• Loan terms: Up to 25 years
• Interest rates: Up to 10.5%
• Guarantee fee: 0% to 3.75%
• Turnaround time: 30 to 90 days

How to qualify for an SBA loan

You can generally qualify for an SBA loan if your business:

• Is for-profit
• Located in the US or its territories
• Operates in an eligible industry
• Meets the SBA’s small business size standards
• Tried and failed to get funding elsewhere
• Have owner equity to invest

Additional criteria might apply depending on the program and lender. Make sure your business meets all criteria by reading our guide to SBA loan requirements.

How much can I borrow with an SBA loan?

You may be able to borrow as little as $500 up to $5.5 million — it all depends on the type of SBA loan you’re interested in. How much you qualify for also depends on your personal and business credit scores, annual revenue, available collateral and your business’s current debts.

What’s an SBA guarantee?

An SBA guarantee is the government’s legal promise to cover part of the loan if your business defaults. Generally, the SBA guarantees between 75% and 85% of SBA loans, depending on the program and how much you borrow. Business owners with over 20% stake in the company must back the rest of the loan with a personal guarantee or collateral.

What is an SBA guarantee fee?

The SBA guarantee fee is a percentage of the SBA-guaranteed portion of your business loan. Technically, the SBA charges lenders an SBA guarantee fee in exchange for partly backing your loan. However, lenders typically pass this cost on to the borrower. How much the fee costs depends on two main factors:

• Loan amount. Generally, the larger your loan, the larger percentage you’ll pay for the guarantee.
• Loan term. Similarly, the longer you take to repay your loan, the larger the guarantee fee.

You can usually roll the guarantee fee into the total cost of your loan, so you don’t have to pay it up front.

SBA guarantee fees are not tax-deductible — at least not on federal taxes. While you can normally deduct fees associated with taking out a loan, like an origination fee, this does not apply to SBA guarantee fees. That’s because the guarantee fee is meant to shift the cost of an SBA loan from the taxpayers to the businesses that rely on government-backed funds.

However, some states allow you to claim an SBA guarantee fee as a tax credit. Ask your accountant if this option is available before filing your business’s taxes.

Quickly compare SBA loan programs

There are multiple SBA loans. Compare loan amounts, uses and rates side-by-side to help narrow down the one you need for your business.

What types of SBA loans are available?

Choose from one of these 10 most popular SBA loan programs:

How to choose the right program

Find the right program for your business by asking yourself the following questions:

• What do I need the loan for? Look for a program that specializes in your funding needs — like a 504 loan for real estate and CAPLines for seasonal working capital.
• How much do I need to borrow? Different programs specialize in different funding amounts. Look for one with a maximum that fits your range.
• How quickly do I need the funds? Small-dollar loan programs often have a faster turnaround.
• How much can my business afford to pay each month? Use our SBA loan calculator to make sure a program’s loan amounts, interest and terms fit your budget.
• Can I qualify? Make sure your program doesn’t have any additional requirements that you don’t meet.
• Are you a veteran? The SBA 7(a) and Express programs may offer special benefits for veterans, though you still have other veteran business loan options to consider.

Where can I get an SBA loan?

Generally, you can get an SBA loan from any type of lender. However, you might want to work with a certified or preferred lender, which both offer a more streamlined application process.

Certified lenders

Lenders that participate in the SBA’s Certified Lender Program (CLP) have some experience and meet certain SBA standards.

The SBA expedites applications from certified lenders by reviewing its credit decision rather than underwriting the loan itself. For a 7(a) loan, this means cutting the underwriting process down to three days instead of the standard five to 10 business days.

Preferred lenders

Lenders that participate in the SBA’s Preferred Lender Program (PLP) have the most experience working with the SBA and meet even more rigorous standards than certified lenders.

Preferred lenders have the authority to underwrite and set eligibility standards without having the SBA review the application. For 7(a) loans, the SBA can approve funding as fast as 24 hours.

10 most active SBA lenders

These lenders have approved the highest volume of SBA 7(a) loans to date in 2023.

How does an SBA line of credit work?

An SBA line of credit (LOC) works like most other business LOCs: You get access to a credit limit of up to $5 million, which you can draw from as you need. You repay only what you withdraw, plus interest. The difference is that the SBA backs part of the loan, making it less risky for the lender.

Businesses can apply for a revolving or fixed line of credit. With a revolving LOC, your credit limit renews after your business repays the funds it withdraws, similar to a credit card. So if your business has a credit limit of $5 million and withdraws and repays $1 million, you’d still have access to the full $5 million until your term is up. With a fixed LOC, your business can access up to $5 million in total funds — it doesn’t renew after you repay the loan.

There are four types of SBA LOCs:

1. Seasonal CAPLines

Seasonal CAPLines are designed to help businesses keep up with seasonal increases in sales. This can include stocking up on inventory before the holiday season, hiring temporary staff to keep up with demand or any other costs that come with an uptick in profits.

The point of a Seasonal CAPLine is to let your business take full advantage of the busiest time of year. You can’t use the funds for working capital expenses during the off-season.

2. Contract CAPLines

Contract CAPLines are designed to help small businesses cover the cost of filling a contract. This can include administrative and overhead costs as long as they’re directly related to a specific contract or group of contracts.

Like with Seasonal CAPLines, your business can’t use a Contract CAPLine to cover general business expenses like working capital or refinancing debt. You also can’t use the funds to cover the costs of filling a contract that isn’t included in your original agreement.

3. Builder’s CAPLines

Builder’s CAPLines are designed to cover the cost of building or renovating real estate you intend to resell for a profit. These include supplies, building materials, equipment, labor, utilities, landscaping, building permits and inspection fees. And Builder’s CAPLines can cover one or multiple projects.

If you hire a subcontractor, the credit line can also cover their profits. Plus, you can use up to 20% of the CAPLine to buy land and up to 5% for public improvements — like repaving a sidewalk outside the building. You can’t use the funds to cover any business costs, however.

4. Working Capital CAPLines

Working Capital CAPLines are for businesses that need help covering overhead expenses in the short term — this is the loan you’d apply for if you’re struggling through the off-season. It’s also the only type of CAPLine that you can use to refinance debt.

Business owners can use the funds to pay for some fixed assets like equipment, though you must refinance that portion of the loan within 90 days.

Lenders for special financing programs

A few SBA programs only offer financing through specific types of lenders:

• SBA 504 loans. You must apply through a bank or online lender and a certified development company (CDC).
• SBA Community Advantage and microloans. These are only available through a community-based lender like a local bank, credit union or CDFI.

6 steps to apply for an SBA loan

Follow these steps to apply for an SBA loan:

1. Check if you qualify. Make sure you meet all the basic SBA requirements.
2. Choose a program. Look for a program that fits your budget and offers the funding you need to cover your costs.
3. Compare lenders. Preferred and certified lenders offer the fastest turnaround but compare all options to make sure you find the right fit.
4. Compile your paperwork. Coordinate with your lender to figure out what documents you need to provide.
5. Complete the application. Fill out the application form that your lender provides.
6. Complete additional forms. The SBA requires borrowers to fill out several forms that provide details about personal assets, criminal records and more.

What documents do I need to apply?

Prepare to submit all or some of these documents when you apply for an SBA loan:

• A detailed list of how your business will use the loan
• Financial projections for the next one to three years
• Cashflow statement
• Current profit and loss (P&L) statement
• Current balance sheet
• Two years of business tax returns
• Two years of owner tax returns
• Owner financial statements
• Owner resumes
• Business plan – including an overview and history
• Proof of ownership
• Business licenses and leases
• Business debt schedule
• Information about other businesses you own

SBA loan forms

You might need to submit some or all of the following forms:

What happens if I default on an SBA loan?

There are several steps leading up to a default on an SBA loan, involving both your lender and the government. That’s because the SBA doesn’t actually issue your loan but backs it up to 85%. This means the SBA covers up to 85% of the amount you borrowed when you default. But it’s not as straightforward as it might sound.

Each lender has different procedures it follows when an SBA borrower defaults. Here’s what you might expect to happen.

1. The lender sends a notice

The first step most lenders take is to reach out after you’ve missed a few payments. Typically, you’ll receive a letter or phone call letting you know that your repayments are overdue.

Many lenders are willing to work with businesses to prevent you from defaulting at this stage. They might work with you to renegotiate your repayment plan. Some could even offer interest-only repayments for a few months if your business is experiencing a temporary loss of profits.

The default process ends here if you can reach an agreement with your lender. Otherwise, it starts the collections process.

2. The lender seizes collateral

The SBA isn’t the only one securing the loan. If you backed your loan with collateral, your lender takes steps to collect that first. If your collateral doesn’t cover the amount your business owes, your lender could force your business to close and sell off anything of value.

It can also typically withdraw money from the bank account linked to your loan account to cover overdue repayments. Or, it can get a judgment from a court allowing it to withdraw from your business accounts at other banks.

3. The lender goes after your assets

Since the SBA requires a personal guarantee from business owners with more than a 20% stake in the company, the lender could come after your personal assets next. Typically, it sends a letter to all guarantors asking for repayment. If the guarantors don’t respond, the lender could file a lawsuit.

So what happens when the lender goes after your assets? If your home was part of your personal guarantee, it could seize that property — though it might decide it’s not worth it if you’re still paying off a mortgage or home equity loan. You could also lose other assets like your retirement and bank accounts.

4. The SBA requests an offer in compromise

When your business and guarantors can’t repay the full amount, your lender turns to the SBA to get funds to cover their guaranteed part of the loan. At this point, the SBA pays off your lender and takes over the collections process. Typically, the SBA sends you a letter demanding payment or an offer in compromise (OIC) within 60 days.

Submitting an OIC involves filling out a form proposing to settle any debt for a lower amount than you originally owe. You must offer proof that you can repay the settlement amount and include a complete list of your assets and debts. Your lender then reviews your OIC and submits it to the SBA. Both must agree to the terms.

If the SBA accepts your OIC, you can pay off the settlement amount. Otherwise, you could submit another request. If not, the SBA turns your case over to the US Treasury Department.

5. The US Treasury Department takes over collections

The US Treasury Department can take more extreme measures to collect the amount you owe once it takes over your case. That’s because there are no legal limitations to how long they can collect funds, and they don’t need a judgment. They might garnish your wages, take away your Social Security and other retirement benefits or withhold your tax refunds until your loan is paid off.

SBA loan alternatives

Not sure you can qualify? Need funding fast? Consider one of these alternatives:

• Bank loans. Banks tend to offer similar rates and loan amounts as an SBA loan. While they often have tough revenue and credit requirements, they aren’t as strict as the SBA.
• Online loans. Online lenders can get you money in a matter of days, often with minimal paperwork. But they tend to come with higher rates.
• Microloans. If you’re looking to finance a startup, it might be easier to qualify for a small-dollar loan with a microlender.
• CDFI loans. CDFIs tend to offer more competitive rates to small businesses that might not otherwise qualify for funding.
• USDA loans. If you’re in agriculture or operate in a rural area, the USDA might offer funding more suited to your needs.
• ERC tax credit. The ERC is a tax credit that goes into your pocket, not a loan that you need to repay. You may qualify for the ERC if you own a small business or tax-exempt organization that continued paying your workers from March 13, 2020, to December 31, 2021.

Bottom line

It’s hard to beat SBA loan rates and terms. But make sure you have the time to apply and meet the eligibility requirements.

Get started on your search for an SBA loan by checking out our list of the best SBA lenders, or research your other options with our guide to business loans.

Frequently asked questions

Answers to commonly asked questions about SBA loans.

What are the SBA loan rates?

SBA loans are known for being inexpensive. That’s because the SBA limits how much lenders can charge in interest and fees. Within those limits, lenders have some flexibility. They can decide whether to offer your business fixed or variable rates and the exact rate you qualify for.

How hard is it to get an SBA loan?

SBA loans are actually some of the most difficult types of financing to qualify for. Only 54% of SBA applications were approved in 2017, according to a Federal Reserve survey. This could be because SBA loans consider far more factors than traditional business lenders, including the arrest records of business owners with more than a 20% stake in the company.

Does the SBA still offer PPP loans?

No, the PPP loan ended on May 31, 2021. However, your business can still access low-cost alternatives to PPP loans, like other types of SBA loans, business term loans or lines of credit.

How long does it take to get an SBA loan?

How long it takes to get an SBA loan depends on several factors, including your lender and loan type. Most borrowers can expect to spend at least 30 days on the application from start to finish. However, it can take as little as a few weeks if you use a service like SmartBiz.

Why is there more paperwork involved with an SBA loan?

There’s more paperwork because SBA loans are from the government and therefore sponsored by tax dollars. Extra regulations lead to extra paperwork and qualifications.