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The Small Business Administration (SBA) loan program is one of the most popular types of business financing — and for good reason. Thanks to government backing, they come with some of the lowest rates out there. But the strict eligibility requirements and long application also make them difficult to get.
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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:
You can generally qualify for an SBA loan if your business:
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.
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.
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.
|Total loan amount||Guaranteed amount||Loan term||Guarantee fee|
|$150,000 or less||$127,500 or less||12 months+||2% of guaranteed amount|
|$150,001 to $700,000||$112,500.75 to $525,000||12 months+||3% of guaranteed amount|
|$700,001 to $5 million||$525,000.75 to $3.75 million||12 months+||3.5% for the first guaranteed $1 million, 3.75% for all guaranteed portions over $1 million|
|Short term loans||Varies||Less than 12 months||0.25% of guaranteed amount|
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:
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.
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.
|SBA loan type||Maximum loan amount||Rates||Uses||SBA guarantee fee|
|SBA 7(a) loans||$5 million||Up to 11%||Working capital, refinancing debt, equipment, fixtures, renovations, inventory, starting a business, buying land or buildings, construction, expansion.||0.25% to 3.75%|
|SBA Express loans||$500,000||For loans under $50,000: Prime rate + 6.5%|
For loans over $50,000: Prime rate + 4.5%
|Working capital, refinancing debt, equipment, fixtures, renovations, inventory, starting a business, buying land or buildings, construction, expansion.||Up to 3%|
|SBA 504 loans||$5.5 million||CDC portion: Typically 3% to 4%|
Bank portion: 11%
|Real estate and equipment.||0.5%|
|SBA CAPLine||$5 million||Up to 9.5%||Working capital, filling a contract, real estate, construction.||0.25% to 3.75%|
|SBA microloans||$50,000||Depends on the lender, but generally 8% to 13%||Working capital, equipment, supplies and other startup costs.||None|
|SBA Community Advantage loans||$350,000||For $50,000 or less: Prime + 6.5%|
Greater than $50,000 up to $250,000: Prime + 6%
Greater than $250,000 up to $350,000: Prime + 4.5%
|Working capital, refinancing debt, equipment, fixtures, renovations, inventory, starting a business, buying land or buildings, construction, expansion.||0.25% to 3.75%|
|SBA disaster loans||$2 million||4% to 8%||Covering rebuilding costs after a natural disaster that insurance doesn’t cover, economic loss if an employee is called on active military duty.||None|
|SBA 7(a) Small Loans||$350,000||Up to 9.5%||Working capital, refinancing debt, equipment, fixtures, renovations, inventory, starting a business, buying land or buildings, construction, expansion||0.25% to 3.75%|
|SBA International Trade||$5 million||Up to 9.5%||General-use financing for businesses actively involved in international trade or hurt by competition from imports.||3.5% to 3.75%|
|SBA Export Working Capital Program||$5 million||No SBA rate cap||Short-term working capital for exporters backed by invoices or other business assets.||3.5% to 3.75%|
Choose from one of these 10 most popular SBA loan programs:
The SBA 7(a) loan program is by far the most popular. While it’s easier to find lenders that offer them, they’re also more competitive.
The standard 7(a) loan doesn’t have any additional eligibility requirements, though your lender might. You might have to back your loan with collateral, depending on how much you borrow. And you’ll also need to provide a personal guarantee and down payment of around 20%.
SBA Express loans are a smaller version of standard 7(a) loans that you can get fast — the SBA takes just 36 hours to decide. It also has a reduced amount of paperwork, making it a better choice for businesses that don’t have months to wait for financing. Use the funds for just about any purpose, including working capital and real estate.
The SBA also offers an Export Express loan of up to $500,000 for small businesses involved in international trade. Rates and terms are the same. However, the SBA guarantees up to 90% of Export Express loans and can process the application as fast as 24 hours.
Also known as 504/CDC loans, this program is specifically for businesses looking to expand. It works a little differently than your typical SBA loan because they actually come from two lenders: a community development corporation (CDC) and a third-party lender (often a bank).
It also has additional eligibility requirements and size standards. This program is only open to established businesses, so startups need to look elsewhere.
The SBA CAPLine program offers both revolving and fixed lines of credit to small businesses. It works a lot like a 7(a) loan when it comes to rates, terms and fees.
The SBA microloan program is designed to offer startup funding and support to small businesses. It particularly focuses on women, low-income, veteran and minority entrepreneurs.
Unlike other SBA programs, there’s no guarantee. Instead, the SBA lends money to nonprofit lenders at a discounted rate, which they pass on to borrowers. These loans are often found at community development financial institutions (CDFIs) and microlenders.
The SBA Community Advantage program is a pilot set to either expire or get extended by September 30, 2024. It aims to promote economic growth in underserved areas and markets. Community Advantage lenders tend to overlook factors like poor credit or low revenue as long as your business benefits an underserved area.
These loans are only available through mission-driven lenders like CDCs and CDFIs. To find a lender near you, contact your local SBA office.
The SBA disaster loan program is unique in a few ways: It’s the only loan program that the SBA directly funds, and it’s available to both businesses and homeowners. It’s designed to help people recover from a natural disaster like a hurricane or flood and also provides funding for businesses that employ military reservists on active duty. You can apply for a disaster loan through the SBA website.
The SBA 7(a) small loans program is similar to the larger 7(a) program, but it comes with a lower maximum amount of $350,000. If you’re aiming for the SBA 7(a) loan to avoid putting up some collateral, just know that for small loans up to $25,000, lenders don’t have to take collateral — but anything higher and the lender must follow collateral procedures.
The SBA International Trade is for general-use financing for businesses actively involved in international trade or hurt by competition from imports. The maximum amount is $5 million, and the rate can reach up to 9.5% — however, you can negotiate with the lender for a lower rate.
The SBA Export Working Capital Program is for businesses that generate export sales but need extra capital. The line of credit lasts 12 months or less and has a typical turnaround time of five to 10 business days. However, there is no maximum rate, unlike other SBA programs — so watch out for that.
Find the right program for your business by asking yourself the following questions:
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.
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.
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.
These lenders have approved the highest volume of SBA 7(a) loans to date in 2023.
|Lender (State)||Approval Count||Approval Amount||Average Loan Size|
|The Huntington National Bank (OH)||2,602||$450,908,100||$173,293|
|TD Bank, National Association (DE)||1,237||$139,397,200||$112,690|
|Wells Fargo Bank, National Association (SD)||868||$160,513,300||$184,923|
|BayFirst National Bank (FL)||849||$165,078,800||$194,439|
|U.S. Bank, National Association (OH)||776||$95,125,800||$122,585|
|Newtek Small Business Finance, Inc. (NY)||617||$356,579,200||$577,924|
|Manufacturers and Traders Trust Company (NY)||609||$82,190,700||$134,960|
|JPMorgan Chase Bank, National Association (AZ)||488||$107,590,900||$220,473|
|Live Oak Banking Company (NC)||469||$688,015,700||$1,466,984|
|Readycap Lending, LLC (NJ)||379||$203,481,900||$536,892|
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:
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.
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.
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.
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.
A few SBA programs only offer financing through specific types of lenders:
Connection services can help you find an SBA-preferred lender your business can qualify with if you don’t know where to go first. Some, like SmartBiz, also provide loan packaging services to cut down on even more of the time it takes to apply for a loan.
Follow these steps to apply for an SBA loan:
Prepare to submit all or some of these documents when you apply for an SBA loan:
You might need to submit some or all of the following forms:
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.
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.
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.
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.
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.
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.
If you’re only a few days late on your loan repayment, you probably don’t need to worry. Typically, lenders have a grace period of 10 to 15 days before charging late payment fees.
Different lenders have different policies, however. Review your loan contract to find out when late fees apply and when it considers your loan in default.
Not sure you can qualify? Need funding fast? Consider one of these alternatives:
It’s hard to beat SBA loan rates and terms. But make sure you have the time to apply and meet the eligibility requirements.
Answers to commonly asked questions about SBA loans.
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.
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.
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 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.
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.
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