What is an SBA loan?

The U.S. Small Business Administration was created in 1953 to help Americans start, build, and grow their businesses. As an independent agency of the government, the SBA partners with both public and private organizations to deliver its services, including loans.

An SBA Loan is not a direct loan from the SBA itself. Rather, it is a loan that has been made by a commercial lending partner, but that the SBA has guaranteed for these partners and that has been structured according to SBA requirements. This helps to minimize the risk for both partners and borrowers. Only those without reasonable access to other funding sources are eligible for such a loan.

Because loan guarantee requirements and practices are dependent on the US Government, changes to policies or economic conditions may change lending terms.

You can apply for an SBA Loan if you are part of a U.S. territory including the United States, Puerto Rico, Guam and the U.S. Virgin Islands. If you are not part of any of these territories, there are a number of other funding opportunities available.

What types of loans does the SBA loan program offer?

The SBA offers a number of loan programs. Broadly speaking, they are divided into four main categories:

  1. General Small Business Loans 7(a) 
  2. Microloans 
  3. Real Estate and Equipment Loans: CDC/504 
  4. Disaster Loans 

Each of these categories has its own terms and will require an individual application. If “debt financing”—how we refer to these types of loans—is not a route you want to go down, the SBA offers a couple of other options, including a Surety Bonds program, a Venture Capital program and various grants.

Although the SBA does not provide grants to help a business start or grow, there are a number of government grants available for non-commercial organizations like non-profits and educational institutions.

Use the governmental financing search tool to find out what funding is available for your type of business or look into other ways to secure funding.

What can you use an SBA loan for?

Now you’ve decided an SBA loan is the right way to fund your business, your next step will be to figure out which SBA loan is right for you.

Consider: Do you need to purchase new land or equipment? Perhaps you want to purchase an existing business? Or maybe refinance existing debt? Whatever it is, knowing what you want and how much you need to achieve it, is essential.

Here are some of the things you can use an SBA loan for*:

  • Purchasing a business or expanding your existing business
  • Purchasing commercial real estate, including land and buildings
  • New construction or improvements to existing commercial buildings
  • Purchasing new or used equipment, supplies, machinery, etc.
  • New business development if you’re just getting started
  • Long-term and short-term working capital or debt consolidation

* Note: each category has its own requirements, varied minimum down-payments and different policies relating to collateral and interest rates.

If you’re seeking a loan due to unforeseen circumstances—like a natural disaster—you can use a disaster loan for:

  • Home and personal property repair or replacement (homeowners and renters are eligible)
  • Business property repair or replacement
  • Economic injury (businesses eligible)
  • Military reservists economic injury (businesses eligible).

If you are unsure about the right type of loan for your business, you can either continue reading our in-depth guide and then apply under the appropriate category on the SBA website, or you can use the SBA local assistance directory to find an SBA partner in your area who will be able to guide you to choosing the right loan.

Which type of loan is right for me?

Previously, we outlined the four general categories SBA loans fall into, including general loans, microloans, real estate and equipment loans, and disaster loans.

It’s a good idea to familiarize yourself with your different options before you apply for a loan, approach a lender to discuss options, or speak with an advisor.

You can also get a general overview of SBA loans by watching this video:

YouTube video

In this section we will take an in-depth look at the loans available through the SBA loan program.

The General Small Business Loan - 7(a) - Image by Ben Patterson for Bplans

The General Small Business Loan – 7(a) – Image by Ben Patterson for Bplans

1. General Small Business Loans 7(a)

The 7(a) loan category is the most common of all the SBA loans. It’s the one you’ll use to cover a broad spectrum of business needs, including such things as purchasing commercial property, purchasing equipment, refinancing debt and paying for various operational expenses.

Additionally, within this category are a number of specialized loans. These loans will cover such things as export and import business needs, rural business needs, short-term working capital needs, and more.

If you already operate a business, you are only eligible to apply for the General 7(a) loan if your business is an on-going for-profit operation and so long as your net worth does not exceed $15 million or an average net income greater than $5 million over the past two years.

If you do find that one of the specialized loans is more suited to your needs—for example, if you’re a rural business—take a look at the following categories:

Repayment terms, loan amounts, fees, and interest rates

There are different terms for repaying the general 7(a) loan, including: maturity terms, amortization, collateral

The maximum amount that can be borrowed under a 7(a) loan is $5 million. There is no minimum amount.

All SBA loans come with a guarantee fee which is based on the loan’s maturity (the date the loan is owned in full) and the dollar amount that has been guaranteed (not the total loan amount). The lender may initially pay this fee and later, at closing, pass it to the borrower to repay, or the funds needed to reimburse the lender may be included in the overall loan proceeds.

Recent changes and useful information:
  • Loans made after October 1, 2013 and that are under $150,000 have a zero percent fee.
  • Loans that exceed $150,000 and have a maturity of a year or less have a 0.25% fee (of the guaranteed portion of the loan only)
  • Loans with maturities of greater than a year and that fall between $150,000 and $700,000 have a 3% fee on the guaranteed portion of the loan.
  • Loans with maturities of greater than a year and that are over $700,000 have a 3.5% fee on the guaranteed portion.
  • For loans over $1 million, there is an additional 0.25% fee on the guaranteed portion of the loan.

Interest rates on 7(a) loans are negotiated by the SBA and the lending partner. The rates are composed of two parts—a base rate and an allowable spread.
The base rate is decided in one of three ways: a prime rate which is published in a daily national newspaper; London Interbank One Month Prime plus 3%; or SBA Peg Rate.

Lenders can add an allowable spread to the base rate to arrive at the final interest rate. These rates are capped by the SBA:

  • Loans with maturities of less than seven years can have a maximum spread of 2.25%
  • Loans with maturities of more than seven years can have a maximum spread of 2.75%
  • Loans processed through express procedures and of less than $50,000 may have higher maximum rates.

When it comes to guaranteeing loans, the SBA can guarantee:

  • 85% on loans of up to $150,000
  • 75% on loans of more than $150,000
  • 50% on express loans

The maximum amount that the SBA can guarantee is $3,750,000.

If you’d like to find out more about the general 7(a) loan, you can leave a comment below, or visit the SBA’s website.

Although Bplans does not provide legal advice, we can direct you to the appropriate center or resource.


Microloans – Image by Ben Patterson for Bplans

2. Microloans

Many small businesses, including our own LivePlan users, turn to the SBA for a microloan. This includes certain not-for-profit childcare centers as well. A microloan is a loan of no more than $50,000.

These loans are typically used to help start a business or expand a business. Other uses for microloans include:

  • Purchase of furniture, fixtures, equipment and machinery
  • Purchase of inventory and supplies
  • Working capital
Repayment terms, loan amounts, and interest rates

Microloans cannot be used to repay debt or to purchase real estate. If you are looking for a loan exclusively to purchase real estate, skip to the real estate and equipment loans below, otherwise apply for a general 7(a) loan if your needs are mixed.

While microloans are administered by specifically designated intermediary lenders, the funds are actually provided by the SBA.

The intermediary lenders will also be responsible for setting the interest rates on these loans, though you can typically expect to pay between 8% and 13%.

Microloan repayment terms will also vary according to different factors, though the maximum repayment term is currently set at six years.

Repayment terms are decided based on the following factors:
  • Planned use of the loan
  • The loan amount
  • The requirements determined by the lender
  • The needs of the small business owner

It’s also worth remembering that each lender will have its own credit requirements and will require some type of collateral as well as the personal guarantee of the owner.

If you’re not sure whether or not this is the right type of loan for your needs, use the SBA’s local assistance search tool to find a district office that can help you decide.


Real Estate & Equipment Loans – Image by Ben Patterson for Bplans

3. Real Estate and Equipment Loans: CDC/504

This loan is exactly as it sounds—a loan taken in order to purchase real estate or equipment; improve real estate/commercial property and construct, convert or renovate existing commercial property.

CDC stands for “Certified Development Company.”

In order to apply for a CDC/504 loan, you will need a business plan, management expertise and a “good character.”

You will also need to meet the following criteria:
  • Operate as a for-profit company.
  • Do business or propose to do business in U.S. Territories.
  • Have a net worth of less than $15 million and an average net income of less than $5 million for the two preceding years, after taxes.
  • Not be engaged in or looking to invest in rental real estate.
  • An ability to repay the loan on time and based on the projected operating cash flow of the business.
  • Be an eligible business—see the full list of eligible businesses here.
  • Plan to use the proceeds for the approved purpose like financing fixed assets (real estate and equipment).
  • Not have funds available from other sources—either personal or business sources.

It’s also worth noting that a CDC/504 loan cannot be used to purchase inventory, as working capital, to refinance, repay or consolidate debt, or for rental real estate investment purposes.

Repayment terms, loan amounts, fees, and interest rates

Loan amounts for the CDC/504 loan are determined by how the funds will be used based on which one of three goals they support:

  • Job creation (maximum loan amount of $5 million—with requirements/restrictions)
  • Public policy (maximum loan amount of $5 million or $5.5 million for small manufacturing—with requirements/restrictions)
  • Small manufacturing (maximum loan amount of $4 million—with requirements/restrictions)

For in-depth information on these three categories, you can visit the SBA website.

Typically, those assets that are being financed are considered the collateral. In addition, personal guarantees of the principal owners will also be required.

Loan terms can vary between 10 and 20 years and interest rates, according to the SBA, are fixed to an increment above the current market rate for five year and 10-year U.S. Treasury issues.

Fees come to around 3% of the total loan amount and may be financed with the loan.

To find a Certified Development Company to administer your CDC/504 loan, you can use the SBA’s local assistance tool. Be sure to select “Certified Development Company” when you are able to refine your search.

Disaster Loans - Image by Ben Patterson for Bplans

Disaster Loans – Image by Ben Patterson for Bplans

4. Disaster Loans

Disaster loans are low-interest loans provided to businesses of all sizes and types, and to homeowners and renters.

These loans can be used to repair or replace damaged or destroyed items in a declared natural disaster.

Such items might include:

  • Real estate
  • Business assets
  • Personal property
  • Machinery
  • Equipment
  • Inventory
At present there are four types of disaster loans:

1. Home and personal property 

  • May apply for up to $200,000 to replace/repair primary residence, not to upgrade!
  • Renters and homeowners may apply for up to $40,000 to replace/repair personal property damaged or destroyed in a disaster.

2. Business physical disaster 

  • May apply to borrow up to $2 million to repair or replace property, machinery, equipment, fixtures, inventory, and leasehold improvements.

3. Economic injury disaster loans 

  • May apply to borrow up to $2 million to help with operating expenses and to help meet financial obligations.

4. Military reservists Economic injury loans 

  • May apply to borrow up to $2 million to help a small business meet its ordinary and necessary operating expenses that it could have met had a key employee not been called-up to active duty in his or her role as a military reservist.
  • The loan amount will be dependent upon the actual economic injury as calculated by the SBA.

If you are unsure about your eligibility under this category, be sure to review the current declared natural disaster list.

Natural disasters include such events as:
  • Earthquakes
  • Severe storms
  • Flooding
  • Wildfires and building fires
  • Tornadoes
  • Civil unrest
  • Rockslides
  • Gas explosions
  • Commercial fishery failure
  • and many more.

Eligibility and repayment terms will be determined by your own circumstances and by the type of category you are applying under. If your disaster declaration is related to agriculture, review the Secretary of Agriculture disaster declarations list (the PDF download is sorted by state).

And, if you already have insurance, you will need to include this on your loan application as proceeds from insurance coverage will be deducted from the total damage estimate in order to determine the total amount you are eligible to borrow.

You can apply for a disaster loan on the SBA website. This is the fastest way to receive a decision. You can also submit an application by mail.

Is an SBA loan right for your business?

Have you been awarded an SBA loan before? Have you been denied? What do you recommend future borrowers look into before signing or before completing an application?

What do you wish you’d known before borrowing?

Do you recommend first speaking to someone at the SBA?

We’d love you to share best practice tips for completing an application!

This article is part of our Small Business Loan Guide and our Business Funding Guide: fund your business today, with Bplans. 

AvatarCandice Landau

Candice is a freelance writer, jeweler, and digital marketing hybrid.