The Small Business Administration (SBA) guarantees small business loans originated by approved lenders. SBA loans are difficult to qualify for but carry low interest rates up to ~9.75% and repayment terms up to 25 years. The 6 types of SBA loans are 7a loans, CDC/504 loans, CAPLines, Export loans, Microloans, and Disaster loans.
Our recommend SBA loan provider is SmartBiz. They offer SBA 7(a) up to $350k. If you have been in business 2+ years, are profitable, and have a credit score above 680, you can prequalify online in just a few minutes.
6 SBA Loan Programs
| SBA 7a Loans | (Most popular overall) Small businesses that need working capital up to $5 million. |
| SBA 504 Loans | Purchasing owner-occupied commercial real estate. |
| SBA CAPLines | Companies that need a line of credit that can be used over and over again. |
| SBA Export Loans | Export businesses needing to finance their export activity. |
| SBA Microloans | Businesses that need a smaller amount of working capital up to $50k. |
| SBA Disaster Loans | Companies that have been impacted by a declared natural disaster. |
Here are the six types of SBA loans in detail:
1. SBA 7(a) Loans
SBA 7(a) loans are the most common type of SBA loan. These loans go up to $5,000,000 and can be used for working capital, to refinance debt, or to buy a business, real estate, or equipment. Two popular loans, the SBA Express Loan and the SBA Advantage Loan, are part of the 7a loan program.
SBA 7a loans are right for most businesses looking to finance their working capital needs. These loans are what most people are referring to when they ask about SBA loans and can be used for pretty much any business purpose. SBA loans are popular because of their long repayment terms and low interest rates, which make 7a loans one of the most affordable working capital solutions.
SBA 7a Loans at a Glance
| Interest Rates | 7.25 - 9.75% |
| Loan Amounts | Up to $5 million |
| Repayment Terms | Up to 10 years for working capital loans Up to 25 years for commercial real estate loans |
| Minimum Requirements | 680+ Credit score (check yours for free) 10-20% Down payment Some collateral (loan doesn’t have to be fully collateralized) |
| Use of Loan Proceeds | Working capital Equipment purchases Refinance debt Buy a business or franchise Buy commercial real estate Leasehold improvements |
SBA 7(a) Loan Interest Rates & Terms
SBA 7a loans offer a variety of programs you can utilize that have a variety of uses. All of the rates and terms are similar, with small variations, such as the amount you can borrow.
Let’s take a look at typical SBA 7(a) costs and terms:
SBA 7a Rates
- Interest Rates: 2.75% + Prime (Typically 5-10% but you can check the current SBA loan rates)
- Origination Fee: 0.5 – 3.5%
- Loan Packaging Fee: $2k – $4k
- SBA Guarantee Fee: 3 – 3.5% (Waived if loan amount is under $150k)
The interest rate depends on a variety of factors, such as your credit score and the length of the repayment term, and it could be fixed or variable. The SBA limits the rate that lenders can charge for an SBA 7(a) loan with a maximum rate set at 2.75% plus the prime rate.
In addition to interest, you’ll have to pay fees on your SBA loan, including the SBA guarantee fee (for loans above $150K), referral and packaging fees, and closing costs. These fees could fall anywhere from 3 – 10.5% or more, but most of them are typically rolled into your total loan.
SBA 7a Loan Terms
- Loan Amount: Up to $5 million
- Repayment Terms: Up to 10 years (25 years for commercial real estate)
- Repayment Cycle: Monthly
- Time to Funding: 30 – 90+ days
While the SBA does not set a minimum loan amount, most lenders will not consider loans under $30,000. You can try out our SBA loan calculator to estimate what your monthly payments would be with an SBA 7a loan, depending on the loan amount and repayment term you’re targeting.
SBA 7(a) Loan Requirements
SBA 7(a) loans are available to both startups and more established small businesses. To qualify for an SBA 7(a) loan, you will generally need to meet these minimum requirements:
- Credit Score: 680+ (check your score for free here)
- Other Requirements: No recent bankruptcies, foreclosures, or tax liens
- Collateral: While the SBA will not refuse to guarantee a loan due to insufficient collateral, a lender is less likely to approve a loan that isn’t backed by sufficient collateral. Loans under $25K don’t need to be collateralized
- Down Payment: 10%+ down payment if you are using the loan to purchase a business, commercial real estate, or equipment
Startups will need to not only meet the above requirements but they’ll also need to show the lender that they have sufficient industry or business management experience and provide a strong business plan. Your business plan will need to have a detailed written analysis, and you’ll need to also to provide financial projections for your business’s performance over the next 3-5 years.
In our experience, it is very difficult for anyone other than the best borrowers (700+ credit score, high net worth, real estate with significant equity) to get approved for an SBA loan as a startup. If this is you, then you should read our article on how to get an SBA startup loan.
Perhaps the largest hurdle for startups is that most SBA lenders will require an equity injection or down payment of at least a 20-30% of your total project costs ($20-$30 for every $100 you want to borrow). That can be a lot for many entrepreneurs. Guidant Financial can help startups put together their SBA loan applications, find lenders most likely to work with you, and find creative ways to meet the down payment requirements. For a free startup loan consultation, click here.
In addition to the credit requirements listed above, the SBA also has other eligibility requirements. These requirements include being defined as a small business and being able to demonstrate the need for the loan proceeds. For a comprehensive list of eligibility requirements, visit the SBA’s website.
If you’ve been in business for 2+ years, have a 680+ credit score, and are profitable then you could qualify for an SBA 7a loan from SmartBiz, our recommended SBA loan provider. You can prequalify online in less than 5 minutes and get funded in as quick as 30 days.
How to Apply for an SBA 7(a) Loan
Applying for an SBA loan is a time consuming and complicated process. It will take a lot of trips to your bank, or lender, and requires an extensive list of documentation. Generally, an SBA loan can take 45 – 120+ days before you ever get funded, if you’re approved at all. You can learn about the step-by-step process by reading our article on how to apply for an SBA loan.
When applying for an SBA loan, it’s important to find a lender that is not only well versed in these loans, but one that originates a lot of these loans every year. This will increase your chances of getting funded and save you time and energy from applying with multiple lenders. You can read our article to find the 100 best SBA lenders.
If you’re ready to start your application, we recommend the streamlined process at SmartBiz. Instead of waiting for months to get funded, SmartBiz can help you get the funds you need in as quick as 30 days. They can prequalify you through a simple online application that takes only a few minutes.
SBA Express Loan Program
One drawback of the standard SBA 7(a) loan is that the application process can take months. In order to address this problem, the SBA offers an expedited processing service called the SBA Express Loan, which guarantees a response to an application within 36 hours (note: this means the SBA will notify your lender within 36 hours if your application has been approved, but it may take significantly longer for your lender to process and fund your loan).
The SBA Express Loan generally follows the same guidelines as the standard SBA 7(a) loan, but the maximum loan amount is $350,000, and only select lenders are qualified to participate. The SBA guarantees a maximum of 50% for SBA Express loans which means the interest rates on an SBA Express loan can be a bit higher than other 7a loans.
SBA 7(a) Advantage Loans
The SBA’s Community Advantage Loans are designed to help businesses in underserved markets get access to financing. These programs are available to borrowers who meet the SBA eligibility criteria but are not able to qualify for a standard SBA 7(a) loan because of low revenues, low collateral, or other reasons.
Under the Community Advantage Program, the SBA offers the same expedited application and approval process that comes with an SBA Express loan but they’ll guarantee 85% of loans up to $250,000. This further reduces the risk to lenders and gives them more motivation to lend these loans over the SBA Express program. More information and a list of Community Advantage lenders can be found on the SBA’s website.
2. CDC/SBA 504 Loans
The CDC/SBA 504 loan program is for small businesses looking to buy or build owner-occupied commercial real estate. The program pairs two lenders together to fund these projects, a bank or traditional lender and a community development corporation (CDC). The bank lends up to 50% and the CDC lends up to 40%, while the remaining 10% of the project’s costs come from the borrower, typically in the form of a cash down payment.
CDC/SBA 504 loans require that the business occupy at least 51% of the commercial space. So, while this is a great opportunity to rent out 49% of your new building to tenants, it’s only right for companies that actually expect to use the space as one of their key locations.
CDC/SBA 504 Loans at a Glance
| Interest Rates | 4.95 - 5.18% |
| Loan Amounts | Up to $14 million |
| Repayment Terms | 10 or 20 years |
| Minimum Requirements | 680+ Credit score (check yours for free) 10% Down payment Meet job creation or public policy goals Real estate must be at least 51% owner occupied |
| Use of Loan Proceeds | Owner occupied commercial real estate purchase, construction, or renovation Purchase of other fixed assets |
CDC/SBA 504 Loan Interest Rates & Terms
The two loans involved in the 504 loan process will have different rates, terms, fees, and limits. Combined, these rates will make up your total SBA/CDC 504 loan rates. Generally you’ll pay a total of 4-6% interest on your entire loan with repayment terms as long as 25 years.
CDC Portion of the SBA 504 Loan
The CDC loan can cover up to 40% of the total project cost, and the SBA sets limits on the interest rates, terms, and fees given by the CDC. The loans must have terms of 10 or 20 years and the interest rates generally look like this:
- Current 10-year CDC loans: ~4.95%, fixed
- Current 20-year CDC loans: ~5.18%, fixed
The interest rate is pegged to 5-year and 10-year US Treasury rate with 10-year term loans, adding .38% to a 5-year treasury and 20-year term loans adding .48% to a 10-year treasury. Plus there are ongoing fees.
Bank/Non-Bank Lender Portion of the SBA 504 Loan
The SBA does not set limits on the rates, terms, and fees for the traditional lenders, which leaves the details of the loan up for negotiation. In general, interest rates will be between 5% – 9.75% and will have a reset point. Typically the loan will have a 5-10 year term but will be amortized over 20-25 years. You can also check current CDC rates on our SBA Loan Rates page.
The combined maximum loan size for a project is $14 million. However, while there is a limit on how much can be loaned per project, borrowers can take out multiple SBA 504 loans at the same time for different projects. This raises the maximum amount to $20 million.
If you’re not wanting to work with a CDC, then you should look at getting an SBA 7a commercial real estate loan. Northeast Bank offers rates as low as 5.5% on loans up to $5,000,000. Get pre-qualified by filling out a short online form.
CDC/SBA 504 Loan Requirements
To qualify for a CDC/SBA 504 loan, your business must meet these minimum requirements:
- Credit Score: 660+ (check yours for free)
- Down Payment: 10%+ of the project cost
Additionally, you’ll be required to not have the needed funds available from other sources, not be engaged in the investment of rental real estate and you’ll need to meet these other requirements:
- Have a tangible net worth less than $15 million
- Be able to repay the loan on time from the projected operating cash flow of the business
- Building must be 51%+ owner occupied
If you’re in the market for commercial real estate and will occupy at least 51% of the space, you may be a good candidate for an SBA 504 loan. We recommend working with Liberty SBF for SBA 504 loans. If you have a credit score above 680, have been in business 3+ years, are profitable, and need more than $500k, you should speak with Liberty SBF today.
How to Apply for a CDC/SBA 504 Loan
The application process is similar to the 504 loan as it is for the SBA 7a loan in the amount of paperwork and time it takes to get funded. You’ll also have to provide additional paperwork on the property you’re funding. Read our in-depth guide to SBA 504 loans for more details.
3. SBA CAPLines Program
The SBA CAPlines program has five SBA line of credit products that are designed to provide up to $5 million to help small businesses meet their short-term and cyclical working capital needs. SBA CAPLines are best for businesses that need a revolving line of credit to make recurring payments or to prepare for unexpected expenses.
According to Terri Dennison, District Director for the SBA Georgia Office,
“The SBA’s CAPLines Program addresses the short-term and cyclical working capital needs of a business. Companies requiring upfront expenditures for an extended period of time before receiving payment are ideal candidates. Firms with significant fluctuations in cash flow over the course of the business cycle can benefit as well.”
“The SBA’s CAPLines Program addresses the short-term and cyclical working capital needs of a business. Companies requiring upfront expenditures for an extended period of time before receiving payment are ideal candidates. Firms with significant fluctuations in cash flow over the course of the business cycle can benefit as well.”While technically SBA CAPLines can be issued as stand-alone products, typically these are only offered to borrowers in conjunction with a traditional SBA 7(a) loan or a CDC/SBA 504 loan. Very well qualified borrowers or those businesses that have potential to bring in a great deal of other business to a bank may be able to find a lender willing to issue a stand-alone CAPLines line of credit, but this is less common.
SBA CAPLines Program at a Glance
| Interest Rates | 5.75 - 8.25% |
| Loan Amounts | Up to $5 million Small asset-based lines have a limit of $200K |
| Repayment Terms | Up to 5 years |
| Minimum Requirements | 660+ Credit score (check yours for free) Business must pledge accounts receivable, inventory, purchase orders, or contracts as collateral for loan. For the seasonal line of credit program, the business must be at least 1 year old and show a seasonal pattern of revenue. |
| Use of Loan Proceeds | Short term or seasonal working capital needs To fulfill contracts or purchase orders |
SBA CAPLines Loans Interest Rates & Terms
The SBA CAPLines program has interest rates that mirror the SBA 7(a) loan program between 5-10%; you can read our article to find the current SBA loan rates. Remember that with a line of credit you only have to pay interest on what you borrow, and you’re not required to draw on your line if you don’t need it. This makes it a great revolving option for businesses with fluctuating working capital needs.
Ongoing maintenance fees for an SBA line of credit through the CAPLines program will be higher than ongoing fees with an SBA 7(a) loan. This is because the lines of credit are extended based on short-term assets, like invoices and contract, which require continuous verification.
The most you can borrow through the SBA CAPLines program is $5 million. The exception to the is the Small Short-Term Line of Credit which has significantly lower servicing requirements but also has a credit limit of $200k. Any SBA line of credit through the CAPLines Program will have a term of 5 years or less.
SBA CAPLines Minimum Requirements
Qualifications for the SBA CAPLines program are the same as they are for the SBA 7(a) program with a few additions. You will generally need to meet these requirements:
- Credit Score: 660+ (check your score for free here)
- Other Requirements: No recent bankruptcies, foreclosures, or tax liens
- Collateral: Short term collateral like invoices or project contracts
- Down Payment: 10%+
- Personal Guarantee: 20%+ Guaranteed by owners
Additional requirements will vary depending on the SBA line of credit that you’re applying for.
The SBA Seasonal Line of Credit requires that your business must be in operation for at least 1 year and that you demonstrate the seasonal nature of your business.
How to Apply for an SBA CAPLines Line of Credit
The application process for an SBA line of credit through the CAPLines Program is similar to that of an SBA 7(a) loan. Lenders, like banks and credit unions, that participate in the SBA 7(a) program are likely to also participate in the CAPLines program.
However, as we mentioned earlier, these lines of credit can be difficult to get as standalone products. Typically you’ll need to bring a lot of other business to a lender to have them find underwriting an SBA line of credit to be worth it. Read our article on how to apply for an SBA loan to learn more about the application process.
The five types of SBA CAPLines are:
1. Seasonal Line of Credit
SBA line of credit used for seasonal increases in accounts receivable, inventory needs, or related increased labor costs. Up to $5,000,000.
2. Contract Line of Credit
SBA line of credit used for the materials and labor associated with assignable contracts. Up to $5,000,000.
3. Builders Line of Credit
SBA line of credit for contractors that build/renovate residential or commercial buildings used for materials, equipment, permitting, labor, and even land associated with a project. Up to $5,000,000.
4. Standard Asset-Based Line of Credit
SBA line of credit that allows small businesses to convert short-term assets (like pending invoices) into cash. Up to $5,000,000.
5. Small Asset-Based Line of Credit
SBA line of credit that that allows small businesses to convert short-term assets (like pending invoices) into cash. Stricter servicing requirements are waived by the SBA in return for offering a smaller credit line. Up to $200,000.
4. SBA Export Loans
SBA Export loans are designed to help American small businesses expand their export activities, engage in international transactions, and enter new foreign markets. They’re best for businesses engaging in international business and those that want to grow their business in those areas. There is no limit to the amount you can borrow with an SBA Export loan and the rates typically fall in the 8 – 10% range.
SBA Export Loans at a Glance
| Interest Rates | SBA Export Working Capital Loan: No Limit (but monitored for reasonableness) SBA Export Express Loan: 8 - 10% International Trade Loan: 5.75 - 8.25% |
| Loan Amounts | Up to $5 million SBA Export Express: up to $500K |
| Repayment Terms | SBA Export Working Capital Loan: Up to 7 years SBA Export Express Loan: Up to 3 years International Trade Loan: Up to 25 years |
| Minimum Requirements | 660+ Credit score (check yours for free) Business must be involved in exporting goods or services to foreign countries For the Express Export loan, the business must be at least 1 year old |
| Use of Loan Proceeds | To develop or expand small business exporting |
SBA Export Loan Interest Rates & Terms
SBA Export loans vary in both interest rates and terms, based on what type of Export loan to which you apply. You can qualify for rates as low as 6% and terms as long as 25 years. These Export loans have the largest range of terms and costs of any type of SBA loan.
Let’s take a look at typical SBA export loan costs and terms:
SBA Export Loan Rates
- Interest Rates: 6 – 10% (not restricted)
- Origination Fee: 0.5 – 3.5%
- Loan Packaging Fee: $2k – $4k
- SBA Guarantee Fee: 3 – 3.5% (Waived if loan amount is under $150k.)
The SBA Export Working Capital loans do not have a restricted interest rate. In theory this means the rate could be very high, but in practice the rates are usually in the range of 6-10%. The SBA reviews each deal and must deem the rates “reasonable.” The term on this loan is most often under 12 months, but can be up to 3 years.
The SBA International Trade Loans have rates between 6.75 % and 9.25 %, which are the same rates as SBA 7(a) loans. Terms can be up to 25 years.
SBA Export Loan Terms
- Loan Amount: Up to $5 million
- Repayment Terms: Up to 7 years
- Repayment Cycle: Monthly
- Time to Funding: 30 – 90+ days
SBA Export Loan Requirements
Qualifications for an SBA Export Loan closely resemble the requirements for an SBA 7(a) loan with a few variations based on which SBA Export loan you get. In general, you’ll need:
- Credit Score: 660+ (check your score for free here)
- Collateral: Short term collateral like invoices or project contracts
- Personal Guarantee: 20%+ Guaranteed by owners
- Other Requirements: No recent bankruptcies, foreclosures, or tax liens
In addition, the Export Express Loan requires businesses be at least one year old and export products overseas. You don’t necessarily have to have a year’s history in exporting so long as your principles can show significant experience exporting.
The SBA International Trade Loan Program requires you to show that you can develop new foreign markets, expand existing foreign markets, and/or that your small business was adversely affected by imports and that the loan will increase your competitiveness.You can learn more by reading our article on Import-Export Financing.
How to Apply for an SBA Export Loan
You can apply for an SBA Export Loan with most SBA-approved 7(a) lenders.
If exports make of some of your business but are not a major portion, an SBA 7(a) loan will offer almost all of the same benefits. We recommend working with SmartBiz for SBA 7(a) loans because their speed and efficiency make what can be a grueling process very easy.
The 3 types of SBA Export loans are:
1. SBA Export Express Loan
Streamlines funding up to $500k in working capital to promote small businesses with export activities. Terms up to 7 years.
2. SBA Export Working Capital Loan
Funding up to $5 million in working capital to fund export transactions with long when the small business has a purchase order from a foreign customer. Terms typically under 12 months, but up to 3 years.
According to Terri Dennison, District Director of the Georgia SBA office,
“This program helps small businesses meet short-term working capital needs in export transactions. They can apply for an EWCP line of credit before finalizing the deal, better positioning them in negotiation of export payment terms.”
3. SBA International Trade Loan Program
Funding up to $5 million in working capital and/or fixed assets for businesses that export or for businesses negatively impacted by imports. Terms up to 25 years.
5. SBA Microloan Program
The SBA Microloan program provides loans to nonprofit intermediary lenders who in turn lend amounts under $50,000 to for-profit small businesses and nonprofit child care centers. The SBA does not guarantee any portion of the loans made under the SBA Microloan program. Microloans have terms up to 6 years and the average size is $14,215.
According to Terri Dennison, District Director of the Georgia SBA office,
“The SBA microloan program is ideal for home-based businesses, the self-employed, and others whose capital needs are smaller than what the conventional business loan calls for. Microlenders also provide the training and technical assistance crucial to longer term business success.”
The nonprofit intermediaries can borrow up to $750k from the SBA in its first year and up to $1.25 million each year after that but can have no more the $5 million borrowed at any one time. In 2016, only $58 million was issued in microloans.
SBA Microloan Program at a Glance
| Interest Rates | 8 - 13% |
| Loan Amounts | Up to $50K |
| Repayment Terms | Up to 6 years |
| Minimum Requirements | 640+ Credit score (check yours for free) Typically need to have some collateral Non-profit childcare centers are eligible in some cases |
| Use of Loan Proceeds | To start or expand a small business Can’t be used to refinance debt or buy real estate |
SBA Microloan Interest Rates & Terms
The partner institutions set their own interest rates according to the creditworthiness of the borrower and the specifics of the startup or small business. However, on average, the interest rates range from 8 – 13%. You can borrow up to $50,000 with an SBA microloan, but the average loan size is currently $14,215 and the maximum loan term is 6 years.
Let’s take a closer look at SBA Microloan costs and terms:
SBA Microloan Rates
- Interest Rates: 8 – 13%
Your lender will also require certain packaging and closing fees that will vary.
SBA Export Loan Terms
- Loan Amount: Up to $50k
- Repayment Terms: Up to 6 years
- Repayment Cycle: Monthly
- Time to Funding: 30 – 90+ days
Note: The rates and terms of SBA Microloans are similar to those with most peer-to-peer loans. However, peer-to-peer loans can be approved in minutes without much paperwork, whereas SBA Microloans can take months to get approved and require extensive documentation.
SBA Microloan Requirements
SBA Microloan qualifications will vary from intermediary to intermediary. Unlike most of SBA loan programs, the SBA leaves qualifications up to the intermediary which set all eligibility requirements and make all credit decisions.
The basic requirements to qualify for an SBA Microloan are:
- Credit Score: 640 (check yours for free)
- Collateral: Some is required but the amount varies by lender.
- Personal Guarantee: Required
The intermediary lender in the SBA microloan program has a little more flexibility in determining your creditworthiness than large lending institutions. However, they still need to feel extremely confident in your ability to repay the loan.
How to Apply for an SBA Microloan
To apply for an SBA microloan you must work with an SBA-approved intermediary in your area. Here’s a list of SBA-approved intermediaries. While SBA Microloans are smaller in size, they typically take just as long as SBA 7(a) loans to obtain, which can mean several months.
For a faster alternative with similar rates and terms, those with credit score above 660 can look into a peer-to-peer loan. You can get funded in a matter of days. Seeing what you’re pre qualified for with Lending Club takes just a few minutes.
6. SBA Disaster Loans
SBA Disaster loans are used for recovery from a declared physical or economic disaster. Each Disaster loan can be used differently and you can apply for multiple types of loans at the same time to meet your needs. These are best for businesses that have been negatively impacted by a disaster and those that can provide evidence of that negative impact.
SBA Disaster Loans at a Glance
| Interest Rates | 4 - 8% |
| Loan Amounts | Up to $2 million |
| Repayment Terms | Up to 30 years |
| Minimum Requirements | 660+ Credit score (check yours for free) Your business must have suffered a physical or economic damage from a disaster Your business must be located in an SBA declared disaster area For Military Reservist loans, an essential employee must have been called to active duty |
| Use of Loan Proceeds | To repair or replace damaged property Working capital Operating expenses |
SBA Disaster Loan Interest Rates & Terms
The rates and terms will vary based on the type of disaster loan. All of the SBA disaster loans available offer rates as low as 4% and you can borrow up to $2 million.
Let’s take a look at the rates and terms of an SBA disaster loan:
SBA Disaster Loan Rates
- Business Physical Disaster Loan Rates: 4 – 8%
- Economic Injury Disaster Loan Rates: Less than 4%
- Military Reservist Economic Injury Loans: 4%
Your lender will also require certain fees and closing costs in addition to these rates.
SBA Disaster Loan Terms
- Loan Amount: Up to $2 million
- Repayment Term: Up to 30 years
- Repayment Cycle: Monthly
The SBA will determine the repayment time on a case-by-case basis depending on your ability to pay back the loan.
SBA Disaster Loan Requirements
The qualifications for each type of SBA Disaster Loan are slightly different. One key difference shared by all of them is that you will be applying for a loan when your business may not be in great shape. Despite this fact, the SBA still requires that:
- Credit Score: No specific requirement, but typically 640+. Applicants just need to have an acceptable credit history with no recent bankruptcies, foreclosures, tax liens.
- Other Requirements: Applicants can show an ability to repay the loan
- Collateral: Required
After those common requirements are met, qualification is based on what injury your business has suffered. You may be eligible for an SBA Business Physical Disaster Loan if your business has been physically damaged by a disaster that is in a declared disaster area.
You may be eligible for an SBA Economic Injury Disaster Loan if your small business has suffered substantial economic injury as a result of a disaster and are unable to meet your normal operational expenses.
You may qualify for an SBA Military Reservist Economic Injury Loan if an essential employee is called for active military duty and the loss results in an inability to meet normal operating expenses. If the business is already covered by key man insurance or other business interruption insurance, the amount of the loan will reduce by the amount of coverage.
How to Apply for an SBA Disaster Loan
Before applying for an SBA Disaster Loan, verify that the disaster impacting your business qualifies for SBA Disaster loan support by checking the SBA’s disaster database. If believe you’ll qualify, apply for an SBA disaster assistance loan online at the SBA’s website.
There are 3 types of SBA Disaster loans you can apply for are:
SBA Business Physical Disaster Loans (BPDLs)
Long-term, low-rate loans designed to help businesses that suffered physical losses and damages due to a declared disaster replace or repair that property not covered by insurance. Do not need to be a for-profit business.
SBA Economic Injury Disaster Loans (EIDLs)
Short- to medium-term working capital loans to help businesses that have suffered significant economic injury meet normal operating expenses. You do not need to be a for-profit business.
SBA Military Reservists Economic Injury Loans (MREIDLs)
Short- to medium-term working capital loans to help businesses that lose an essential employee due to being called-up for active military service meet normal operating expenses.
Comparing Types of SBA Loans
Each SBA loan program has similarities in purpose but they each cater to a different type of borrower. Let’s take a look at the comparison of each loan program based on how many loans were given during the SBA’s 2016 fiscal year:
The total number of loans given out in 2016 is overwhelmingly dominated by the general SBA 7a loans. The trend is the same with the total amount of money borrowed by loan type. The microloan program, which focuses on loans of $50K or less, is the one big difference when comparing total number of loans to the total amount of money borrowed. The amount each program originated is shown in the graph below.
Now that you have a detailed overview of the six primary kinds of SBA loans, and the frequency of funding for each, it’s important to understand the difference between SBA loans and traditional bank loans.
How SBA Loans Work: SBA Loan vs. Bank Loan
The difference between an SBA loan and a conventional business loan from a bank is the SBA guarantee.
Contrary to what many people think, the SBA itself does not issue loans. Banks, credit unions, community development organizations, microlending institutions, and other partners actually make the loans. For qualifying loans, the SBA guarantees part of their repayment. The maximum guarantee is 85 % for loans under $150,000 and 75 % for loans over $150,000.
The SBA guarantee reduces the risk for lenders, allowing lenders to make loans to businesses that they would otherwise not lend to. For example, businesses with insufficient down payments or collateral for conventional bank loans may be able to qualify for a loan that’s backed by an SBA guarantee. Similarly, borrowers usually receive loans with lower interest rates and longer repayment terms than they would with conventional commercial loans.
The trade off is that the SBA, as a federal agency, is promoting certain policy agendas. This results in SBA loans having strict requirements that the borrower must meet in order to qualify for the loan, including how the proceeds of the loan can be used.
Navigating these requirements and the accompanying paperwork can be difficult and is the main reason people think of SBA loans as slow and hard to get. Some of the best SBA lenders, like SmartBiz, have streamlined this process and drastically cut down paperwork and application times. In fact, SmartBiz routinely closes SBA loans in 2-3 weeks.
6 SBA Loan Programs: Article Recap
| SBA 7a Loans | These loans, as large as $5 million, can be used for working capital, to refinance debt, or to buy a business, real estate, or equipment. The 7a program includes SBA Express Loans and SBA Advantage Loans | Rates: 7.25 - 9.75% Terms: 7-year, 10-year, and 25-year terms are most common Qualifications: 680+ credit, 10% down payment, and some collateral |
| CDC/SBA 504 Loan | This program combines a loan from a nonprofit CDC with a loan from a bank to create a long term, low interest rate loan for up to $20 million for the purchase of owner occupied commercial real estate and heavy equipment | Rates: 4.71 - 5.06% Terms: 10 years or 20 years Qualifications: 680+ credit, 10% down payment, meet job creation/retention requirements |
| SBA CAPLines Program | SBA lines of credit to meet short-term and seasonal working capital needs. There are 5 types of these lines of credit. They can be fixed or revolving lines and otherwise adhere to SBA 7a rules. | Rates: 5.75 - 10% Terms: Up to 5 Years Qualifications: 660+ credit score, short-term collateral like invoices or assignable contracts |
| SBA Export Loans | Designed to help small businesses fund new exporting operations and offer cash flow solutions to small business so they can offer more flexible terms to their international customers. | Rates: 5.75 - 10% Terms: Up to 25 years Qualifications: 660+ credit and involved in exporting goods or services to foreign countries |
| SBA Microloan Program | Issues through nonprofit, community-based organizations in amounts up to $50K. Microloans cannot be used to refinance debt or purchase real estate. | Rates: 8 - 13% Terms: Up to 6 years Qualifications: 640+ credit and some collateral |
| SBA Disaster Loans | Up to $2 million available to small businesses and organizations that are located in a declared disaster zone and suffered damage to property or economic losses. Or businesses that lose a key employee who is a military member and is called to active duty. | Rates: 4 - 8% Terms: Up to 25 years Qualifications: 660+ credit score and ability to repay the loan |
Bottom Line – Types of SBA Loans
Hopefully you now have enough information about each of the 6 main types of SBA loans to help you decide which one is right for you. If you don’t think any of the SBA loans are right for you, or if you don’t qualify, there are plenty of other financing options available that might help you get the funds your business needs.
If you have a credit score above 680, have been in business for 2+ years, are profitable, and need up to $350K, we recommend applying with SmartBiz for a streamlined SBA 7a loan. They can prequalify your application online in minutes and get you funded in as quick as 30 days.
david
i had a spa loan long time ago that went to default and i lost the business
Can i ever get sea loan again
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Hi David,
The SBA typically can’t provide assistance to businesses or owners with a prior government loss. If the SBA took a loss on your loan (e.g., your debt was settled for less than the full amount), then you fall into this category. On a case-by-case basis, the SBA can waive this exclusion for good cause. This is something you should discuss with your SBA lender. If you’re still looking for a lender, a great place to start is with our list of the best SBA lenders. Best wishes!
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Tim
Hi Jeff, only thing I don’t get is the ‘build-up’ of the loan and the part guaranteed by the SBA. In the case of the 504, the SBA provides up to 40%, and the bank up to 50%. Is only the 40% guaranteed by the SBA? And then; the entire amount of the 40% or 75% (usual SB guarantee rate) of that 40%? Does the SBA supply money in the case of other loan types as well, or does it just guarantee 85-75%? I’m writing an essay on government guarantees, hence the specific questions 😉
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Hi Tim!
Great questions! Sorry for the delay in responding. An SBA 504 loan is really two loans, one from a lender and the other from a CDC. The SBA’s guarantee is on the full CDC loan, which can represent up to 40% of the total financing package. This is different from other types of SBA financing, where there is one loan and the SBA guarantees a portion (up to 85%). Good luck with your continued research!
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Stewart
You state here the maximum loan size for a CDC 504 loan is $14,000,000. That seems to be different that what the SBA.gov site says.
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Hi Stewart.
Thanks for pointing this out in an effort to help. However, we state in the opening section that a 504 loan goes up to $20 million, which is what we believe they typically max out at with most lenders. However, in order to get to these loan sizes you’ll likely have to have some experience with the lender. In the 504 section below that we put $14 million in there because this is the max loan for brand new borrowers from the recommended provider we point you to. If instead you’re referring to the $5 million debenture you’re forgetting about the CDC portion of the loan, and the portion of the loan a lender is willing to lend above and beyond the SBA debenture. There are no project maximums for SBA 504 loans.
Best,
Jeff
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Ishan Jetley
Great explanation of the different SBA loan types. What loan type would you recommend for a construction company?
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Hi Ishan!
The type of loan you’ll require through the SBA loan program is going to greatly depend on what you plan on using the funds for and what collateral you potentially have to put down. The majority of businesses looking for working capital, or for funds to buy a business, are going to find the SBA 7a loan as their best choice. Knowing nothing else other than the fact you’re a construction company, I would say you should look into the 7a loan. However, knowing more about your business and the use of funds will help you get a more defined answer. Good luck!
Best,
Jeff
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Marcus Mavakala
Very good job explaining the different SBA LOAN PROGRAMS. As a SBA LOAN BROKER for the last 13 years I have to agree this is the most complete explanation on SBA loans I’ve seen so far.
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Hi Marcus,
I’m glad you liked the article. Thanks for reaching out.
Best,
Ian
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