SBA Loan Types, Pros and Cons & How to Apply

⏰ Estimated read time: 10 minutes
Here’s an overview of how SBA loans work, the types of SBA loans that are available, what each loan type can be used for and how to get SBA financing for your small business.
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
An SBA loan is a small-business loan that can help cover startup costs, working capital needs, expansions, real estate purchases and more. This type of financing is issued by a private lender but backed by the federal government, specifically the Small Business Administration.
The SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in a company. This guarantee puts you and your personal assets on the hook for payments if your business can’t make them.
Both the government guarantee and the personal guarantee reduce the risk for lenders — making them more willing to work with small businesses.
Once you’re approved for an SBA loan, your lender is responsible for closing the loan and disbursing the loan proceeds. You repay the lender directly, usually on a monthly basis.
Here’s a summary of the most common types of SBA loans.
Working capital, expansion and equipment purchases.
Fast funding for working capital, expansion and real estate and equipment purchases.
Up to $5 million (up to $5.5 million for select projects).
Purchase long-term, fixed assets like land, machinery and facilities.
Program |
Loan size |
Purpose |
---|---|---|
Up to $50,000. |
Working capital, inventory, supplies, equipment and machinery. |
|
Up to $2 million. |
Repair physical damage due to a declared disaster and cover operating expenses. |
|
Up to $5 million. |
Flexible working capital line of credit to support a wide variety of small-business needs. |
|
SBA Export Working Capital loans |
Up to $5 million. |
Working capital to support export sales. |
SBA Export Express loans |
Up to $500,000. |
Expedited funding to enhance a business’s export development. |
SBA International Trade loans |
Up to $5 million. |
Long-term funding to expand export sales or modernize to contend with foreign competitors. |
Competitive rates
Note that the annual percentage rate on a loan is different from the interest rate. The APR is a percentage that includes all loan fees in addition to the interest rate.
14
%, while major online small-business lenders that don’t offer SBA loans have loans with APRs as high as 99%.
Low fees
Longer terms
Another perk of SBA loans is that you get more time to repay them, which means you’ll have more money available for other business needs. The loan term will depend on how you plan to use the money. The current maximum maturities are:
Large loan amounts
These are much larger loan amounts than are typically offered by online lenders or even banks — who generally max out at $500,000 and $1 million, respectively.
Hard to qualify
Slow to fund
Depending on your lender and the type of SBA loan you apply for, it can take anywhere from one to three months to access funds. Plus, the SBA loan application process is detailed and requires extensive documentation.
Require some form of collateral
What is required to qualify for an SBA loan?
SBA loan requirements vary based on the lender and the particular loan program, but you’ll typically need several years in business and a good credit history to qualify. Additional criteria from the SBA, include:
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You must be a for-profit business operating in the U.S.
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The business owner must have invested equity, such as their own time and money, into the business.
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You must be able to demonstrate a need for financing and show the business purpose for which you’ll use the funds.
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You must be able to show your creditworthiness — i.e. your business has the means to repay the loan.
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You must have tried to get financing from non-government sources before turning to an SBA loan.
🤓 Nerdy Tip
If you don’t think you can qualify for an SBA loan — or need quicker funding — see our latest roundup of the best online business loans. It compares today’s top online lenders across the metrics that matter most to small-business owners: transparency of rates and terms, flexible payment options, fast funding times, and accessible customer service, among others.
1. Make sure your business is eligible
To qualify for an SBA loan, lenders typically like to see at least two years in business, strong annual revenue and a good credit score, which starts around 690. Make sure you meet the SBA’s standard criteria, including the requirements regarding business size, location and industry.
2. Choose a lender
If you’re applying through a traditional bank, it helps to work with one that has a track record of processing SBA loans. Ask your potential lender these questions:
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How many SBA loans do you make?
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How often do you fund SBA loans?
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How experienced is your staff in the process?
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What is the dollar range of the loans you make?
In general, a bank with multiple years of SBA experience will be able to better guide you, including letting you know your chances of being approved. Banks will follow SBA guidelines but use their own underwriting criteria to evaluate loan applications.
Both Newtek and Northeast Bank are SBA Preferred Lenders. Preferred Lenders can make final credit decisions on loan applications without sending them to the SBA, thereby expediting the underwriting process.
3. Gather your documents
Here are some of the documents you will need:
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SBA’s borrower information form.
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Statement of personal history.
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Personal financial statement.
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Business financial statements.
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Personal income tax returns.
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Business tax returns.
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Business license.
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Loan application history.
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Business owner resumes.
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Lease agreement if applicable.
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One-year cash flow projection.
4. Submit your application and wait
If you’re short on time, you might opt for the SBA Express loan, which typically funds faster than other options. The maximum amount for this type of financing is $500,000 and the maximum amount the SBA guarantees is 50%.
Learn more about getting an SBA loan:
Frequently Asked Questions
SBA stands for Small Business Administration. It is a federal agency dedicated to helping small businesses in the U.S. It does so through counseling, access to government contracts and loans and more.
Yes, you have to pay back an SBA loan. But the loan terms — the amount of time you have to pay your lender back — tend to be longer than other types of business loans.
Funding maximums vary based on the type of SBA loan. SBA 7(a) loans are available in amounts up to $5 million. CDC/504 loans are available up to $5 million, but offer up to $5.5 million for select projects. SBA Express loans are available up to $500,000 and microloans are available up to $50,000.
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