SBA Loans

The U.S. Small Business Administration (SBA) offers many great options beyond the well known PPP loan, including the 7(a), 504, and Microloan programs. We're here with the highlights of each program to help you make the best decision for your business.
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SBA Loan Types, Pros and Cons & How to Apply

Time in Business

< 1 year

Annual Revenue

< $100,000

Credit Score


Funding Amounts
No minimum to $500,000
Prime Rate* + 2.75% to 3.75%
10 - 30 years
Processing Time
15 to 60 days

If you are interested in a loan for your small business, an SBA loan may be a worthwhile option for you. The U.S. Small Business Administration provides several levels of financial assistance to small businesses — including various loan types and amounts.

This page will get to the heart of SBA loans and explain everything you need to know about them. With this information, you can decide whether these loans are right for your business.

What is an SBA Loan and how does it work?

What is an SBA Loan and how does it work?

As mentioned, SBA stands for Small Business Administration, an organization designed to help small businesses get started, grow, shift, and recover. First started in 1953, the SBA offers multiple services for small business success, including counseling, lending, and contracting.

The Small Business Administration partially guarantees SBA loans, which makes offering these programs more attractive for lenders. The SBA will cover a large portion of the loan amount for the lender (guarantee) in case of a loan default, they will do this so long as the lender that funds the loans follows the SBA’s strict guidelines. This means that lenders assume less risk than other types of loans because the government helps cover the loan in the event of a default.

The governmental guarantee also means that there are some tight standards and requirements for borrowers. However, the loans also offer benefits like lower interest rates, flexible repayment terms, and other incentives.

Businesses apply for these loans through financial institutions such as banks, credit unions, non-bank lenders, or companies like Lendzero. The lender applies to the SBA to confirm their loan guarantee in case of a default. SBA loans also require owners with at least a 20% stake to put up their personal assets as a guarantee. This means that you and your assets serve as collateral for the loan alongside the governmental guarantee.

What is an SBA Loan best for?

What is an SBA Loan best for?

SBA loans are best suited for small businesses hoping to use this funding for multiple business-related purposes:

1. SBA loans are specially designed for small businesses.

SBA loans and terms have been built with small businesses in mind. The guidelines of these loans are designed to help small businesses gain their footing, grow, and thrive. Therefore, the terms have been refined to best help small to medium sized businesses.

2. You can use the loan funds for most small business requirements.

The SBA keeps the usage requirements for these loans open so small businesses, which have operated for at least a few years, can direct them as needed. Examples include:

  • Long- and short-term working capital 
  • Revolving funds based on the value of existing inventory and receivables 
  • The purchase of equipment, machinery, furniture, fixtures, supplies, or materials 
  • The purchase of real estate, including land and buildings 
  • The construction a new building or renovation an existing building 
  • Establishing a new business or assisting in the acquisition, operation or expansion of an existing business 
  • Refinancing existing business debt, under certain conditions
Pros and cons of SBA Loans

Pros and cons of SBA Loans


Pro: Lower Fees

SBA loan fees are often lower than other types of small business loans. You can expect an upfront guarantee fee relative to the overall loan amount and maturity time.

Similarly, SBA loans have annual service fees in terms of what is guaranteed and the remaining loan balance. This is reassessed annually.

Pro: Competitive Interest Rates and APR

SBA loans are structured in a way that keeps the total amount repaid highly competitive. For example, SBA loans could offer rates capped at a 10% APR. However, online firms typically offer loans with APRs of 18%-25% or even higher.

Over the life of a loan, this could save small business owners thousands of dollars in fees, interest, and other costs.

Pro: Bigger Loan Amounts

SBA loans typically provide larger maximum borrowed amounts than other small business loans. For example, an SBA 7(a) loan offers up to a $5 million maximum amount.

You will not see amounts this high with online lenders or banks which often top out between $500,000 and $1 million. Remember that your exact funding amount is based on the terms agreed upon with the lender.

Pro: Longer Loan Terms

SBA Loans also provide borrowers more time to repay. This translates into lower monthly rates and less annual expense in repaying the loan.

The precise loan term is decided based on how you will use the money.

  • Inventory or working capital: 10 years to repay.
  • New or upgraded equipment: 10 years to repay.
  • Buildings or other real estate: 25 years to repay.


Con: Difficult to Qualify for Loan

The SBA guarantee does lower the risk for lenders when it comes to potential defaulting. However, this guarantee makes the requirements and eligibility stricter for SBA loans than others.

In most cases, you will have to have great credit (680 or higher), several years (3 and preferably 5) of business operation, and optimistic business finances before you will be approved. These loans are not for businesses that need rescuing or are in trouble.

Con: You Need a Personal Guarantee

The SBA guarantees a certain amount of the loan in case of default. Besides this guarantee, you need to also offer a personal stake by way of a guarantee to secure the loan.

Any owners with a 20% or higher stake must provide an unlimited personal guarantee. What this means is that the lender can still recover the loan amount and any additional fees if the business is shut down or fails to repay the loan in any way. They recover this money through any means necessary by the personal guarantors — from owner savings, retirement accounts, or other assets.

Con: Slower Access to Loan Money

If you need fast or immediate access to money, SBA loans are not the right option for you.

These loans frequently take longer to process (30 to 90 days) and distribute than other loans. The exact amount of time depends on your lender and your SBA loan.

In most cases, it will take from one to three months before you have access to the money.

What are the different types of SBA Loans?

What are the different types of SBA Loans?

Several SBA loan options are available depending on a small business’s needs and objectives:

Loan Type

Loan Maximum

Loan Usage

SBA 7(a) Loan

$5 Million

Business expansion, equipment purchase/upgrade, working capital

SBA Express Loan


Quicker funding for working capital or real estate/equipment purchase

SBA Micro Loan


Inventory help, working capital, equipment purchase/upgrade

SBA 504 Loan

$5.5 Million

Longer-term assets such as land, business machinery, and operational facilities

SBA Community Advantage Loan


General business purposes determined by owners — not for revolving credit

SBA Disaster Loan

$2 Million

Repairs or replacements from disaster damage, support for ongoing operating expenses during repairs

What an SBA loan costs and how is it calculated?

What an SBA loan costs and how is it calculated?

The costs you will have for your loan depend on the details laid out by your lender. Besides the loan amount, you will see the following additional costs:

  • Interest Rate: Negotiated between borrower and lender, but SBA loans cannot exceed the maximum interest rate. This depends on whether your loan is a fixed rate or variable rate.
  • Guaranty Fee: You will also have to pay a guaranty fee based on the amount guaranteed by the SBA. For instance, if you borrow $150,000 or less, your fee is 2% of the SBA-guaranteed amount (usually 75%-80% of the total loan).

According to the SBA’s website: “Lenders can’t charge a separate loan origination fee on an SBA guaranteed loan. Lenders can charge ‘packaging fees,’ but the fees must be reasonable and customary for the services actually performed and must be consistent with those fees charged on the lender’s similarly-sized non-SBA guaranteed commercial loans.”

Any fees charged must be documented on SBA Form 1597(a) and signed by all parties at the time of loan disbursement.

Here’s a list of other SBA 7(a) loan fees you can expect:

  1. SBA Loan Packaging Fee: Loan providers typically charge an SBA loan packaging fee to organize your loan documents and improve your approval chances. This fee can be anywhere from $2,000 to $4,000.
  2. SBA Loan Broker Fee: If you used a broker to facilitate the loan, you might need to pay a broker fee. The SBA doesn’t allow “broker fees,” but these fees often get bundled into the packaging fees. Typical broker fees range from 2% to 5% of your total loan amount.
  3. SBA Loan Service Fee: Your SBA loan lender may charge an ongoing service fee to manage your loan. These fees help cover the costs of billing, processing, and maintaining records. Loan service fees typically range from 0.25% to 0.75% of the remaining balance on your loan at each billing cycle.
  4. SBA Loan Closing Costs: SBA loan closing costs are basically a miscellaneous group of fees lumped together. These include appraisal fees, business valuations, title fees, attorney costs, and more.
  5. SBA Loan Late-Payment Fee: You could be charged anywhere from 5% of the late payment to $100 (whichever is greater) for making a late payment.
  6. SBA Loan Prepayment Fee: For long-term SBA loans, you’ll typically face prepayment penalties if you pay off your loan early.

Check with your lender to determine the precise amount for fees, interest rates, and other costs on your loan.

Can new businesses qualify for SBA Loans?

Can new businesses qualify for SBA Loans?

For the most part, SBA loans carry strict eligibility, requiring your business to operate for several years for approval. This is obviously difficult for businesses just opening or starting out.

Several SBA options help with small business startup costs. However, eligibility is based on the lender’s requirements. Find an SBA lender who offers startup-related loans for new businesses.

What do lenders evaluate when you apply for an SBA loan?

What do lenders evaluate when you apply for an SBA loan?

Eligibility and application evaluation are based on multiple factors. These can include any or all of the following for your business:

  • Operates as a for-profit business.
  • Has a physical location and business operations in the U.S.
  • The business owner must have invested their personal time and money into the business.
  • The business cannot secure any more funding from other sources.

Other factors, such as credit score, minimum business operation time, and maximum amount, are all dependent on your business and the lender. The right strategy can help you connect with the best lender and find what you need for your business’s future success.

How to apply for an SBA loan?

How to apply for an SBA loan?

With Lendzero, applying for an SBA loan is easy. 

Step 1: Click on the Get Approved button above and answer a few basic questions about your business, project or need. We will inform you about your best options and how many exist (this will set your expectations). 

Step 2: After this is complete, you will be asked to create a username and password to begin your electronic loan application. This process normally takes about 6 – 7 minutes (if you have all your documents easily accessible and ready). 

To complete the application process, here is what you will need to have handy:

  • Business TAX ID (federal tax id number, aka EIN/FEIN)
  • Borrower Information and Personal History Statement
  • Personal Financial Statement for Borrower
  • Personal and Business Income Tax Returns
  • 1 Year Business Projections and Cash Flow Estimate
  • Business License
  • Business Leasing Agreements, Equipment Financing Forms, etc.
  • Estimated business revenue and average bank balances
  • Social security number for all signers
  • Last 3 months of business bank statements (download the PDF statements from your business bank account)

Step 3: Once the application process is complete, we will send you the completed loan application for you to review and sign. Once you have signed for your application, the process is complete. You have officially applied and started your journey to receiving pre-negotiated SBA loan offers. Your Lendzero funding specialist will reach out to you to guide you through the remaining steps of the process, and provide the necessary guidance and support needed with the goal of successfully obtaining the proper funding.

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