What Are SBA Loans?
SBA loans are small business loans partially guaranteed by the U.S. Small Business Administration, reducing risk for lenders and making it easier for entrepreneurs to qualify. The SBA doesn't lend money directly—instead, it guarantees up to 85% of loans made by approved lenders like banks and credit unions.
Key Takeaway: SBA loans offer lower interest rates (currently 10.5-13.5%), longer repayment terms (up to 25 years), and lower down payments than conventional business loans.
SBA 7(a) Loans: The Most Flexible Option
The SBA 7(a) loan program is the agency's flagship program, offering up to $5 million for almost any business purpose.
What You Can Use 7(a) Loans For
- Working capital and operational expenses
- Equipment purchases
- Real estate acquisition or construction
- Debt refinancing
- Business acquisition
- Inventory purchases
7(a) Loan Terms
- Maximum Amount: $5 million
- Interest Rates: Prime + 2.25% to 4.75% (variable)
- Repayment Terms: Up to 10 years (working capital), 25 years (real estate)
- Down Payment: Typically 10-20%
SBA 504 Loans: Best for Real Estate & Equipment
The SBA 504 loan program provides long-term, fixed-rate financing specifically for major fixed assets like real estate and heavy equipment.
How 504 Loans Work
504 loans involve three parties: a Certified Development Company (CDC) provides 40% of the loan, a bank provides 50%, and you provide 10% down. This structure results in below-market interest rates.
504 Loan Terms
- Maximum CDC Portion: $5.5 million (up to $16.5 million for manufacturing)
- Interest Rates: Fixed, typically 1-2% below market rates
- Repayment Terms: 10, 20, or 25 years
- Down Payment: As low as 10%
SBA 7(a) vs 504: Quick Comparison
Choose 7(a) if: You need flexible funding for various purposes, want one lender to work with, or need working capital.
Choose 504 if: You're buying real estate or heavy equipment, want the lowest fixed rate, and can handle a more complex process with multiple parties.
How to Apply for an SBA Loan: Step-by-Step
Step 1: Check Your Eligibility
You must operate a for-profit business in the U.S., have invested equity, and exhausted other financing options. Most industries qualify, with some exceptions (gambling, lending, speculation).
Step 2: Gather Required Documents
- Business and personal tax returns (3 years)
- Business financial statements
- Business plan with revenue projections
- Personal financial statement (SBA Form 413)
- Business debt schedule
Step 3: Find an SBA-Approved Lender
Use the SBA Lender Match tool or work with a business funding specialist like Rrova to connect with multiple lenders.
Step 4: Submit Your Application
Complete SBA Form 1919 and submit all documentation to your lender. The lender will underwrite your loan and submit it to the SBA for guarantee approval.
Step 5: Receive Funding
Once approved, funds are typically disbursed within 60-90 days from application.
Pro Tip: Improve Your Approval Odds
SBA lenders look for a credit score of 680+, at least 2 years in business, positive cash flow, and collateral for larger loans. If your credit needs work, consider credit repair services before applying.
Need help finding the right SBA lender? Contact Rrova to get matched with lenders based on your specific situation and funding needs.
