A Guide to SBA Loans

If you’ve heard about Small Business Administration (SBA) loans, it’s probably for good reason — these government-backed loans offer some of the most affordable, favorable terms available to small businesses. Offering some of the highest amounts, lowest interest rates, and most favorable repayment terms, SBA loans of all types are highly sought-after (though, subsequently, more competitive). 

Learning about the different types of SBA loans and how to prepare your application can help you position yourself to get the capital you need and strategically grow your business, whether through direct investment or acquisition.

What is an SBA loan, and how does it work?

Most SBA loans are guaranteed in part by the U.S. Small Business Administration (SBA). They’re issued by private lenders — generally banks and credit unions — but are government-backed up to 85%, based on the loan’s size and program type. This means that, in case of borrower default, the SBA will reimburse the lender for the guaranteed portion of the loan balance. This means lower risk for the lender, which in turn allows for better rates, longer terms, and more flexible requirements for qualified businesses. As such, SBA loans generally have the most favorable terms available, especially when compared to other private lenders who do not work with the SBA.

There are several different types of SBA loans, each with specific use cases. For instance, some SBA loans are for flexible working capital; others are meant to finance real estate. They come in a range of capital amounts — some of the highest amounts available. Although there are certain cases in which they are available to nascent businesses, SBA loans are generally meant for established businesses that are looking to develop further.

What are the best uses for an SBA loan?

There are specific uses for SBA loans that business owners should consider before choosing their loan type and investing time into the application process.

Accelerating growth and expansion

General working capital SBA loans can be an excellent way to grow your business, especially for established companies with a clear expansion strategy. This includes anything from staff expansion to new product development, strategic acquisitions, and more. Many types of SBA loans offer flexibility on how you can use the working capital, so you can invest in taking your business to the next level.

Investing in real estate and fixed assets

Some SBA loans are specifically designed to finance real estate acquisition and improvement or to fund long-term investments in fixed assets, such as machinery or infrastructure. As of 2025, all fixed asset purchases over $50,000 must carry hazard insurance.

Recovering from a disaster

Other SBA loans are designed to finance emergency recovery — specifically, to help businesses recover from federally declared disasters by covering operating expenses that include repairs, rebuilding costs, and short-term operating expenses. Because they are issued from a federal level, these loans remain unavailable to cannabis-related businesses, even those operating in legal states. 

Types of SBA Loans

There are several types of SBA loans available for a range of businesses and use cases, each structured to support different growth, acquisition, or recovery goals.

SBA 7(a) Loans

SBA 7(a) loans are the most common type of SBA loan, used frequently for working capital, acquisitions, and partner buyouts. These loans are subject to stricter underwriting rules as of 2025, requiring that lenders verify cash flow and repayment ability. They are available as either lump-sum term loans or lines of credit, depending on the borrower’s needs and how funds will be used. These are working capital loans, which are extremely flexible, allowing borrowers a wide range of options. They are available in amounts up to $5 million and come with either fixed or variable interest rates, typically set by the lender within SBA limits. Repayment terms vary between 10 and 25 years, based on how the loan proceeds are used (e.g., working capital versus real estate). All loans above $50,000 now require hazard insurance under new 2025 SBA policies.

SBA Express Loans

SBA Express loans are a sub-program under the SBA 7(a) loan program that offers smaller loans with faster turnaround times, often used when timing is critical. These are smaller lines of credit or term loans with funding up to $500,000, and are commonly used for short-term needs or opportunistic growth moves. The big benefit of SBA Express loans is that applicants will receive a credit decision in as little as 36 hours, compared to several business days for non-SBA Express loans. Similar to SBA 7(a) loans, these are working capital loans, which are flexible in structure and purpose—often used for acquisitions, refinancing, equipment, or day-to-day uses. Do consider, though, that interest rates on SBA Express loans are slightly higher than rates on traditional SBA loans because of the increased risk and rapid processing time. These loans are still subject to the updated SBSS credit score minimum of 165.

SBA 504/CDC Loans

SBA 504/CDC loans are another major option tailored specifically to purchasing fixed assets. These loans are specifically designed to purchase long-term fixed assets. This includes assets like land, buildings, and machinery. They are available in capital amounts up to $5.5 million — the highest of any SBA loan — and repayment terms are 10 to 25 years. Generally, funding for SBA 504/CDC loans comes in part from a bank and the other part from an SBA-approved certified development company (CDC). This two-part structure can lower risk for lenders while providing long-term financing for the borrower.

SBA Microloans

SBA Microloans are loans up to $50,000, funded by the SBA but administered through approved intermediary non-profits. These loans are often used for early-stage needs like inventory, equipment, or initial working capital. Crucially, these loans are the most accessible SBA financing for nascent businesses, especially those without an operating history or substantial revenue and lack an extensive history of business operations. SBA Microloans have a repayment timeline of seven years and are typically secured by collateral. They also require a personal guarantee from the borrower.

SBA Disaster Loans

SBA Disaster Loans are specifically for business owners, renters, and homeowners who need financial assistance after a federally declared disaster. There are a few subsets of SBA Disaster loans, including loans for physical disasters and overall economic injury, each with different capital limits and repayment guidelines. They come in capital amounts from $25,000 to $2 million, with repayment terms of up to 30 years, depending on financial need and ability to repay.

Advantages of SBA Loans

SBA loans are highly sought after due to their distinct advantages over conventional or alternative business financing.

Large capital amounts

SBA loans enable business owners to access high capital amounts. SBA loans — particularly 7(a) and 504/CDC loans — often offer loan amounts in the millions. This enables qualifying businesses to do more with their money, such as paying for larger purchases or other, more significant investments.

Favorable repayment timeline

Long timelines for repayment of SBA financing make these loans less of a burden on businesses by allowing borrowers to spread payments out over many years, which can reduce pressure on short-term cash flow. While some standard term loans only allow at most a 10-year repayment timeline, some SBA loans provide a period of up to 25 years.

Competitive rates

SBA loans offer some of the most competitive rates available. This makes these loans less expensive than other loans with higher interest rates — a significant benefit to a business’s balance sheet.

Disadvantages of SBA Loans

SBA loans are largely excellent financing products, but it’s also important to have a sense of their potential downsides, too. 

Strict qualification requirements

In contrast to other loans, SBA loans are generally more difficult to qualify for. They require strong credit, time in business, and revenue history, which may put them out of reach for many business owners. Additionally, even for those entrepreneurs who do meet baseline qualifications, due to their favorable rates, these loans are extremely competitive and selective, which means you may not always be approved even if you are a good candidate.

Long timelines

In contrast to many other types of loans, like lines of credit or equipment loans, SBA loans generally have a long timeline. The process of application, approval, and funding can often last several months. As such, these loans are not the best fit for businesses that need quick access to capital.

Required personal guarantee

One of the reasons the SBA is able to keep interest rates so competitive is that most SBA loans require a personal guarantee. Everyone with at least a 20% ownership stake in the company must agree to this arrangement, which secures the loan against personal assets in case of default. New rules dictate that no foreign ownership is allowed, at any percentage, for applicants.

Who is eligible for an SBA loan?

There are no formal, written requirements to apply for an SBA loan. However, there are general guidelines that can help you determine whether you’re a good candidate for approval. And, as of June 2025, all business owners must be U.S. citizens, green card holders, or U.S. nationals to qualify.

SBA loan qualifications

First and foremost, you must be a registered for-profit business located and doing business in the U.S. and fit under the SBA’s definition of “small business.” You must have invested your own equity — time and money — into the business and have a demonstrated business need for financing with a defined purpose for requesting money.

Regarding quantitative requirements, the most competitive candidates generally have at least two years of business operations, strong revenue figures, and a good personal credit score. The SBA does not define a minimum credit score, but 680 is a good starting point to calibrate eligibility. Similarly, you should have a strong business credit score as measured by the FICO Small Business Scoring Service (SBSS). As of 2025, approved borrowers will need a score of 165 for automatic eligibility.

Do note that while these guidelines are generally widely applicable, each individual SBA lender will have their own specific requirements.

How to Apply for SBA Loans

If you would like to apply for an SBA loan, the first step is to make sure you meet the requirements and choose your specific loan type. Once you’ve zeroed in on your qualifications and your needs, you will need to seek out an SBA lender, as SBA loans are not issued by the government, but through participating banks, credit unions, and alternative lenders.

Next, you need to gather your documentation and fill out SBA-specific forms, such as Form 1919 for borrowers and Form 413 for personal finance disclosure. Again, each lender will ask for their own specific documents, but you should generally prepare to submit:

• SBA-specific documentation, including an SBA loan application and SBA Form 413, documenting your business’s financial position
• Business and personal financial information, including 2-3 years of tax returns, corporate financial statements (profit and loss, balance sheet, projections), and records of any previous loan applications. Lenders must now verify their repayment ability under new SBA cash flow rules.
• Identifying information, including business operating certificates,  licenses, and leases. Franchise applicants need to confirm that their location is listed on the SBA Franchise Directory.

Some lenders may also ask for detailed information on the background of each business owner, as well as a comprehensive business plan that outlines the intended use of funding if you are approved.

It’s important to note that the application process can take time — often several weeks or months longer than standard credit-based applications. You should be prepared to gather extensive documentation — both personal and business — and build in time for some back and forth with your lender, including follow-up document requests and clarification on eligibility. You may also have to provide more information about your company’s SBSS, hazard insurance, and standby agreements.  The more information you can pull together in advance, the faster your process may go.

Ultimately, SBA loans can be key to growing your business. The best rule to keep in mind when pursuing one? Make sure you choose the type best suited for your strategic needs and be ready for a detailed (but worthwhile) approval process.