SBA Loans: Types, Pros & Cons, How To Apply
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SBA Loans

Small businesses looking for funding may be eligible to receive loans guaranteed by the Small Business Administration (SBA). These loans have lower interest rates and help thousands of businesses grow. SBA loans come in several forms to suit a variety of businesses and their needs.

If you are interested in one of these loans, get to know what kinds of SBA loans are available and how to qualify by contacting or getting started with Llama Loan.

What is an SBA Loan?

An SBA loan is financing guaranteed by the U.S. Small Business Administration. These loans are designed to help small businesses get the funding to start, grow, or expand their business. 

The SBA doesn’t directly lend money but instead partners with certain lenders to offer partly guaranteed loans. This guarantee reduces the risk to the lender, which means loans can have much lower interest rates than typical small business loans from credit unions, banks and online lenders.

The SBA reports that half of small businesses fail by their fifth year, so many conventional lenders are cautious about new businesses. By backing loans, the SBA encourages small business growth. However, the government backing means that they involve more work to be qualified and apply for an SBA loan.

How is an SBA Loan Different From Other Small Business Loans?

While SBA loans can be ideal for many small business owners, not all will find a loan that meets their needs or meet qualifications. When you are looking for funding for your small business, 

SBA LoanTraditional
Loan amounts$10,000 to $5,000,000The Federal Reserve reports that the average loan is $633,000
The smallest and largest loan amounts are hard to find
Interest ratesSBA caps ratesUp to the discretion of the lender 
QualificationsVaries by type of SBA loan but broad requirements overallVaries by lender but often higher to account for additional risk
Time to fundingA few weeks to three months Within days
Usage restrictionsSound business purposes
Some types have specific purposes
Varies by lender. Many require detailed information about spending plans
CollateralPersonal guarantee is usually required
Collateral or down payments may be required
Options for no personal guarantees or collateral
FlexibilityGovernment sets optionsMay be able to negotiate repayment schedules and other details

SBA loans are generally seen as better than loans from traditional lenders. SBA loan interest rates are almost always lower because the government guarantees some of the loan, which means less risk for lenders. Certain SBA loans are also open to younger businesses than traditional lenders are usually willing to serve. 

However, if you need fast funding, a traditional loan may be better.

Types of SBA Loans

The Small Business Administration offers several types of loans, and these categories often have sub-categories. Below are the most common types and sub-types that business owners should know.

Most of the loans highlighted below are specific categories of SBA 7(a) loans.

Primary purposeSBA loan interest rates
Standard SBA 7(a)General business purposesBelow $50,000: Prime + 6.5%
Over $50,000: Prime + 4.5% 
Express loanFast fundingPrime plus 4.5% to 8%
CDC/SBA 504 loanLong-term assets like equipment and real estateTypically around 3% of the loan amount.
SBA microloanSmall amounts for startups and underserved communitiesTypically 6% to 9%
SBA CAPLinesBusinesses needing funds on a rotating basis for certain needsComparable to SBA 7(a) loans
SBA export loanBusinesses offering goods and services abroadCan be negotiated
SBA disaster loanSupport for businesses affected by natural and economic disastersVaries
SBA community advantage loanCommunity-based loans for underserved markets$50,000 or less: Prime + 6.5%
$50,000 to $250,000: Prime + 6%
$250,000 and above: Prime + 4.5%
Standard SBA 7(a) Loan

When people refer to an SBA loan, they usually mean the most common type: the standard SBA 7(a) loan. Unless the loan is for a specific purpose or meets certain qualifications, a business will usually apply for a standard SBA 7(a) loan.

These loans do not have many restrictions on how the funds can be used. Many business owners use them for working capital, refinancing other debts, purchasing equipment and real estate or acquiring inventory. 

The SBA guarantees a certain amount based on the total loan amount. It backs 85% of loans under $150,000 and 75% of higher-cost loans. Like most loans, they are repaid with monthly payments that include principal and interest. Rates are either fixed (they do not change during the loan term) or variable. 

SBA 7(a) loans come in a few formats, including the small loan and the large loan option. The requirements and details differ by type. 

Standard SBA 7(a) requirements and details

  • Maximum amount: $5,000,000
  • Rates: Prime + 4.5% for loans over $50,000. Loans less than $50,000 have interest rates capped at prime + 6.5%
  • Down payment: 10% to 20%
  • Collateral: Required for loans of more than $350,000
  • Maximum SBA guarantee: 85% for loans up to $150,000 and 75% for loans over $150,000
  • Terms: 5 to 25 years. Real estate loans and equipment tend to have longer terms, but most standard uses will have terms of 5 to 10 years 
  • Fees: Lenders have rules about fees they have to follow. The SBA charges a guarantee fee of 0.25% to 4% on some loans
  • Turnaround time: 5-10 business days
  • Required time in business: 0 to 3 years 
  • Credit score requirement: 640+ recommended but lenders can specify

Business owners should check for specific loans within this category they may be eligible for. For example, if at least 51% of the business is a veteran or in the military, they can apply for this loan. The business owner must be an honorably discharged veteran, active-duty military, active reservist or National Guard member. Widowed spouses of service members who died in service can also apply.

Express Loan

Business owners needing money quickly may also apply for the SBA 7(a) express loan up to $500,000. The turnaround time to approval is less than 36 hours, but the SBA only guarantees 50% as there is less time to evaluate qualifications. Funds don’t come right away, however. The business owner will still have to wait a while for funds to be distributed. 

SBA express loan requirements and details

  • Maximum amount: $500,000
  • Rates: Prime plus 4.5% to 8%
  • Down payment: Possibly 10% to 30%
  • Collateral: Not required but can be used for loans over $25,000
  • Maximum SBA guarantee: 50%
  • Required time in business: Usually at least two years
  • Terms: Up to 10 years for working capital, equipment and inventory; Up to 25 years for real estate purchases.
  • Fees: One-time SBA loan fee of around 2% to 3% and any additional fees from the lender
  • Turnaround time: Within 36 hours for approval; funds typically dispersed 20 to 30 days after approval 
  • Credit score requirement: Lender can determine, but typically needs 650+
CDC/SBA 504 Loan

These loans are similar to SBA 7(a) loans, but they have more requirements and some restrictions. SBA 504 loans are generally used for long-lasting machinery and equipment, purchasing real estate or constructing buildings.

The first half of the loan is backed by the SBA. It has similar requirements and terms as the SBA 7(a), but the government will only fund up to 50% of the total loan value (TLV). The other half of the loan comes from a Certified Developing Company (CDC) that usually puts up 40% of the loan value. The remaining 10% is the down payment from the borrower. Banks that offer this loan will have a CDC they work with.

SBA 504 loan requirements and details

  • Maximum amount: $5,000,000; $5.5 million for certain energy projects
  • Rates: Typically around 3% of the loan amount. Rates are tied to the five- and 10-year U.S. Treasury notes.
  • Down payment: 10% down payment but may be higher in some cases
  • Collateral: Collateral is usually the purchased assets 
  • Maximum SBA guarantee: 50%
  • Required time in business: None but two years suggested
  • Terms: 10, 20 or 25 years, depending on loan purpose
  • Fees: There may be fees from the lender, SBA and CDC. Fees are included in the loan amount.
  • Turnaround time: Up to six months, depending on the situation
  • Credit score requirement: Determined by lender but generally 640+

A 504 loan cannot be used to purchase working capital, inventory, current debt or rental real estate. 

SBA 504 loans have extra requirements. The borrower can’t have an average net income of over $5 million during the last two years, and its net worth has to be less than $15 million. The loan amount also can’t be more than the business owner’s assets. If the loan is for construction, the business has to use at least 60% of the property and 80% within 10 years. Finally, for every $65,000 of the loan, the business has to create or keep a job.

SBA Microloan

This loan program is designed for businesses that need small amounts of money, typically up to $50,000. The interest rate is typically higher than a 7(a) loan, but the loan terms are more flexible.

Only certain non-profit lenders can provide these loans. Microloans don’t require a credit history, and income requirements are lower than most loans. Many microloans go to underserved and low-income individuals and communities that often cannot get traditional loans. These loans are also ideal for 

Although SBA loans are typically not given to non-profit businesses, some childcare centers may qualify.

SBA microloan requirements and details

  • Maximum amount: $50,000
  • Rates: Typically 6% to 9%
  • Down payment: None
  • Collateral: Varies
  • Maximum SBA guarantee: 100%
  • Required time in business: None
  • Terms: Up to 7 years
  • Fees: Depends on the lender, but often closing costs and up to 3% of the loan
  • Turnaround time: Typically 30 to 90 days
  • Credit score requirement: Up to lender but generally lower

Microloans cannot be used to buy real estate or pay other debts.


This program offers lines of credit usually bundled with SBA 7(a) loans, although it is possible to get a CAPLine as a standalone in some cases. Lines of credit typically have interest rates that mirror the standard SBA 7(a) loan. 

CAPLines come in a few forms:

  • Builders CAPLines: Lines of credit for builders and contractors to have funds for materials or labor costs before they receive the full payment for their services. These loans have 5-year terms, and the business has to repay the loan when selling the property or within 36 months after completion, whichever comes first.
  • Contract CAPLines: Small businesses that need funds for their contracts, including supplies and labor, can use a credit line to have capital while they wait for contract payments. When a contract is paid, the business must repay the loan amount used to fulfill the contract. Terms are limited to 10 years.
  • Seasonal CAPLines: Some small businesses are in industries affected by seasonal patterns. These funds can cover extra expenses during the busy season and maintain working capital in off-seasons. Payments are usually required after the end of the busy season, and terms are no more than 10 years.
  • Working CAPLines: These credit lines offer working capital for general operating expenses such as inventory, labor, manufacturing and supplies. Working CAPLines tend to have higher fees. Credit limits are determined by the collateral, and terms are generally 10 years.
SBA Export Loan

Many lenders consider exporting to other countries risky, making it difficult for businesses wanting to offer their products and services abroad. 

Export loans are in a specific categorization of SBA 7(a) loans, and it has subcategories for specific uses:

  • Export express: Similar to an SBA express loan, this allows a more streamlined process so businesses can move forward with their ventures faster.
  • Export working capital: These loans are meant to support businesses that need working capital to support export sales.
  • International trade: These loans offer funding to businesses expanding through export sales and businesses that have been offering exports and need assistance to meet competition. International trade loans can be used for real estate, equipment, working capital and construction.

These loans generally require that the business has been successfully operating internationally or that the business owner has previous experience doing business abroad.

SBA export loan requirements and details:

  • Maximum amount: $5,000,000
  • Rates: Interest rates can be negotiated. Some types of loans have a set maximum, while others do not.
  • Down payment: Varies
  • Collateral: Follows general collateral policies
  • Maximum SBA guarantee: 90%
  • Required time in business
  • Terms: Varies
  • Fees: Varies
  • Turnaround time: 5 to 10 business days
  • Credit score requirement: Determined by the SBA
SBA Disaster Loan

This loan program is designed for businesses affected by a natural disaster and need to repair or replace damaged property. The business has to have evidence it was impacted by a disaster, and there are varieties based on the type of disaster and how it impacted the business. Business owners can apply for more than one at a time if they qualify for more than one type. 

This category includes loans created to support businesses through the COVID-19 pandemic. It also includes the Military Reservist Economic Injury Loan, which allows businesses to get up to $2 million for operating expenses if a critical employee is called to active duty.

The interest rates, maximum amount, loan term and other details are determined by what kind of disaster and other factors.

SBA Community Advantage Loan

The community advantage loan is a pilot program scheduled to end on September 30, 2024. At that time, the program will stop accepting new applicants unless it is extended or becomes permanent. The program was created in 2011 and was extended past its original expiration date of March 31, 2020.

These loans are for small businesses in underserved areas. Because of the unique audience for this loan, credit score requirements are much lower than those for other loans. Unlike most business loans that require a strong business credit history and personal credit score, a strong business plan is acceptable for new businesses without a credit history, and low personal credit scores are accepted.

Like SBA 7(a) loans, these loans can be used for almost any reasonable business purpose. These loans come from specific lenders.

SBA community advantage loan requirements and details:

  • Maximum amount: $350,000
  • Rates: Prime + 6.5% for loans $50,000 or less, prime +6% up to $250,000 and prime 4.5% for loans up to the limit.
  • Collateral: Loans more than $25,000 require collateral
  • Maximum SBA guarantee
  • Required time in business: None
  • Terms: Up to 10 years for equipment or working capital, 25 years for real estate
  • Fees: SBA fee up to 3%. The lender may charge fees but cannot exceed more than $2,500.
  • Turnaround time: Varies
  • Credit score requirement: 140+

Standard SBA Loan Requirements

Each program has different requirements, so applicants should check with their lender and the SBA website to see specific requirements. Some requirements are standard for all SBA loans.

To qualify for an SBA loan, a business must meet be:

  • For-profit
  • Able to meet SBA’s definition of a small business
  • Located and operating in the United States or U.S. territories
  • Operating in an eligible industry and business type

The applicant needs to have invested personal equity into the business and be current on any existing government debt. The owner will need to show a reasonable business need and that they have not been able to secure other financing. 

Anyone who owns a percentage of the business should be prepared to give an unlimited personal guarantee. This gives the government to claim the personal assets of the borrowers if the loan is not repaid. Some loans only require owners of 51% or more to have a personal guarantee, but other types will require it even for owners with smaller percentages of ownership.

Pros & Cons
of a SBA Loan
Competitive rates.

SBA loans have an interest rate cap, which means the lender cannot charge higher rates than what is set by the government. Other loans can have APRs well over 100% depending on the type of loan.

Low fees.

Private lenders can often charge whatever fees they want if they can still compete in the market. However, SBA loans have fee caps for lenders. The SBA also charges some fees, but it reevaluates the fee structure yearly and doesn’t charge fees for certain loans.

Longer terms.

The SBA offers loans that tend to be longer. That means the business owner will have lower monthly payments to worry about.

High loan amounts.

Some SBA programs offer up to $5 million, which is significantly more than many online lenders and banks do.

Pros & Cons
of a SBA Loan
Funding times.

SBA loans can take up to three months to be funded in some cases, although timing will depend on your lender and borker.

Personal guarantees.

Anyone who owns 20% more of the business will likely have to give an unlimited personal guarantee on the loan. Some loans may also require a down payment and collateral to secure the loan. However, doing so helps borrowers get some of the best interest rates.

Qualification requirements.

SBA loans have specific eligibility criteria that usually involve strong business and personal finances and at least a few years of being in business. However, traditional banks and credit unions tend to have even higher requirements.

How to Apply for an SBA Loan

While some types of SBA loans have more specific steps, the general process of getting an SBA loan will resemble the following:

  1. Find a lender. You will need to find a lender officially partnered with the SBA. You can check your current bank or credit union or use the SBA’s free Lender Match tool. You can also use Llama Loan to find online lenders that service your area.
  2. Pick your loan type. You will need to know what kind of SBA loan you want before you apply.
  3. Prepare your documents. What your lender requires will depend on the program and the individual lender, but it is best to be prepared because most SBA loans can take some time to process. These documents will include your application form, financial statements, business license, personal and business tax returns and so on. You will also need to fill out the appropriate application forms for the type of SBA loan you apply to.
  4. Apply for your loan. You’ll turn in all of the documentation to your lender. During the evaluation process, you may need to answer more questions or provide more documents. If your request is considered after that initial process, you’ll receive a loan proposal or letter of intent with full details of the loan amount, term, fees and other information you need to know. After you sign this proposal, the formal underwriting process begins. If you are approved, you will receive a commitment letter and closing documents that you must sign before you receive the loan funds.

Most SBA loans take a few months to process. Some types are faster, and some lenders may be able to process your application faster too.

How do I check the status of my SBA loan?

Turnaround for approval of SBA loans can vary depending on the type of loan involved. Express loans are generally reviewed within 36 hours of submission. However, the general rule of thumb is that it can take anywhere from 30-60 days. You can check for updates through the Capital Access Financial System (CAFS) found on the SBA website after you create an account.

If you already have an SBA loan, you can check the status of your balances, payments, and other data through the CAFS. This online data management tool is available for most loan types, including the Paycheck Protection Program (PPP), all SBA disaster loans like COVID-19 EIDL and physical loss loans, 7(a) loans, SBA/CDC 504 loans, and the microloans program. 

The Bottom Line

SBA loans can be an excellent way for small businesses to get low-cost financing, but the variety and requirements can seem overwhelming.

If you plan to apply for an SBA loan, consider using Llama Loan as part of your process. We have tools and resources to help you find lenders that offer SBA loans in your area, collect the information you need and find the right financing for your business.

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