SBA loans are business loans partially guaranteed by the U.S. Small Business Administration.
The three main SBA loan programs—7(a), CDC/504, and microloan—let you borrow money for nearly any business purpose, including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate.
SBA loans offer low interest rates and long repayment terms, making them one of the most desirable types of business financing on the market. However, they are generally slower to fund and require a lengthy application.
There are several different SBA loan programs out there, with the following three programs being the most popular:
The SBA loan program you’ll want to apply for depends on the size, age, and goals of your business.
Here’s a summary of all three options:
The SBA 7(a) loan program is the most popular of all SBA loan programs because the capital can be put toward a wide range of business purposes. SBA 7(a) loans are available in amounts up to $5 million and come in many types, including SBA Express loans and CAPLines credit lines.
Interest Rates: SBA 7(a) loans come with interest rates in either fixed or variable (typically adjusted quarterly) varieties. Your bank lender determines which it will offer.
Your interest rate depends on your credit score and the length of your repayment term. To protect borrowers, the SBA restricts how much a bank can make off your SBA loan. Learn more in our guide to SBA loan rates.
Repayment Term: You can expect monthly payments for 25 years for real estate and up to 10 years for equipment and working capital.
Fees: The guarantee fee on 7(a) loans ranges from 0.25% to 3.5% of the guaranteed portion of the loan up to $1 million, plus 3.75% of the guaranteed portion over $1 million. Be aware that your guarantee fee might be included in the total cost of the loan.
Some partnered banks might also charge an origination fee or a loan packaging fee, depending on which banks you’re working with.
There are a number of different subsets of the 7(a) program that you can apply for, including:
An SBA 504 loan is a type of SBA loan that is used specifically to purchase fixed assets, to upgrade existing assets, or to purchase real estate.
Typically with a 504 loan, a bank extends half the total loan amount, SBA-approved certified development companies (CDC) extend 40% of the loan amount, and the borrower puts down a down payment to cover the rest.
These loans are available in amounts of up to $5.5 million.
Interest Rates: The rates on the CDC portion of the loan are subject to SBA rules—and you can expect to receive a rate equal to the 5- to 10-year Treasury rate + 2.23% to 2.39% depending on the repayment terms of your loan.
The bank portion of the loan, on the other hand, is not subject to SBA regulation, so you’ll receive a rate based on your business’s qualifications and you’ll be able to negotiate your rate with the bank you work with.
Repayment Term: CDC/504 loans come with either a 10-, 20-, or 25-year term.
Fees: SBA CDC/504 loan fees are usually about 3% of the loan amount—and can sometimes be financed with the loan.
An SBA microloan is a loan of up to $50,000 from an intermediary nonprofit to the owner of a small business or startup. The money originates from the SBA, which initially lends the money at a discounted rate to the intermediary.
Businesses can use SBA microloans for a range of purposes, including working capital or buying equipment, machinery, or supplies.
Interest Rates: The institution you work with is the one that sets the interest rate on the microloan, depending on your creditworthiness and the specifics of your small business. Rates typically range between 8% to 13%.
Repayment Term: The maximum repayment term allowed for an SBA microloan is six years.
Fees: There are no fees associated with microloans.