Compare Best SBA Lenders of June 2023

Small businesses play a crucial role in our economic landscape and make up a big bulk of the market, which is why the federal government has employed an agency—the U.S. Small Business Administration (SBA)—that is dedicated to bringing capital to businesses.

It’s a loan designed for small businesses provided by lending institutions and not the SBA itself. SBA loans are an attractive funding prospect because of their advantages, like low-interest rates, access to quick capital, longer repayment terms, flexibility, and more.

How it works is the lender partners with the SBA, who partially guarantees (up to 85%) the loan. This removes some of the risks for the lender, making it much easier for small businesses to get funding.

Guaranteeing the loan essentially means that the SBA is prepared to back up the loan and pay for the guaranteed portion of the loan if the borrower defaults or cannot pay it back.

• 7(a) Loan Program
• CDC/504 Loan Program
• Microloan Program
• Disaster Assistance Loan Program
• SBA Express Loan Program

7(a) Loan Program:

This is the most common type of SBA loan, designed to support small businesses in various ways. The loan can be used for a wide range of purposes, including purchasing equipment or inventory, refinancing existing debt, or expanding business operations. The maximum loan amount is $5 million, and the interest rates typically range from 7% to 9.25%. The repayment term can be up to 10 years for working capital loans and up to 25 years for loans used to purchase real estate.

CDC/504 Loan Program:

This type of SBA loan is specifically designed for businesses that need to purchase real estate, equipment, or other fixed assets. The loan is structured in two parts: a loan from a Certified Development Company (CDC) and a loan from a private sector lender. The CDC loan covers up to 40% of the project cost, while the private sector lender covers 50%, and the borrower provides the remaining 10%. The maximum loan amount is $5.5 million, and the repayment term can be up to 20 years for real estate loans and up to 10 years for equipment loans.

Microloan Program:

This type of SBA loan is aimed at small businesses that need smaller loan amounts, typically up to $50,000. The funds can be used for a wide range of purposes, including purchasing equipment, inventory, or supplies or covering operating expenses. Nonprofit organizations generally provide microloans; repayment terms and interest rates vary depending on the lender.

Disaster Assistance Loan Program:

This type of SBA loan provides low-interest loans to small businesses that have been affected by a declared disaster, such as a hurricane, earthquake, or wildfire. The loan can be used to repair or replace damaged property or to cover operating expenses while the business is recovering from the disaster. The maximum loan amount is $2 million, and the interest rates are generally lower than those of other SBA loans.

SBA Express Loan Program:

This type of SBA loan is designed for businesses that need a smaller loan amount, typically up to $350,000, and need quick access to funds. The loan application process is streamlined, with 36 hours or less turnaround time. The interest rates for SBA Express loans are higher than those of other SBA loans, ranging from 7.75% to 10.25%, and the repayment term can be up to 10 years.

Every growing business should take time to understand what an SBA loan is and consider it as an option when looking for funding, but how do you know if it’s the right option for you?

Eligibility

First thing’s first. Before moving forward, is your business eligible for an SBA loan? While lenders typically have their own requirements when issuing loans, like a credit score minimum, years in business, and annual revenue, the SBA has its own set of minimum requirements businesses must meet.

Here is a quick glimpse of some basic requirements by the SBA for an SBA loan:

• Must be a for-profit business
• Must be located and conducting business in the United States
• The business owner must have invested equity
• The business must not acquire funds from another financial lender

Can a business loan affect my personal credit?

Taking out an SBA loan may affect your credit, but it depends on how well you manage the loan and pay it back. Credit scores can be improved by making your payments on time and in full, but they can be hurt by missing payments or defaulting.

Unlike other types of loans, SBA loan terms depend on how you’ll be using the money and are set by the SBA, not the lender. They also come with some of the longest-term lengths out there, making it appealing to business owners who care about smaller monthly payments. Just remember that a longer loan term means paying more in interest on the loan in the long run.

Term length based on the purpose for the most common—7(a)—loans:

• 10 years – equipment, inventory, working capital
• 25 years – real estate
• Paid on a monthly basis

Since microloans are much smaller, they come with shorter-term lengths.

Now that you’re more familiar with SBA loans, you can probably start to see the differences between them and traditional business loans, but let’s go ahead and highlight them.

Unlike an SBA loan, traditional business loans are not backed by the government, meaning they’re harder to qualify for. Since there’s more risk on the lender, you can expect them to place a heavy emphasis on factors like your credit score, cash flow, and annual revenue.

Since SBA loans are less risky for the lender, you can expect lower interest rates than conventional loans.

Other key differences are the loan amount as well as the loan term. SBA loans offer longer loan terms, spanning from 5-25 years, whereas business loans are shorter. The loan amount on an SBA loan is up to $5 million, unlike business loans which often range from $25,000 to $250,000.

SBA loans entice small business owners with low-interest rates, access to capital, longer terms, and flexibility so businesses have the capacity—and funding—to grow.

So, is an SBA loan the right fit for your burgeoning business? Hopefully, by now you have a better idea of what SBA loans are, what they can do for you, and what they can’t do for you.