SBA Loans

A Business Owner's Guide To SBA Loans

SBA Loan Programs

The Small Business Administration (SBA) offers a variety of loan programs for very specific purposes. SBA loans are typically referred to as SBA 7(a) loan, or the SBA 504 loan for commercial real estate. SBA also offers smaller programs, such as microloan programs and disaster loans.

5 Things You Need to Know about SBA Loans


Who Offers SBA Loans?

The term “SBA loan” is a bit of a misnomer since it’s not an actual business loan given out by the U.S. Small Business Administration. It’s a loan issued either by a bank or another lending institution that is guaranteed by the SBA. The “guaranteed” aspect means the SBA will repay the lender, up to a certain amount, if the loan holder defaults on their payments.

The SBA does not automatically guarantee all loans — lending institutions, like banks or other alternative lenders, choose whether or not to participate in SBA programs.


Why Consider an SBA Loan?

Though difficult to qualify for, an SBA loan is a good funding choice for small business owners, especially in light of favorable SBA loan rates. With an SBA loan, a business can get up to $5 million with rates ranging from 4% – 10%. Participating banks and lenders know the government will cover any possible defaults, which means they’re taking less of a risk in lending the money. With this safety net in place, they’re more likely to offer flexible terms and lower APRs — a boon for any small business looking for funding.


Where Can I Apply for an SBA Loan?

The quickest way to find an SBA lender is to search directly from the SBA’s website. Click here to go directly to their LINC tool, which helps match your business with prospective SBA lenders.

There are SBA loans available online, but since banks issue the majority of SBA loans, there’s a strong possibility you’ll need to apply in person.


Is an SBA Loan the Right Choice?

The usual flexible payment terms and lower APRs of an SBA loan are attractive to any small business. However, the difficulty lies in getting approved for the loan.

SBA loan requirements are fairly stringent — you’ll need at least a good to excellent credit rating and must meet the specific lender’s qualifications — including number of years in business, annual revenue and more. You must additionally meet SBA loan requirements, all of which can be found on the SBA’s loan program eligibility page. There are also a fair number of businesses considered ineligible for an SBA loan, so be sure to read the full list before starting the SBA loan process.


What Are Some Alternatives?

SBA loans, while a good funding option, are not always within reach for every small business. Businesses that have recently opened or do not have a high credit rating are unlikely to be approved due to the strict requirements. Even businesses with a strong likelihood of approval may look elsewhere for faster funding, as the SBA loan process is a lengthy one.

In either case, a comparable option is a line of credit from an alternative lender. For example, a Headway Capital line of credit offers funding options of up to $100,000, with funds delivered in as little as one business day, if approved. Headway Capital’s lending requirements are more favorable for small businesses that may not meet stringent SBA requirements, and the application process can be completed in a matter of days. Plus, the revolving line of credit gives business owners the ability to draw funds whenever they need.

SBA Loans vs. Headway Capital Line of Credit

SBA Loans Basic 7(a) Loan Program Headway Capital Line of Credit
Loan Term 5-25 years 1-2 years
Maximum Amount $5 million Credit line of $100,000
Speed As little as 3 weeks As little as 1 day