Main Types of SBA Loans


Planning an SBA loan can get confusing when you start to see all of the different loan options. Depending on your business needs and borrowing qualifications, some loan types will be more practical to pursue than others.

If you don’t take time to research your options, you’ll waste valuable time applying for impractical loans. You may even damage your ability to qualify for the right ones.

With an understanding of the main SBA loan types, you’ll be ready to make the best decision. This article will cover SBA loans and the five types that businesses use to fuel their success.

Five Main Types of SBA Loans

Businesses recognize SBA loans as one of the best routes to maintaining and expanding their operations. These low-interest loans give owners substantial approvals needed to make sweeping company improvements and survive business challenges.

Although they have the SBA name, private SBA lenders are the ones actually servicing these loans. Your bank or credit union may offer SBA loans. Their key distinction from other business loans is that the federal government backs them, covering up to 85% of the loan amount if the borrower defaults.

With the government taking on a large portion of the risk, lenders can offer SBA loans to borrowers that wouldn’t qualify for better terms, approval amounts, or interest rates under normal circumstances. New businesses can acquire funding based on expected earnings, and established companies can get lower fees and interest rates to accelerate their growth.

Depending on what your business needs to thrive, you may want to consider one of the following five SBA loans.

SBA 7(a) Loans

The most popular SBA lending option is the 7(a) loan. Borrowers can receive up to $5 million to use on a variety of projects, including the following:

  • Working capital
  • Expansion
  • Inventory and supply purchases
  • Acquiring real estate
  • Equipment purchases

Businesses prefer SBA 7(a) loans for their low-interest rates and their long payment terms. The SBA sets an interest rate cap that the lender cannot exceed, and the borrower and lender are left to negotiate the final rate. Borrowers typically have payoff terms between 5-10 years, but they can go up to 25 years for buying commercial property and equipment.

Borrowers need to meet rigid qualification criteria to get an SBA 7(a) loan. Applicants often need at least a 690 credit score and a 10% down payment.

For startups, the requirements usually include larger down payments and a sound business plan. Being able to demonstrate experience and display reasonable earnings expectations is crucial to getting the best approval.

In securing large loans for businesses, the SBA demands assurances from borrowers as well. In most cases, this means offering some collateral.

A standard SBA 7(a) loan starts around $30,000 for most lenders, and they will ask for collateral. Per the SBA’s rules, when the loan goes over $350,000, the lender will seek the maximum amount of collateral, not exceeding the loan value.

If the business does not have enough assets for collateral, lenders may force owners to dip into their personal property. They face the possibility of liens on their house or investment properties if they fail to pay back the loan.

SBA Small Loans and Other 7(a) Types

An alternative to the standard 7(a) loan is the 7(a) small loan. These loans go up to $350,000, following the same rules as the standard loan. The primary difference is that if a small loan is under $25,000, lenders will usually not require collateral.

Three special loan programs exist within the 7(a) SBA lending class — Express Loans, Community Advantage Loans, Rural Business Loans, and CAPLines. Each carries advantages that make them ideal for unique needs.

Express Loans provide up to $500,000 for established businesses with at least one year on the books. The appeal of these loans is the 36-hour approval time, a much quicker turnaround than the 30-90 day period for standard loans. Unfortunately, the SBA only backs 50% at a maximum, leading to higher interest rates.

Community Advantage Loans are for businesses in low-middle income communities. These loans have lower credit score requirements and can fund newer businesses for up $250,000. Like Express Loans, Community Advantage options offer a quick approval turnaround but with better rates.

To further help businesses in disadvantaged areas, the SBA offers Rural Business Loans for companies in sparsely populated regions. If you live in a town with under 50,000 residents, you may be able to qualify for these by contacting the USDA offices.

There are four lines of credit available in the SBA’s CAPLines program. These help small businesses deal with short-term revolving and seasonal lines of up to $5 million. This is practical for businesses with unexpected expense changes and cash flow fluctuations.

SBA 504/CDC Loans

A 504/CDC loan is a good borrowing option for businesses investing in commercial property. These loans are strictly for purchasing real estate but are favorable for their low down payments and low-interest rates. Borrowers generally need to meet the same requirements as 7(a) applicants and supply at least 10% as a down payment.

These loans are unique in that SBA lenders only offer 50% at most to fund the loan. The other 40% is provided by a community development corporation, and the remainder arrives as a down payment.

Although borrowers have to occupy most of the new commercial real estate, they can use a portion as a rental property.

SBA Microloans

Microloans are provided by non-profit intermediaries who receive funding from the SBA. Small businesses can receive up to $50,000 in unbacked funding for a wide array of working capital, refinancing, and investment projects. Repayment terms are limited to six years, but the credit and collateral requirements are relatively lenient.

SBA Export Loans

Exporters can receive up to $5 million toward working capital with an SBA Export Loan. These funds can help businesses expand their exportation operations, pay suppliers, and broaden their international trade activities. Terms can be up to 25 years, but smaller express options are also available for up to seven years.

SBA Disaster Loans

Unliked loans serviced by SBA lenders, the SBA offers disaster loans directly to fund relief during physical or economic emergencies. Although they feature low-interest rates, these loans can go up to $2 million and offer 30-year payoff terms. If your business is in a declared disaster, you may be able to receive funds without special credit or collateral requirements.

Find the Right SBA Lender For You

Now that you know the main types of SBA loans, you are better equipped to start the conversation with an SBA lender. Check out our SBA preferred lender list to find the partner that can best fit your business needs.

Do you need more information on finding the right SBA loan for your business? Our experts at SBALenders will take stock of your financial situation and business objectives, pairing you with the most cost-effective solutions. Start the conversation today, and see how we can help your business grow.