SBA Loan Guide
Everything about Small Business Administration loans — types, eligibility, and application.
SBA Loans: The Gold Standard of Small Business Financing
SBA loans offer the best combination of low rates and long terms available to small businesses. This hub covers the three main SBA programs, eligibility requirements, application tips, and how to find SBA-preferred lenders in your area.
SBA Loan Programs
- 7(a) Loan: Most versatile — up to $5M for almost any business purpose
- 504 Loan: Real estate and equipment — up to $5.5M with 10-25 year terms
- Microloan: Up to $50K for startups and very small businesses
Timeline Reality
SBA loans take 30-90 days. Start the process well before you need the funds.
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Common Questions
What credit score do I need for a business loan?
Most traditional bank loans require a personal credit score of 680 or higher. SBA loans typically need 650+, while online lenders may approve scores as low as 500-550 with higher interest rates. Your business credit score, revenue history, and time in business also factor heavily into approval decisions.
What is the difference between an SBA loan and a traditional bank loan?
SBA loans are partially guaranteed by the Small Business Administration, which reduces risk for lenders and often results in lower interest rates and longer repayment terms. Traditional bank loans have no government backing but may fund faster. SBA loans typically take 30-90 days to close versus 1-3 weeks for conventional bank loans.
How long does it take to get approved for a business loan?
Timeline varies by lender type: online lenders can approve in 24-48 hours, traditional banks take 2-4 weeks, and SBA loans typically require 30-90 days. Having your documents prepared — tax returns, bank statements, financial projections, and business plan — significantly speeds up the process.
Is a merchant cash advance worth it?
Merchant cash advances provide fast funding but at a steep cost — factor rates of 1.2 to 1.5 translate to APRs of 40-350%. They work best as a last resort for businesses with strong daily card sales that need emergency capital. For most situations, a business line of credit or short-term loan offers far better economics.
Key Terms
SBA Loan
A business loan partially guaranteed by the Small Business Administration, reducing lender risk. Common programs: 7(a) (general purpose, up to $5M), 504 (real estate/equipment, up to $5.5M), and Microloans (up to $50K). Lower rates and longer terms than conventional loans but slower approval.
Personal Guarantee
A legal commitment making the business owner personally liable for repaying a business loan if the business cannot. Most small business loans require one. Puts personal assets (home, savings, vehicles) at risk. Limited guarantees cap personal exposure at a percentage of the loan.
Collateral
Assets pledged to secure a loan — the lender can seize them if you default. Common collateral: real estate, equipment, inventory, accounts receivable. Collateralized loans offer lower rates because they reduce lender risk. SBA loans require collateral for amounts over $25K when available.
Debt Service Coverage Ratio (DSCR)
Net operating income divided by total annual debt payments. A DSCR of 1.25 means the business earns $1.25 for every $1 of debt payments. Most lenders require 1.15-1.35 minimum. The primary metric lenders use to assess whether a business can afford additional debt.
Term Loan
A lump-sum loan repaid in fixed installments over a set period (1-25 years). Interest can be fixed or variable. Best for specific, one-time investments: equipment, expansion, acquisition. Online term loans: 3-36 months; bank term loans: 1-10 years; SBA: up to 25 years. **Is a small business loan installment or revolving?** A term loan is **installment** credit: you receive the full amount once and repay it on a fixed schedule until the balance hits zero, and you cannot re-borrow what you have repaid without applying again. A business line of credit is the **revolving** kind: you draw, repay, and draw again up to a limit. Most products marketed simply as "small business loans" (bank term loans, SBA 7(a) and 504 loans, online term loans, equipment loans) are installment loans; lines of credit and business credit cards are revolving. **Why the distinction matters:** installment loans usually carry lower rates and predictable payments, and they suit one-time purchases with a clear payback period. Revolving credit costs more per dollar drawn but only charges interest on what is outstanding, which suits recurring cash-flow gaps. On business credit reports, a paid-down installment loan builds payment history, while a revolving line also affects utilization. **Typical term-loan structure:** principal + interest amortized monthly (sometimes weekly for online lenders); origination fee of roughly 1-5% deducted at funding; prepayment terms vary (some online lenders charge the full remaining interest regardless of early payoff, so read the note). See also: business line of credit, amortization, prepayment penalty.