Access to capital shapes what a small business can do next, whether that’s hiring, buying equipment, or moving into a new space. For many business owners, an SBA loan makes that access possible when conventional financing falls short. But “SBA loan” covers more ground than most people realize. Several distinct programs fall under that name, and each one is built to solve a different kind of problem.
The right program for your business depends on what the money will pay for and where your business stands today. A good SBA lender will help you sort through that, but knowing the basics first means you show up to that conversation already informed.
What are SBA loans?
SBA loans are loans backed by a guarantee from the U.S. Small Business Administration. In most cases, the SBA doesn’t lend the money directly. Loans are issued through banks, credit unions, Certified Development Companies (CDCs), and nonbank lenders like Grow America. Because the SBA guarantee lowers the lender’s risk, these programs can offer terms and reach businesses that might not qualify for a conventional loan on their own.
There are several SBA loan programs, and each one is built for a different kind of need. The three you’re most likely to run into are the SBA 7(a), the SBA 504, and the SBA Microloan.
SBA 7(a) loans
This is SBA’s most commonly used program, with a maximum loan amount of $5 million. You can find 7(a) loans at some banks and credit unions, and Community Development Financial Institutions (CDFIs) like Grow America also offer them. As a CDFI, Grow America considers the full picture, assessing business viability, repayment capacity, and growth potential to identify a responsible path to financing.
The 7(a) loan’s strongest benefit is that one loan can cover several different uses at once, for almost any business purpose:
- Working capital
- Inventory
- Equipment
- Real estate
- Business expansion
- Refinancing existing debt
Repayment terms for these loans run up to 10 years for working capital or equipment, and up to 25 years when real estate is part of the loan.
Qualifying: Requirements vary by lender. At Grow America, if you can say yes to the following, you’re a good candidate for a 7(a) loan:
- Can your business demonstrate the ability to support and repay the requested financing through current performance or well-supported financial projections?
- Are you able to pay yourself a salary?
- Are you current on all personal and business taxes?
- Can you comfortably pay any existing business debt or other loans?
Best fit: A business with borrowing needs that span more than one category, or a business that can’t yet meet the requirements for conventional bank financing.
SBA 504 loans
The SBA 504 is a unique type of SBA loan designed to fund commercial real estate and fixed-asset purchases. It typically uses a 50/40/10 structure. A conventional lender covers 50% of the project through a commercial mortgage, a CDC covers 40% through an SBA-backed second mortgage, and the borrower puts down the remaining 10%. A CDC is a specific type of lender that specializes in 504 loans.
The SBA-backed portion finances up to $5.5 million, with a fixed interest rate for the life of that portion of the loan. The program is built for fixed assets, most often commercial real estate and heavy equipment, and it can also fund the refinancing of existing debt tied to those same assets.
Qualifying: Qualifications also vary by lender. Typically, you need to be an established business in good standing on taxes and outstanding debt. The loan has to go toward buying commercial real estate you plan to use for your business, or fixed assets like heavy machinery or equipment. A CDC can help you understand if you qualify.
Best fit: Businesses purchasing or constructing an owner-occupied commercial property, or making a major equipment investment, who want the stability of fixed-rate, long-term financing.
SBA Microloans
The SBA Microloan is designed to help newer and smaller businesses access funding. Microloans cap at $50,000, with the average loan landing between $13,000 and $15,000. Nonprofit lenders, rather than banks, deliver these loans, and the funds can go toward working capital, inventory, supplies, furniture, or equipment, but not real estate or existing debt.
Qualifying: This program is built for newer businesses. Some, though not all, Microloan borrowers need to build a stronger or longer track record before qualifying for a 7(a), 504, or conventional bank loan, so credit requirements for Microloans tend to be more flexible than the other programs. Funding typically takes 2 to 4 weeks, which is much faster than a 7(a) or 504.
Best fit: A newer business or a smaller funding need.
Which loan fits your business?
Keep in mind that every business’s financing needs look a little different. A lender can map out your full financing picture and point you toward the program, or combination of programs, that fits.
Ready to find the right SBA loan for your business? We can help you explore your options and get started.
