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The Complete Guide to SBA Loans

08-18-2021 by Robert Bell
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As a small business owner or a prospective business owner, you will almost certainly have heard of SBA loans and how they can help business owners to progress and grow. Yet, you may wonder what exactly these loans involve and who can access them.


Small businesses are crucial to the American economy, as they create two-thirds of new net employment and make up 44% of the country’s economic activity according to the US Small Business Administration. Small businesses account for around half of all American workers and close to 50% of the nation’s GDP,  as well as produce more patents than larger companies. They provide an entry point to the labor market for the majority of American workers.


On the other hand, 29% of small businesses fail because they run out of cash to meet their obligations, while a third of business owners worry about a lack of cash flow. This means that having timely, reliable access to funding options is one of the key aspects of running any type of company. By their nature, small businesses have more risk of running out of money than larger companies do, with fewer funds to draw on and fewer assets to use as collateral in the case of a financial emergency.


Even before that stage, getting access to sufficient funding is one of the main stumbling blocks that entrepreneurs often need to get over to get their new business off the ground in the right way. An SBA loan can help you get a startup going or open a franchise with enough funds to get off to a strong start. This includes getting all of the equipment and staff you need in place without over-stretching your finances. Starting off under financial pressure and knowing that any setback could be fatal is the worst possible way to begin life as a new business owner.


For established companies, getting a loan at the right time can also be a good way of helping a business to move to the next level by expanding into new markets, offering more products, or otherwise taking the next logical step that allows them to grow sustainably. If you have reached a point where you need to get some cash to take the next step, that is exactly what SBA loans are there to help you do.


SBA loans aren’t handed out directly by the US government, but they are backed by them and are designed to make it easier for American companies to grow and expand.  Small businesses are rightly regarded as one of the key parts of the economy, providing jobs and driving growth, so it is no surprise that the government is keen to see more of them succeed.


There are some powerful reasons for believing that this is often the best way to get a hold of the cash you need to move forwards with your business, but there are also a number of important points to bear in mind before you apply for a loan of this type. Take a look at how these small business loans work and everything you need to know about applying for one.


What Are SBA Loans?

SBA loans are typically suitable for small businesses in the US. They can be issued by a variety of different financial institutions and are partially guaranteed by the Small Business Administration of the government. This scheme is designed to create jobs across the country by helping small businesses to grow and prosper.


The money isn’t loaned directly by the government to companies, but their intervention helps to reduce the risk for the bank or other type of financial institution that the borrower chooses. If the borrower is unable to pay back the money, the lender can take their guarantee to the SBA and recover a percentage of the amount that they loaned.


SBA loans can be granted via a bank, credit union, or another type of lending institution, which then have to apply to the SBA for a loan guarantee to back up a percentage of the loan. This way, if the borrower defaults on the loan repayment, the government pays the guaranteed amount to the lender, which can be up to 85%. This approach means that the lenders are more comfortable giving funding to businesses, and can provide better rates than would otherwise be the case.


In addition to this guarantee given by the SBA, everyone who has a stake of 20% or more in the business will need to provide an unconditional personal guarantee to the SBA. This means that you will be responsible for any amount that you don’t pay back to the lending institution. Ultimately, you need to pay it back just like you would with any other type of loan. The difference here is that you will owe the money to the government, as they repaid the balance on your behalf.


The Small Business Administration guaranteed more than $28 billion to American entrepreneurs in the 2019 financial year. The funding options run from $500 up to $5.5 million and repayment periods can go up to 25 years in some cases. In 2018, the average SBA loan amount was over $417,000, which was lower than the overall average business loan from all sources of more than $660,000.


These loans are open to companies in a wide variety of industries. With a number of different types of loans to choose from, it is important that you understand the qualifying criteria and the options open to you before you get started. So, let’s take a look now at whether you can hope to borrow money for your small business in this way.


A business owner smiles proudly.


Who Can Ask For a Loan?

SBA loans are aimed strictly at small businesses, new or old, that are based in the US. However, there are additional criteria used to make sure that this type of funding goes to the right companies.


The lenders who use this scheme have different lending criteria, while the different types of loans also have individual criteria attached to them. This makes it slightly difficult to give a comprehensive list of what exactly you need to qualify in every type of case. Over 40% of American businesses ask for a loan each year, and it is clear that they each have their own, unique circumstances that lenders need to take into account.


Yet, in general terms, SBA loans are open to anyone who meets the following loan criteria.


  • The business needs to be located in the US and the owner(s) has to be a US citizen or else have permanent resident status in the country. The company needs to do business in the US, although we will see later on that there are some specific options for those companies looking to export products or services to other countries.

  • Only for-profit businesses can apply for an SBA loan. The likes of charities, nonprofit organizations, and religious entities are excluded from this financing method.

  • Franchises are eligible for SBA loans. The only exception here would be if the franchisor retained the power to make all of the decisions, turning the agreement into something more similar to a contract of employment than a franchising agreement. Provided that the franchisee can freely profit from their efforts and take decisions (as is typically the case), they can go ahead and apply for an SBA loan like any other small business owner.

  • If you plan to open a new franchise, you could check the SBA Franchise Directory first of all. This is a listing on their site that lets you see all of the franchises they are aware of. The fact that a business isn’t on here doesn’t mean that they won’t approve it, though, as it is nothing more than a guideline to get you started.

  • Not all industries are considered as being eligible to borrow money with an SBA guarantee in place. Those that are ineligible include companies that make more than a third of their revenue from gambling, real estate investment businesses, and companies that are based on risky types of speculation where they aim to benefit from fluctuations in prices. Rare stamp and coin collection is one example that is commonly given of the type of business that would fall into this category.

  • It is also expected that the business owner will have invested enough time and money into the company to operate it on sound financial footing. In other words, this funding should be to help them open, or improve and expand, or deal with the consequences of a disaster, rather than being a way of dealing with cash flow shortages or a failing business model. There appear to be no strict guidelines in this respect, so a common-sense approach should tell you if this is likely to be seen as an area of concern or not.

  • When it comes to new businesses, the lender will want to see a strong and realistic business plan. This is what shows them how you plan to enter the market and make a profit in the short term while setting up a sustainable, long-term business model. A good example of what could help to convince the lender could be if the borrower is looking to open a new branch of a franchise that has a good track record and that offers a strong possibility of success in their chosen area. 

  • Since these are loans for small businesses, there are also guidelines on the maximum number of employees and revenue that qualifying companies can employ. The SBA has a list of guidelines in this respect that shows the limits in place for each type of industry. For instance, finance companies can have up to 1,500 workers with as much as $38.5 million in annual revenue. Retail businesses can go up to 500 employees while manufacturing companies have a limit of 1,500 workers.

  • You can’t be behind on any debt that you owe to the US government when you apply for this loan, which includes taxes and student loans. Tax liens and judgments will see the traditional lenders under the SBA scheme automatically turn you away regardless of the strength of the rest of your case. However, you may be able to get something sorted out by turning to an alternative SBA lender rather than a big bank. This could involve borrowing extra to pay off the tax lien, so it is an issue to consider carefully and get good advice on.

  • There can be no recent bankruptcies or foreclosures in your personal history. If you have had financial issues like this in the past, The lender might also take this into account, but it really depends upon the circumstances and the amount of time that has passed since then. If you have had financial issues in the past, it is worthwhile checking with a few lenders to see if this is going to affect their current decision in any way.

  • Anyone involved in a farm or other type of agricultural business is encouraged to explore the Farm Service Agency’s current programs before applying for an SBA loan. However, the SBA does have programs, such as the Community Advantage Loan Program, that are suitable for rural areas. Rural businesses are classified as those in a community or area that has a population lower than 50,000 inhabitants.

  • Medical businesses and facilities are eligible for SBA loans, provided that they are registered with the appropriate authorities. SBA 7(a) loans can be used for businesses like physical therapy practices, pharmacies, and chiropractic offices.

  • There are some special requirements when money is to be borrowed to build or recondition fishing vessels with a cargo capacity of greater than five tons. In this case, the owner should look for financing from the National Maritime Fisheries Service first.

  • You can’t get a loan under the SBA program if you are currently incarcerated, on parole, or on probation. In the case of this being a historic conviction, the decision is taken on a case-by-case basis.

  • Companies who lend money, insurance companies, and others whose principal activity or stock in trade is money are also excluded from the list of eligible businesses.

  • Pyramid schemes of all types are excluded from SBA loans. Naturally, any business involved in illegal activities can’t get a loan in this way.

Additional Criteria That May Be Applied

The previous list is fairly general in the SBA guidelines for loans, but the lender you choose to work with may have additional requirements that you need to meet. Therefore, you may also see the following eligibility criteria mentioned. These aren’t hard and fast rules by any means, but they are commonly applied.


  • The business should have a minimum of two years’ history behind it. New franchisees often find that investing in an existing franchise with a good track record could give them an advantage when it comes to securing funding to get started, as the history of success is already in place. This compares to a completely new business where the entrepreneur has to show how they expect to make it work from scratch.

  • The business owner should have a good personal credit score. Anything over 640 is generally mentioned as being suitable, although other sources mention 680 as the minimum, so it depends upon the lender’s current criteria.

  • Having enough cash flow and working capital to operate smoothly is typically a requirement on any business loan. If you aren’t in this situation, then you shouldn’t expect to be able to get an SBA loan to save the day. A lack of cash flow more often means that there is some sort of fundamental flaw in the business that can’t be solved just by borrowing some funds. The only option here is to try and get the company onto a better footing in some other way before going back and looking for an SBA loan to help you to expand in the future.

  • You might be asked to prove that you have attempted to obtain a loan directly from lenders before turning to the SBA option, as that is the process in place for granting this type of loan.

As we can see, the SBA loan lending criteria is reasonably complex, which is to be expected when we are talking about funding that potentially goes up to millions of dollars. This isn’t something to be considered as a quick and easy way of getting a hold of some cash. Rather, it is an option to be considered carefully as part of your overall, long-term strategy for growth.


You might find that the lender comes back to ask you more questions after your initial application has been assessed. The best piece of advice here is to give them as many details as you can at the outset, as this should help you to get a decision more quickly and without having to go back with additional answers.


Having said that, we will look in a moment at the application process, which isn’t as complex as you might fear at this stage. It certainly needs your full attention and a little bit of your time, but there is nothing in the process that you need to be worried about.


A Closer Look at New Businesses

This is a good moment to look in more depth at the process of asking for a loan from the SBA for the purposes of starting a new company. This is clearly a daunting moment for anyone who is looking to start a new business and needs to secure some funding to turn their dreams into reality. The average cost of starting a new business is said to be around $40,000 in the first year, although it is clear that this amount varies greatly according to different factors such as the business type, location, the number of staff, and the size of premises that is needed.


Generally, about 10% of the overall spend goes to each of the following areas: operating costs, marketing costs, and having an online presence. Product costs can run to 30%, on average, with the cost of running a team close to 30% of the overall spend. It all adds up to a lot of money that has to be spent before the company has earned anything in revenue. This can be enough to put you off the idea of opening a new business right away.


It is easy to think that you won’t be able to borrow any money for a business that has no track record for the lender to base their decision on, but this isn’t always the case. A high percentage of new businesses are opened using borrowed money, which is often done through personal loans, although they are usually more expensive and can have a negative effect on your personal credit score.


The SBA authorizes loans for new businesses, as well as for established companies. The key is in providing the lender with the information that they need to make a decision on whether to approve your application. Remember that the general idea behind these loan programs is to encourage entrepreneurs to get involved in helping to push along the American economy. So, they want you to convince them that you have a good business plan that they should back, rather than looking for reasons to turn you away.


Having a well-written business plan that shows a clear way ahead is a hugely important part of the process. It is where you have the opportunity to show the numbers that back up your ideas, and how this will translate into profits that will let you pay back the loan. Don’t think that the fact that you have no history in the business is automatically going to stop you from being able to borrow the money you need. You should bear in mind that the Small Business Administration is set up to help small businesses to stimulate the economy, so helping new businesses to get started is a big part of their role.


When it comes to the idea of borrowing from an SBA-approved lender to open up a new franchise, the benefit is that the track record held by the overall franchise will help the lender make their decision. If it is listed on the SBA Franchise Directory this isn’t a sign that you will automatically be approved and that the business will be a success, but it does mean that the SBA is aware of the franchise and that it meets their basic criteria to be classed as a franchise model.


You should still put together a business plan to show you plan to make a success of the franchise model in your local area. Fortunately, the fact that other people have already used this approach makes it slightly easier for you to show that this can be done.


With a new business to fund, it is more important than ever to get your documentation in order and show potential lenders that you have a great idea that is likely to be a success. You should be looking to make it as easy as possible for lenders to see how confident you are of turning this great idea into a profit-making business that lets you pay them back with minimum fuss. 


Types of Loans

There isn’t a single type of SBA loan that is offered to everyone and that suits every need. Instead, there are a variety of different types of funding for varying situations and company types. If you are comfortable about meeting the small business lending criteria that we just looked at, your next step is to see which of the following types of borrowing would be right for your present needs.


  • The SBA 7(a) Loan program is the most common of all the SBA loans, with around 52,000 loans in the 2019 financial year reaching a total of $23.17 billion. This type of loan is available for amounts of up to $5 million and can be used for working capital, land, purchase of equipment, debt refinancing, and business expansion. This is the most suitable option in cases where real estate is included in a business purchase.

  • The SBA 504 Loan program is for the purchase of long-term assets to promote economic development with fixed-rate financing under reasonable terms. This covers land, facilities, and machinery. These loans can run up to $5.5 million in certain cases, but the normal maximum is $5 million. The SBA reported over 6,000 loans totaling $4.9 billion being issued in 2019. Business owners pay 10% of the purchase price from their own funds, with a Certified Development Company providing 40% through financing and the other 50% coming from financing through a bank or credit union. These loans can run for a maximum of 25 years with the interest rates below the market throughout the term.

  • As for the SBA’s Microloan program, this is used to let businesses obtain loans with a maximum of $50,000 through not-for-profit lending intermediaries. The borrowed money can be used for various reasons, such as inventory, working capital, equipment, machinery, and supplies. In 2019 close to $81.5 million was issued on over 5,500 of these loans. This is, in theory, the easiest loan to get since it is for the smallest amounts and represents a lower risk for the lender.

  • SBA Express Loans are currently available for up to $1 million following a temporary increase to allow businesses to deal with the effects of the COVID-19 pandemic. This will fall back to $900,00 at the start of October 2021. They can be used to allow companies to more rapidly access funds to use as working capital, carry out expansion plans, and purchase equipment. If you are short of time and don’t need more than $1 million, this is a good choice.

  • SBA Disaster Loans can be for up to $2 million and are used to repair the damage caused by an event declared as a disaster. The money can also be used to meet the company’s operating costs while they recover. It can be applied for by businesses of any size, private non-profit organizations, homeowners, and renters. The types of disasters included in the definition are natural disasters such as flooding and hurricanes, as well as damage caused by civil unrest. The SBA site includes Tropical Storm Elsa and the flooding in Michigan and Illinois among the examples of disaster in 2021.

  • At the time of writing, the SBA website has a special section covering a COVID-19 Economic Injury Disaster Loan (EIDL) option. This is a loan that is available to small businesses, non-profit organizations, and agricultural businesses with a maximum of 500 workers. These companies can apply for the COVID-19 EIDL program if they have suffered substantial financial loss due to the pandemic and need some help in recovering from this difficult period. From April 6, 20201 onwards, the loan can be used to cover 24 months of economic losses, going up to a top loan amount of $500,000. It can be used for working capital and normal operating costs, with a repayment term that can be as high as 30 years. Collateral is required for loans over $25,000 and a personal guarantee if the figure goes over $200,000.

  • SBA Export Working Capital Loans are designed to help companies looking to increase their export sales and can reach $5 million. The SBA website states that this form of funding has a low guarantee fee and can be processed quickly. Once agreed, the funds can be used for the likes of financing for suppliers of export goods, working capital for foreign accounts where long payment cycles are expected, and as financing for standby letters of credit which the borrower intends to use as bid or performance bonds.

  • SBA Export Express Loans are similar to those in the previous point but are issued more quickly and have an upper limit of $500,000. It is their simplest loan for export purposes and it is designed so that lenders can quickly underwrite applications and get funds to the borrowers in as little as 36 hours.

  • SBA Community Advantage Loans is described as a pilot loan program that is aimed at small businesses in underserved markets. They can be for up to $250,000 and are mainly used by non-profit intermediaries to help boost economic development. This program provides management and technical assistance to small businesses in the target areas where these loans are offered.

  • SBA International Trade Loans can be arranged for amounts up to $5 million. They are used by companies who plan to on-shore their businesses to compete with international rivals. It is aimed at businesses that currently produce their goods or services elsewhere but want to start doing so in the US to take advantage of improved labor productivity and the proximity to the raw materials needed for their processes.

The right way to get started on asking for SBA-backed funding is to go through this list and see which one applies to your business and current needs. In this way, you won’t waste time looking into something that doesn’t suit you or isn’t available for your present circumstances.

The SBA also sometimes hosts webinars on certain loans, and you will see them advertised on their site. If you have any doubts you want to clear up, you can contact the SBA by email or by phone. However, it is usually a better idea to speak directly to a lender if you have questions you want to ask.



What Are the SBA Loan Terms?

Given the details that we have seen so far, it is clear that the terms of small business loans vary from one to the next. For a start, the range of different types of loans that are available for varying amounts and reasons means that we can’t simply list one set of terms for every type of borrowing.

By going through the terms and conditions provided on the official SBA website, we can see the following issues to be taken into account.

The Loan Amount

The best starting point when deciding to ask for an SBA loan is by working out exactly how much you need and what it is to be used for. This will make everything a lot clearer from the beginning, with no doubts about which type of loan you should ask for and the terms that you can expect to find on it.


The maximum amount of the loan is one of the factors that vary according to the category that you borrow under. The express loans have lower maximums than the rest. Most of the remaining types can go up to $5 million but there is an exception for 504 loans, which can reach $5.5 million only in those cases where the project is energy efficient or in a certain area of manufacturing.


It is worth noting that the loan amount criteria have been changed in 2021 due to the coronavirus relief bill taking effect. This is a temporary amendment and the figures will revert back to normal in October 2021. It is always a good idea to check the current numbers before starting a loan application.


Of the total amount that is borrowed, the SBA has a maximum exposure of $3.75 million under their guarantee scheme, which increases to $4.5 million in the case of International Trade loans. This is usually based on a guarantee covering 75% of the total loan, but this percentage can vary depending upon the exact loan details.


The percentage of the loan that the SBA can guarantee is according to the type of loan and the amount involved. We can see in the following examples how this works in a few specific cases.


  • 7(a) loans up to $150,000 have a maximum of 85% guarantee applied.

  • 7(a) loans greater than $150,000 are guaranteed for 75% of the total.

  • SBA Express loans have a maximum guarantee of 50%.

  • The amount guaranteed by the SBA rises to 90% when it comes to the Export Express loans.

  • Under the Export Working Capital programs, 90% up to $4.5 million is covered by the guarantee, with the same number for International Trade loans.

The amount of the guarantee only affects you if you fail to repay the loan. In this case, the percentage that is shown covers what the government will be looking to recover from you. The rest of the amount borrowed will be the responsibility of the lender, who will also seek to get it back from you.

Taking all loans from all sources into account, American businesses borrowed an average of $663,000 in 2018, although this amount varies greatly according to the source of the borrowing. The average SBA loan in that year was $417,316, with the SBA microloan sitting at $13,000.

Most business needs can be covered by these loans, even if you are looking at buying a lot of specialist equipment or large premises. The high maximum loan amounts mean that you shouldn’t enter into an agreement lightly. Yet, with a solid business plan that lays out exactly how you plan to use the funds, you will feel a lot more confident about making the right financial decisions.

The Loan Repayment Period

SBA loans are best regarded as being long-term funding options rather than offering a quick fix. This means that the repayment term is often long, with the following maximum limits in place.

  • Working capital, equipment, and inventory loans can run for as long as 10 years.

  • If you want to borrow funds to purchase real estate or carry out improvements to land or buildings, this can be done over a 25-year maximum.

  • When you use the funding to purchase other types of fixed assets rather than real estate, the longest term you can apply for is the economic life of the assets in question. However, the 25-year limit can’t be exceeded.

These numbers are fairly general guidelines, and you will need to approach a lender with a specific borrowing request to find out how long of a repayment period they are willing to authorize. A long loan term keeps the repayment amounts down but this can also lead to paying more interest before it is completely paid back.


Interest Rates

Clearly, the level of interest you are asked to pay will make a huge difference to the affordability of your SBA loan. The exact interest rate is decided between the lender and the borrower, rather than being determined by the SBA. These loans can also be repaid at either a fixed or variable rate.


However, what this agency stipulates is that the interest can’t go over a maximum amount, which varies according to the amount borrowed and the repayment terms. These maximums are pegged to a specified rate, such as the prime rate or the LIBOR interbank lending rate. The SBA also publishes their own optional peg rate that is worked out and published each quarter that lenders can use if they prefer to do so.


These small business loans can be issued at lower than normal rates because of government backing. This is a big part of the reason why they are considered so attractive by small business owners. It is this element of guarantee that allows lenders to relax a little bit and accept lower interest rates than they normally would require.


We can see here the current rates on both variable and fixed-rate loans.


The maximum interest rate that is allowed on variable rate loans:

Amount borrowed

Maturity in 7 years or less

Maturity of over 7 years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 to $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 and over

Base rate + 2.25%

Base rate + 2.75%


The maximum interest rate that is allowed on fixed-rate loans:

Amount borrowed

Amount added to the prime rate noted on the first business day of the relevant month

Up to $25,000

6% plus the additional 2% that is allowed under 13 CFR 120.215

$25,000 to $50,000

6% plus 1%

$50,000 to $250,000


$250,000 or more




You will expect to pay a fee with any sort of business loan that you take out, as this covers the work put into underwriting and processing. In terms of SBA loan fees, the government agency always collects a loan guarantee fee. The reason for this is that they want to make sure that it is the borrowing business that pays the cost of the service, rather than the taxpayer.


The guarantee fee has to be paid within a maximum of 90 days after approval for the loan is given. It can be paid from the amount borrowed. In general terms, even when we take this into account the SBA loan fees are lower than you would expect from a non-SBA loan.


The terms and conditions of government-backed loans specify that lenders aren’t allowed to charge the borrowers a loan origination fee. However, they are authorized to add on packaging fees, which have to be for a reasonable amount and relate to the work they have done on the loan. In addition, these packaging fees need to be similar to the fees that the lender charges on their non-SBA business loans, so this can’t simply be used as an excuse to charge a high fee to replace the loan origination fee.


There is quite a lot of criteria to take into account here, so it should be easier to understand if we go through a few examples of different cases and look at the size of the fees they would generate. This list isn’t exhaustive and the details may change over time, so you should be sure to check the SBA website to confirm what to expect in your current situation.


  • Loans of $150,000 or less will attract a 2% fee, which is based on the guaranteed amount backed by the SBA. As we have seen previously, in 7a loans you would expect 85% of the loan to be guaranteed.

  • If the amount is between $150,001 and $700,000, it is slightly higher. 3% of the guaranteed element of the total borrowing is applied as a fee for this range.

  • From $700,001 to $5 million, a fee of 3.5% is applied to the guaranteed amount up to a limit of $1 million. After this limit is breached, it is 3.75% that is used to calculate the rest of the loan fee.

  • An example of an SBA loan where no loan fee is needed is with SBA Express Loans given to qualified veterans and their spouses. If the borrowed amount is $350,00 or less and the program is zero-subsidy, there is no loan fee charged at all.

  • The SBA ongoing guarantee fee is a percentage of the balance that the lender has to pay to the government agency and that can’t be passed to the borrower. As the borrower, you don’t need to worry about this fee in any way.

  • The previous examples are all based on loan terms of over 12 months. A short-term loan that is due to run for a period of less than 12 months will have a 0.25% fee applied to the guaranteed element of the amount.

  • The application of other fees–such as processing fees, application fees, brokerage fees, etc.—is prohibited. One exception is with an Export Working Capital Loan, where a commitment fee can be charged.

Another area you should understand before going ahead is that of prepayment penalties. These charges are made in certain circumstances on loans that have a term of at least 15 years. The prepayment penalty is triggered when the borrower chooses to prepay 25% or more of the amount that is outstanding on their balance. It only applies in the first three years of the loan, though.


If prepayment is made in the first year after disbursement of the loan, the fee is 5% of the prepayment amount. In the second year of the loan, this drops to 3%. When payment is made in the third year, the fee is 1% of the amount of the prepayment.


The Main Advantages of SBA Loans

There are plenty of good reasons for considering an SBA loan when you need funds for your business. This form of borrowing has proved to be extremely popular over many years because of the following advantages that it offers.

  • As we saw in an earlier section, the low SBA loan interest rates are attractive. This means that borrowing money in this way is usually a good deal cheaper than with most other types of loans. Even if the difference doesn’t seem all that much at the start, when you start paying it back every month you will soon see the difference even increase in interest makes to your monthly payment.

  • The fact that you can take out a loan that is repaid over 10 years or more is another big advantage. If you need to borrow a lot of money, then this sort of long-term approach helps to keep the monthly repayments as low as possible. For other business owners, paying the loan back more quickly may make more sense, so it is important to consider the options and your priorities before starting.

  • Another benefit of an SBA loan is the low fees. In most cases, the only sort of fee you will need to pay is a relatively small packaging fee charged by the lender. Even this figure can be taken from the amount borrowed, so the fees are unlikely to be a make-or-break issue.

  • You only need to pay a small down payment, meaning that you can finance most of the money you need this way. This makes it one of the simplest ways to access funds for major costs such as real estate or expensive machinery.

  • In theory, you can apply for as many SBA loans as you need. Provided that you meet the overall criteria and your existing loans are running smoothly, you can apply for additional loans with no limit in place. This can be a big help if you take out an initial loan and find that the business starts to grow at an impressive rate. In this case, you might want to borrow some more money to continue growing and making the business stronger.

  • You might qualify for a loan that you wouldn’t be accepted for in any other way. The fact that there is a government-backed guarantee in place means that lenders can accept borrowers that they might not have otherwise been able to take on. This opens up more possibilities for you to get hold of the money that you need to carry out your business plans successfully.

  • The eligibility requirements are broad enough to allow many different types of cases. If you can’t see where your business could fit into the standard type of SBA loan, it is worth finding out more. You might be able to get something sorted out under one of their categories even if you aren’t eligible for the main 7(a) loan program that most companies borrow under.

  • The variety of different loan types and the eligibility criteria on them mean that you can look for something that is right for your business and your situation, from buying new premises to expanding into international markets and adding new equipment, among other situations.


A man and woman discuss plans for the future franchise business.


Disadvantages of SBA Loans

Not everything is perfectly smooth when you look for an SBA loan for your business. The following are some of the key drawbacks that you should know about before you go ahead.


  1. The lender will probably want to get additional security for the loan. This is typically done by putting a lien on any personal assets that you own. Not everyone feels comfortable doing this, and it can tie up your assets and reduce your liquidity more than you would like.

  2. If you don’t have any assets to offer as additional security, this will make it more difficult for you to get accepted for a loan.

  3. Another possible disadvantage here is that the approval process for SBA loans can be quite slow. Expect to wait up to two months for the approval for your loan request, which can be too long for a lot of entrepreneurs to hold on for. The express loan options offer a speedier way of getting hold of funds, but this might not be right for your needs.

  4. If you have a relatively low personal credit score it can have an impact on your loan application. The criteria vary from one lender to another in this respect, but you may struggle to be approved with a poor credit rating.

  5. Bearing all of the advantages and disadvantages in mind, it is easy to see why SBA-backed loans are a great choice for many types of business. It won’t be the right option for every entrepreneur, but the advantages definitely outweigh the disadvantages for a lot of business owners.

SBA Loan Submission Requirements

The best place to get started in meeting the SBA loan submission requirements is with their application form. You can find the current range of forms on the US Small Business Administration website. The form isn’t particularly long or difficult to complete, but you should remember that the exact form you need to choose depends upon the type of loan you are going to be applying for. It makes sense to speak to an approved lender first of all if you have any doubts. 


  • While the main loan submission form that we just looked at covers the main information relating to the business you run and need funding for, you will also need to fill in a personal background statement (SBA form 912) and another for your personal financial details (SBA form 413).

  • The next piece of information that you need to supply covers financial statements for the business. This includes a current profit and loss statement as well as a detailed financial projection for the next year.

  • In the case of asking for funding when you are planning to purchase a business, you should include their current balance sheet together with the profit and loss statement and the last couple of years’ worth of income tax return. You should also provide the proposed Bill of Sale with details of the asking price and the items such as inventory and machinery that are included in the sale.

  • As part of the loan application, you also need to confirm the details of any subsidiaries, affiliates, or franchises that are connected to the business. They will also want to know the details of any previous loans you have taken out. 

  • Your business license or certificate is another important piece of documentation. In the cases of corporations, they can stamp the application form with their corporate seal.

  • Add in the last three years’ personal and business tax returns together with personal resumes for each of the company’s principals.

  • Details of the business lease, or proposed lease, should also be included.

  • Another element that you need to provide is an overview of the business, together with a note of its history. This is where you can take the opportunity to explain the reason for asking for an SBA loan and in what way it will help your company progress.

This may look like a fairly extensive list that you need to worry about fulfilling in order to proceed with the application, but it shouldn’t be difficult to pull all of the documentation together in most cases if you take it one step at a time and don’t get stressed. It is a good idea to check that you can get hold of everything that is asked for before you approach a lender.


The SBA Loan Application Process

You don’t need to speak directly to the SBA to get your loan application started. Remember that the banks use their own underwriting process to decide which borrowers are eligible, but need to go through the SBA to get the guarantee approved and sign off the loan.


The first step is to approach an SBA-approved lender to start the process in earnest. You can use the SBA site to find a list of suitable lenders that you might like to deal with.  


Open up their Lender Match tool and answer a few questions about your business and the loan that you need. You'll receive an email within a couple of days telling you which lenders are the most suitable for your situation. Some of these lenders may contact you directly.


There are over 800 approved lenders across the US that take part in this Lender Match program. Having said that, there is no guarantee that you will get a match back. If you don’t, or if you don’t want to use the lenders that you are advised, you can still contact other banks and credit unions to supply. However, it is worth bearing in mind that SBA-approved lenders are likely to process your application more speedily than others.


When you speak to a lender you will want to ask them the usual questions, such as what interest rate they will charge and the minimum credit score they accept.


No matter which lender you decide to go with, it will be a smoother process if you check their experience with SBA loans in the early stages. You can ask them how many of these funding applications they get approved each year and for what range of amounts. The more experience that they have in the area, the easier it should be to get through the whole process.


The most active lenders involved in SBA loans include the following, although this list is far from exhaustive.


  • Wells Fargo Bank

  • Live Oak Banking Company

  • The Huntingdon National Bank

  • JP Morgan Chase Bank

  • Celtic Bank Corporation

  • US Bank

  • Compass Bank

Once you have made your loan application, you may need to wait between one and two months to get word back on whether it is approved. If you need some funding sorted out more quickly, the express options shouldn’t take more than 36 hours, although the maximum amount is lower in this case.  


Provided that the loan is approved, you won’t need to deal directly with the SBA for any reason. The loan is disbursed by the lender and you will pay them back each month.  


How to Prepare for Your Loan Submission

Use the Loan Submission Checklist on the SBA website to ensure you complete all the necessary steps.


It is also a good idea to check your credit score at this stage. You can do this directly with any of the three big credit agencies; Equifax, Experian, or TransUnion. In fact, the best approach is to check this score on a regular basis even when you aren’t planning to ask for a loan soon.


If your credit score is too low, it could take you a while to build it back up before you can get an SBA-backed loan. The list of SBA loan alternatives in the next section will give you some ideas for other ways of borrowing funds that you might like to consider in the meantime.


When opening a new business, you need a business plan in place regardless of whether you are going to ask for a loan or not. If you haven’t yet done this, the start of the loan application process is a good time to get it sorted. This is where you will show how you expect to make money and that the business is sustainable.


Other benefits of having a good business plan include increased clarity and the ability to create a marketing roadmap. Not having a solid business plan is regarded as one of the key reasons why a lot of new businesses fail in the early years. It isn’t just something you need for the lender but for your own benefit as well.


All applications for SBA loans need to be made in English. However, you will find their forms available in 17 other languages, including Spanish, French, German, Polish, and Chinese Mandarin. These details are provided to help foreign language speakers more fully understand the rules and criteria to be applied.


A franchise owner researches funding options for his business on a laptop.


SBA Loan Alternatives

The information that we have looked at here has confirmed that SBA-backed small business loans are a good choice for helping many different types of companies to grow and prosper. Yet, this way of borrowing isn’t always right for every business.


You might not be able to get an SBA loan because of your credit score, because your type of business is ineligible, or for some other reason. In any of these cases, there are other ways of borrowing money for your company to get started. The following are some of the most popular alternatives and some details of why and when they could suit you.


  • A traditional bank loan remains one of the most popular ways to borrow money, but it is likely to be more expensive than an SBA loan and the lending criteria is usually tougher as well. Therefore, it is probably only something to consider if you are unable to get a hold of an SBA loan. Remember that SBA loans are offered by many of the same banks that you would probably approach for a business loan anyway. Most of the country’s major banks are included in this program.

  • Crowdfunding is a modern alternative to going to the bank to borrow cash. There are now a broad variety of crowdfunding sites you could use, such as Kickstarter, Indiegogo, and Crowd Supply. When we study the pros and cons, we can see that there is little financial risk involved in starting a campaign of this sort, and it could help you to understand what kind of market exists for your ideas. On the other hand, it doesn’t work for every type of business and less than a third of crowdfunding campaigns are successful. You might not know for some time whether you are going to reach the funding target you have set or whether you will fall short of it.

  • Marketplace lenders or peer-to-peer lenders work differently from banks and other financial institutions, as they match up potential borrowers with people who are looking to lend money as an investment. The downside here is that the ease with which money can be borrowed might work against you if you over-stretch yourself by borrowing too much.

  • Direct online lenders act like traditional banks but instead of having physical branches around the country they only have an online presence. This may be a more convenient way of arranging a loan, but you may have to shop around a lot to find a lender willing to give you what you need, especially if you are looking for a large amount to start a new business or improve an existing venture. 

  • Private lenders can provide you with another way of getting the funds needed to carry out your business plans effectively. They will almost always want to secure the lending against assets, and you can expect them to offer up to 65% of the total value of any purchase. These types of loans are usually quite quick and easy to arrange, but the interest rates will probably be higher than you would get from a traditional financial institution.

  • Borrowing from friends or family is something that many entrepreneurs consider, particularly when they are looking to start up a new business that they truly believe in but don’t have the assets or financial track record to back up their confidence. There is no doubt that this can be a simple way to borrow money, but you should think about the potential problems it could bring if you are unable to pay back the money as quickly as you hope to. If you go down this route, make it as professional as possible by signing a contract, showing them your business plans, and paying some sort of interest on the amount that you borrow.

  • Equipment financing can be used to get a hold of new or better equipment for your company, with a lien often taken out on the equipment itself. You might also be asked to accept a lien on another of the business’s assets. A personal guarantee is another option that could come into play. You need to pay it back over time in the same way as a loan and, once it is fully paid, you own the equipment outright. This can be a good choice if your business needs a lot of equipment but you don’t want to tie up all of your cash in buying it.

  • On the other hand, with equipment leasing, you are renting the item over a specific period of time, and at the end of that time, you don’t own it. This can be easier to arrange and might be a good idea if you need to keep costs down at the start of your business but it means that you will need to buy or lease the equipment again at a later stage.

  • Merchant cash advances are among the most popular ways for businesses to borrow money. This is a process where you receive a sum of money as an advance. You then pay back the money you have borrowed from future sales. This is a fast and convenient approach to getting money if your business earns on cash, credit card payment, or check payments rather than by issuing invoices for payment.

  • Personal loans are designed to be used for a variety of reasons. In theory, there is no reason that you couldn’t use a personal loan to fund your business. Indeed, this is one of the most popular ways of starting a new business. If you have a good personal credit score and some assets, this may be the simplest and fastest way to access the funds you need to start your own company. Just remember that the interest rate will probably be higher than with an SBA loan, and you might not be able to borrow such a high amount either. Most importantly, with a personal loan, you are personally responsible for paying it back, so the consequences of hitting any financial difficulties could be more drastic. It is probably only worth considering this option if you need a relatively small amount and you are very confident of being able to pay it back.

  • Credit cards can be used to inject emergency funding into a business, with the SBA reporting that 46% of small business owners use a personal credit card for their business needs at some point. But this isn’t regarded as a safe or particularly sensible way of operating. The main reason for this is the high interest rate these cards tend to have attached to them. You could also damage your personal credit rating or max out your cards, leaving you unable to use them for personal purposes.

Having looked at all of these funding methods, it seems clear that taking out an SBA loan remains the most sensible approach for the majority of entrepreneurs. The process isn’t perfect and it can take some time to get the money through. Yet, the low rates and flexibility that this method offers make it a recommended way to get the money that your small business needs.



Taking into account everything that we have seen here, it is no surprise to find that SBA loans are as popular as ever among small business owners in the US. The combination of low rates, accessibility, and flexibility make this a recommended way of getting a hold of the funds that your business needs to progress.


In the case of someone looking to open the business of their dreams, it is one of several ways of getting funding that should be carefully considered. If you need money to get a new company off the ground or to take advantage of a franchise opportunity that you think is worthwhile, this is a safe and sensible way of doing so.


In terms of existing business owners, this sort of loan can be ideal for helping them to grow and enter into new, potentially rewarding markets at home or internationally. Overall, this is an approach to getting funding that can be the right move for ensuring a brighter future for your company.