The SBA in SBA loans stands for the Small Business Administration, a government agency devoted to promoting small businesses. The SBA loan program comprises various small business loans, and the SBA 7(a) loan is the most common and popular among them.
The Small Business Administration does not lend to businesses. Private lenders issue SBA 7(a) loans and are partially backed by the U.S. Small Business Administration. Small business owners still need to apply to one of three types of lending institutions: traditional banks, credit unions, or alternative business lending facilitators, such as Pro Funding Options.
While the Small Business Administration does not accept or approve applications and doesn’t provide funding, it partially guarantees SBA loans. The agency guarantees SBA loans ranging from 50% to 90%, depending on the loan type and amount (more details to follow).
Because the agency partially backs the loans, lenders take less risk. Since the risk is lower, lenders can offer higher borrowing amounts at lower interest rates and longer repayment terms. The SBA also provides regulations on interest rates, fees, and terms, which we will discuss later.
With the backing of a government agency, SBA loans are the most advantageous small business loans on the market. Eligible businesses must be 100% owned by U.S. citizens, U.S. nationals, or unconditional lawful permanent residents. SBA 7(a) loans typically require a good personal credit score and solid annual revenue.
Let’s look at the different types of SBA 7(a) loans.
The SBA 7(a) loan program consists of several loan options. Most 7(a) loans have a maximum loan amount of $5 million. The exact loan terms and amount depend on the participating lender.
Standard 7(a) loans greater than $350,000 and exclude 7(a) Small, SBA Express, Export Express, CAPLines, Export Working Capital Program, International Trade loans, and Pilot Program loans. The maximum terms for SBA 7(a) loans are 25 years for real estate, 10 years for equipment or working capital, and 5 years for Builder’s Line of Credit loans.
Maximum Loan Amount: $5 million
SBA Guarantee: Up to 85%
Terms: Up to 25 years for real estate; 10 years for other purposes
Small businesses can utilize the standard 7(a) loan for various business purposes, including purchasing equipment, funding working capital, acquiring commercial real estate, and business expansion. The SBA guarantees 85% of loans up to $150,000 and 75% of loans exceeding $150,000.
Maximum Loan Amount: $350,000
SBA Guarantee: Up to 85%
Terms: Up to 25 years for real estate; 10 years for other purposes
7(a) Small loans are term loans that are $350,000 or less. Businesses can still use the loan proceeds for the same purposes. Like the standard loan, the SBA guarantees 85% for loans up to $150,000 and 75% for loans over $150,000.
Maximum Loan Amount: $500,000
SBA Guarantee: 50%
Terms: Up to 7 years if used as a line of credit
The Express Loan was designed for businesses needing urgent funding. The average turnaround time on the express loan is within 36 hours. The expedited time means the SBA only guarantees 50% of the loan.
Maximum Loan Amount: $500,000
SBA Guarantee: Up to 90%
Terms: Up to 7 years if used as a line of credit
Export Express loans guarantee smaller dollar revolving lines of credit or term loans to support small business concerns that wish to develop the export side of their business. The Export Express Loan provides expedited funding within 24 hours. The business must use the funds to establish or grow exports. The SBA guarantees 90% for loans up to $350,000 and 75% for loans over that amount. SBA waives guarantee fees on Express loans for veteran-owned businesses.
Maximum Loan Amount: $5 million
SBA Guarantee: 90%
Terms: Up to 3 years
The Export Working Capital Loan provides funds for small businesses to support export sales. The SBA guarantees 90% of this loan type.
Maximum Loan Amount: $5 million
SBA Guarantee: 90%
Terms: Up to 25 years
The International Trade Loan provides small businesses with long-term funding to support international business activities. Companies can use the funds to enhance their export sales, modernize their equipment and shipping operations, or compete with larger freight companies.
Maximum Loan Amount: $5 million
SBA Guarantee: Up to 85%
Terms: Up to 10 years
CAPLines of credit provide short-term and seasonal funding for small businesses. The SBA guarantees 85% for loans up $150,000 and 75% for loans over that amount. There are four types of CAPLines of credit: Seasonal, Working Capital, Contract Loan, and Builders Lines of Credit. The Builders line has a maximum term of 5 years, while the rest can go up to 10 years.
Maximum Loan Amount: $250,000
SBA Guarantee: 85%
Terms: Up to 25 years
The SBA occasionally runs a pilot or temporary loan structure within the 7(a) program. The Community Advantage loan is scheduled to run through September 30, 2024. The program provides funding to small businesses in underserved communities.
SBA interest rates are tied to the prime rate, a borrowing benchmark banks use to set rates on consumer loans—the prime rate changes in response to actions taken by the Federal Reserve Board.
Interest rates for 7(a) loans are negotiated between the borrower and the lender, but are subject to SBA maximums. Borrowers get either a variable interest rate, which fluctuates with the prime rate, or a fixed rate, where you’re locked into the prime rate at the time when the loan was funded.
As of June 2025, the current prime rate is 7.50%. Each lender will charge additional interest over the prime rate, sometimes referred to as the “spread.” However, the SBA sets maximum interest rates that lenders cannot exceed
Let’s look at the maximum rates for variable and fixed interest loans.
For loans with a maturity under 7 years:
$0-$25,000: Prime rate + 4.25%
$25,001-$50,000: Prime rate + 3.25%
$50,001 or above: Prime rate + 2.25%
For loans with a maturity of over 7 years:
$0-$25,000: Prime rate + 4.75%
$25,0001-$50,000: Prime rate + 3.75%
$50,0001 or above: Prime rate + 2.75%
$0-$25,000: Prime rate + 8%
$25,001-$50,000: Prime rate + 7%
$50,001-$250,000: Prime rate + 6%
Over $250,000: Prime rate + 5%
In addition to the interest, SBA 7(a) loans often carry additional fees and usually require a down payment. The Small Business Administration limits the fees lenders can charge.
Most SBA loans include a guarantee fee, which ranges from 0.25% to 3.75%, depending on the loan type, amount, and lender. The fee only applies to the percentage of the loan the SBA guarantees, not the total loan amount.
Lenders have the discretion to charge some additional loan fees, such as:
Credit check fee
Packaging fee
Closing costs
Appraisal fees
Late payment fees
However, the SBA does not allow businesses to charge extraneous loan fees such as application fees and origination fees. Lenders can only charge prepayment fees on SBA Loans with terms of 15 years or more.
While down payments are not an expense over and beyond the borrowing amount, it is an expense you must account for when applying for an SBA Loan. The SBA prefers to work with business owners willing and able to invest equity in their company.
Most lenders require a down payment of between 10% and 20%. Additionally, the SBA requires the lender to provide capital to secure the loan. In this way, all three parties – the borrower, the SBA, and the lender – share some risk with the loan.
This completes the three components of the loan as defined by the SBA:
The Equity Injection: What the SBA calls the down payment
The SBA-Guaranteed Loan Portion: Anywhere from 50%-90% of the loan
The Bank Loan: The portion of the loan that the SBA doesn’t guarantee
The SBA sets specific requirements for borrowers, and each lender may also impose additional requirements. In general, businesses require good to excellent credit, a healthy cash flow, at least two years of operation, and substantial annual revenue. Eligibility for SBA 7(a) loans requires the business to be a for-profit entity and to meet the SBA’s size standards.
Approved businesses that PFO works with generally meet these minimum requirements:
A credit score of 650+ (some lenders say 680+)
$360k in annual revenue
Two+ years in business
The SBA doesn’t set a specific credit score but prefers higher credit scores. Each lender will set its own credit score cutoff.
In addition, the SBA uses the FICO® Small Business Scoring Service™ (SBSS) to analyze a company’s credit. The SBSS aggregates the personal credit scores of up to five business owners (each with a minimum of 20%), the business credit score of the company, and financial data provided on Forms 1919 and 1920. SBSS scores range from 0-300, and most businesses need a score of 155 to qualify.
In its guidelines, the SBA states:
“The cash flow of the Applicant is the primary source of repayment, not any expected recovery from the liquidation of collateral… Suppose the Lender’s financial analysis demonstrates that the Applicant lacks reasonable assurance of repayment on time from the business’s cash flow. In that case, the loan request must be declined, regardless of the collateral available or outside sources of repayment.”
Simply put: You must have the cash flow to support the payments on the loan.
In addition, the SBA requires applicant businesses to:
Be a for-profit business
Do business and be physically located in the U.S. or its territories
Have invested personal time and money in the business
Exhaust all other financing options (SBA loans are “last resort financing.”)
There are some nuances and exceptions to these rules. For example, a for-profit subsidiary of a nonprofit would be eligible.
The best way to determine if your business is qualified is to speak with an SBA lender. Our loan experts and director of operationss can help determine eligibility for your business.
The SBA excludes businesses in specific industries. Those include:
Real estate investment firms
Companies engaged in speculation
Gambling businesses such as casinos
Rare coin and stamp dealers
Multilevel marketing (pyramid scheme) businesses
Religious companies, charities, and other nonprofits
Government agencies
Lending institutions
Pro Funding Options can help you apply to an SBA-approved lender following these steps.
You’ll need a credit score between 650 and 700 and a healthy, consistent cash flow. How you intend to use the money also plays a significant role. You’ll need a detailed plan of how the funds will help you invest in and grow the business.
Be prepared to provide:
Driver’s License
Business license or certificate
Voided Business Check (for business bank account information)
Bank Statements
Credit Report/Statement of Personal Credit History
Business Tax Returns
Credit Card Processing Statements
Personal Tax Returns – 3 Years
Business Tax Returns – 3 Years
Business Plan (Not in all cases)
Personal Financial Statement
List of Real Estate Owned or Business Leases, if applicable.
Debt Schedule/Loan/Rent/Lease Documentation
Deeds/Title/Ownership documentation for any collateral/Security
Current Profit & Loss Statements and Balance Sheet Year-to-Date
A/R and A/P Reports
Pro Funding Options 1 Page Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.
SBA Loans through our network generally take 3-5 weeks to process. Once approved and your file is closed, funds should appear in your bank account in a few business days.
SBA loans are often considered the gold standard of small business financing. There are numerous advantages, but the biggest ones are the large borrowing amounts, low interest rates, and extended repayment terms.
On-time SBA loan payments are reported to the major credit bureaus. Successfully paying your loan will help build your business credit, making it easier to secure financing in the future.
The low interest rate and long repayment terms mean your monthly payments are lower than most loan structures. This helps ensure that you maintain a strong cash flow throughout the life of the loan.
The high borrowing amounts allow businesses to invest significantly in their future prospects. You can use the funds to acquire commercial real estate, hire more staff, purchase equipment and supplies, and more.
The most significant disadvantage is the difficulty in getting approved. While you might assume that partially guaranteed loans are easier to qualify for, and it’s a logical assumption, the truth is often the opposite.
Since the SBA doesn’t provide concrete qualifications, lenders can set their own standards, and some are more stringent than others. For example, commercial banks tend to be more biased toward established companies.
The loan application process also requires a lot of patience and sufficient time to wait for approval. Aspiring applicants might wait weeks to get a determination on whether the SBA will guarantee the loan.
It’s not uncommon to meet with several different lenders and submit multiple applications. Some lenders may advise applicants to try again in a year once their finances have improved. Some SBA loans are subject to prepayment penalties.
Pros:
High borrowing amounts up to $5 million.
Low interest rates and long repayment terms.
You can use the funds for a variety of business purposes.
Cons:
Lengthy application and approval process.
Large amounts of paperwork.
It might require collateral.
It almost always requires a personal guarantee & down payment.
Requires good to excellent credit.
Here are the most common questions about the SBA 7(a) Loan Program.
We won’t sugarcoat it – SBA 7(a) loans are challenging to obtain. You must meet both the requirements of the SBA and the private lender that funds the loan. SBA loans are exclusively for established businesses.
To apply for a 7(a) loan, you’ll work with an SBA lending partner, like a bank or credit union. Hundreds of financial institutions offer SBA 7(a) loans, including national banks like Chase, Wells Fargo, and Bank of America.
Your SBA lender will help you gather your documents to prepare and submit a completed SBA 7(a) loan application. Documentation needed may include an SBA Form 1919, personal background and financial statement, business financial statements, and resumes for each business owner.
Lenders must submit their application package to the SBA to receive a loan guarantee. SBA Express and Preferred Lenders may approve loans without the SBA reviewing the application, thereby expediting the loan approval process.
Once your loan is approved, your lender will start the closing process, which includes securing collateral and preparing loan documents. The application and funding process typically takes between 60 and 90 days to obtain an SBA loan, although the turnaround time varies. The SBA offers a lender match tool on its website that allows you to find a lender in your area.
The process of obtaining an SBA loan can take anywhere from a few days to several months, depending on the type of loan and the lending institution. As their name suggests, Express loans typically only take a few days, whereas a standard loan can take several weeks or even months if you work with a commercial bank.
Alternative lending platforms and fintech companies, such as PFO or SmartBiz, strive to streamline the process as much as possible for applicants. In addition, an SBA-preferred lender might be able to expedite the process, but remember, you’re dealing with a government agency, and that’s always going to take a little bit longer.
SBA loans for $25,000 or less generally don’t require collateral. Loans over $350,000 may require collateral of equal value to the loan amount. Collateral requirements for loans between $25,000-$350,000 depend on the individual lender, loan type, financial health, and how you intend to use the funds. Additionally, each business owner with a 20% or greater claim must sign a personal guarantee.
Yes, while 7(a) loans are the most common, other SBA loan programs include:
SBA Express Loans
504 CDC Loans
Export Loans
No, SBA loans are not available to borrowers with bad credit. If you need financing now, you could consider bad credit business loans. While these loan structures typically have higher interest rates, you could use them as bridge financing while you repair or build your credit enough to qualify for an SBA Loan.
While SBA Loans are the most advantageous small business loans, they are far from your only options. If you cannot qualify for an SBA 7(a) loan, you might consider alternatives like online loans or SBA microloans. SBA microloans are available up to $50,000 and have more flexible qualification requirements.
Many alternative lending platforms offer various loans with more lenient requirements and significantly faster funding times.
You could consider any of the financing options:
After reading the guide, you can hopefully see why SBA loans are so advantageous, but also why there are so many misconceptions surrounding them. Small business owners can get large amounts at low interest rates and extended repayment terms. However, those businesses must meet stringent requirements to qualify.
Contact us to determine if your business is eligible and to initiate the application process. We can help you determine if SBA 7(a) loans are indeed suitable for your business or help you find the right financing product if they are not.
