An SBA loan is money borrowed from a bank or lender that the Small Business Administration backs with a may provide

An SBA loan is a loan made by a bank, credit union, or other lender to a small business owner. The Small Business Administration — a federal agency — does not lend the money itself. Instead, it promises the lender that if you stop paying, the SBA will cover most of the debt. This may provide makes banks willing to lend to small businesses that might not otherwise get a loan.

Because the SBA backs the loan, you pay lower interest rates and need less collateral than you would for a conventional business loan. The tradeoff is that SBA loans come with more paperwork, take longer to process, and have rules about what you can use the money for.

Key Takeaways

  • The SBA guarantees the loan but does not lend the money — a bank or credit union does, and you repay them.
  • SBA loans typically have lower interest rates and require less collateral than conventional business loans because the government backs them.
  • You can use SBA loan money to start a business, buy equipment or inventory, refinance existing debt, or cover working capital.
  • The most common type is the 7(a) loan program, which can go up to $5 million depending on the use and your business structure.
  • The process process takes four to six weeks on average and requires business plans, tax returns, personal financial statements, and proof of collateral.

How the SBA may provide works

When you borrow through an SBA program, the lender takes on less risk because the SBA promises to repay a portion of the loan if you default. For the most common program — the 7(a) loan — the SBA guarantees up to 90 percent of loans under $150,000 and up to 75 percent of loans over $150,000. This means the lender absorbs the first loss, but the SBA covers the rest.

You still owe the full amount to the lender. The may provide straightforward protects the lender, which is why they will lend to you in the first place. You pay interest to the lender, not to the SBA. The SBA charges a one-time may provide fee (usually 2 to 3 percent of the loan amount) that gets added to what you borrow.

The main SBA loan programs and their limits

The 7(a) Loan Program is the most widely used. It covers general business purposes — buying equipment, inventory, real estate, or paying operating costs. Loan amounts range from $30,000 to $5 million, though most fall between $350,000 and $2 million. Repayment terms are typically 5 to 10 years for equipment and inventory, and up to 25 years for real estate.

The CDC/504 Loan Program focuses on fixed assets like buildings and machinery. It pairs an SBA-backed loan with a conventional loan, allowing you to put down as little as 10 percent. Loan amounts go up to $5.5 million for most businesses and $5.75 million for manufacturers and certain nonprofits.

The Microloan Program is for very small loans — up to $50,000 — when you cannot get conventional financing. These loans come through nonprofit intermediaries, not banks, and often include business training.

What you can and cannot use SBA loan money for

You can use SBA loan funds to buy equipment, vehicles, furniture, or technology; purchase or renovate a building; pay for inventory; cover payroll and operating expenses; refinance existing business debt; or fund working capital. The money must go toward legitimate business purposes.

You cannot use SBA loans to pay off personal debt, invest in other businesses or real estate for investment, pay yourself a dividend, or lend money to another person or business. You also cannot use the funds for gambling, speculation, or illegal activities. The lender will ask you to describe how you plan to use the money, and the SBA may verify that you follow through.

Who can borrow through SBA programs

You must own at least 20 percent of the business (or 51 percent if you are part of a group). The business must be for-profit and operate in the United States. You must have invested your own money or time into the business already — the SBA will not fund a startup where you have no skin in the game.

The SBA has size standards that vary by industry. A manufacturing business might be allowed up to 500 employees; a retail business up to $7.5 million in annual revenue. Your lender will confirm that your business meets the SBA's definition of "small" for your industry.

You must also have a reasonable chance of repaying the loan. The lender will review your personal credit score, business credit history, and cash flow. A credit score below 640 makes approval much harder, though not impossible.

The process process and timeline

Start by meeting with a lender that participates in SBA programs — most banks and credit unions do. Bring a business plan, personal tax returns for the last two years, business tax returns (if you have been operating), a personal financial statement, and details about collateral you can pledge. The lender will also ask for a description of how you will use the money and what your monthly cash flow looks like.

The lender submits your process to the SBA, which reviews it for compliance with program rules. This review typically takes two to four weeks. If the SBA approves, the lender prepares closing documents, which takes another one to two weeks. Total time from process to funding is usually four to six weeks, though it can stretch longer if the SBA requests additional information.

Interest rates and fees

SBA loan interest rates are set by the lender and vary based on your credit, the loan amount, and current market rates. Rates are typically 2 to 3 percentage points lower than conventional business loans because the SBA may provide reduces the lender's risk. As of recent years, rates have ranged from around 8 to 13 percent, though this changes with the broader economy.

In addition to interest, you pay a may provide fee to the SBA — usually 2 to 3 percent of the may provide portion of the loan. Some programs charge a small annual servicing fee. Ask your lender for a complete fee schedule before you sign.

Frequently Asked Questions

Do I have to pay back an SBA loan?

Yes. An SBA loan is a loan, not a grant. You are legally obligated to repay the full amount plus interest to the lender. The SBA may provide protects the lender if you default, but it does not forgive your debt. If you stop paying, the lender will pursue collection, which can damage your credit and result in legal action.

Can I get an SBA loan if I have bad credit?

It is harder but not impossible. Most lenders prefer a credit score of 680 or higher. If your score is lower, you may need to show strong business cash flow, put down a larger down payment, or find a lender that specializes in lower-credit borrowers. Some SBA programs, like microloans, are more flexible on credit than others.

How long does it take to get the money?

The typical timeline is four to six weeks from process to funding. This includes time for the lender to review your documents, submit to the SBA, wait for SBA approval, and prepare closing paperwork. Delays happen if the SBA requests more information or if your process is incomplete.

What happens if my business fails and I cannot repay?

The lender will pursue collection against you personally, since you signed a personal may provide. They may seize collateral you pledged, sue you for the remaining balance, and report the default to credit bureaus. The SBA may provide protects the lender, not you — it does not erase your obligation to repay.

Can I use an SBA loan to pay off credit card debt?

No. SBA loans cannot be used to pay off personal debt. You can use them to refinance existing business debt, but only if that debt was used for legitimate business purposes. Credit card debt is treated as personal debt and is not may be able to access.