What Is an SBA Loan?

Posted on Apr 29th, 2024
What is an SBA Loan?

Whether you are planning an expansion or need working capital, a small business administration (SBA) loan is a beneficial financing option for small businesses. Business owners benefit from flexible terms, lower interest rates, and lower payments. To attain these funds, borrowers need to meet specific standards and requirements. This guide provides a look at the types of SBA loans available, loan terms to consider, and how to become eligible and apply.

What Is an SBA Loan?

An SBA loan is a loan supported by the U.S. Small Business Administration. Designed to help small businesses cover a variety of expenses, this financing is offered only by SBA-approved lenders.

There are various types of SBA loans to choose from:

  • SBA 7(a) loans: Small businesses can use this loan to refinance or purchase commercial real estate, working capital, expansion, renovation, business acquisitions and office equipment or furniture.
  • SBA 504 loans: These loans are valuable for purchasing or refinancing new construction or existing buildings and involve funding from a lender and Certified Development Company (CDC).
  • SBA Express loans: This is a type of 7(a) loan suitable for purchasing equipment, furniture, and working capital that offers the potential for lower down payments.
  • Economic Injury Disaster Loans (EIDL): If a company is experiencing an emergency, these funds will help them cover losses an insurance company excludes from coverage. However, EIDL loans can only be obtained directly from the SBA following a declared disaster where the business operates.
  • Microloans: These loans are a popular option for start-ups and can be used to help a small business expand or purchase items such as inventory, supplies, or equipment. These loans provide funding up to $50,000.

SBA Loan Terms and Repayment Options

SBA loans have particular terms, conditions and eligibility requirements business owners must be aware of for a smooth application process. Here are seven terms that are important to understand:

  • Eligibility requirements: To be eligible, you must operate for profit, actively operate in the U.S., and meet SBA small business size requirements.
  • Use of the loan: You may only use the loan funds for one or more of the financing options specified by the SBA.
  • Loan amounts: Most SBA loans have a maximum loan amount of $5 million.
  • Maturity terms: Most SBA loans typically have less than a 10 year term. However, certain exceptions can apply for real estate or equipment that has a useful life that extends more than 10 years. Extensions on the loan term can also be granted under certain circumstances as well.
  • Interest rates: The interest rates on SBA loans are flexible and typically are negotiated with the lender providing the SBA loan.

sba loan

SBA Loans vs. Traditional Business Financing Options

The main difference between SBA loans and traditional business loans is that the SBA note carries an SBA guaranty and the borrower has to have access to the capital via conventional lending or from the business or business owner’s personal resources.

SBA loans can be an attractive option for startups, as they offer lower rates than traditional loans. Generally, traditional financing options require more operational history for your business than SBA loans do. Their loan term limit is usually around 10 years as well. To find out about loan options and current interest, contact our SBA office today at 1-888-472-9778.


Pros and Cons of SBA Loans

SBA loan benefits that may be particularly appealing to small businesses include:

  • Broad eligibility requirements: The SBA’s broad eligibility requirements make it easier for businesses to qualify if they meet SBA size standards and have a good credit score.
  • Large and small loan offerings: Different loan options allow business owners to apply for an SBA loan that best fits their unique needs.
  • Capped interest rates: Tiered interest rates based on loan amounts offer a range of options for borrowers. Interest rates are capped at the SBA maximums.

There are also a few cons that are important to consider before applying:

  • Higher Interest Rates & Fees: While interest rates can be negotiated with your lender, SBA loans do tend to carry higher interest rates than conventional loans.
  • Approval Process & Changes: While SBA loans offer greater flexibility in upfront terms and repayment structure after the loan is in place, the bank may have to get SBA approval prior to making changes to your loan.
  • Down payment: You may need to pay a down payment to secure your loan.
  • Personal liability:If the business defaults and you are not able to pay the loan, you could face personal liability depending on the specifics of your loan.

How to Get an SBA Loan

If you feel an SBA loan is right for you, here are the steps you can take to apply for an SBA loan.

1. Meet SBA Loan Eligibility Requirements

It’s best to thoroughly review the criteria for SBA loan qualification before applying. Make sure your business and business needs fall into an eligible category and try to establish and build a good business credit score.

2. Contact a Lender

SBA lenders can differ significantly based on various factors such as their size, approach, and focus. Some SBA lenders may be large national banks with a more generic one-size-fits-all approach to SBA. On the other hand, smaller community banks and may specialize in serving local businesses, providing personalized attention and a deeper understanding of the community’s needs. Additionally, non-traditional lenders like online financial institutions and alternative lenders have emerged in recent years, offering streamlined application processes and innovative financing solutions. Each type of SBA lender brings its unique strengths and characteristics to the table, catering to different business needs and preferences within the diverse landscape of small business financing.

Our knowledgeable SBA experts will work with you to understand your unique needs and offer a loan term and interest rates that suit your financial situation. Contact our SBA office to talk with our team at 1-888-472-9778.

3. Gather the Necessary Documents

Your lender will require various documents from you, including the SBA’s borrower information form, business financial statements, personal financial statements, statements of personal history, and personal and business tax returns. While there are more you might need to provide, your lender will clarify this information for you.

4. Submit Your Application

Your lender will help you navigate the application process and be able to answer any questions you have regarding approvals, timelines, and specific requirements.

An SBA loan is a great way to finance big and small business needs, from expanding your business to purchasing upgraded company equipment. If you meet the eligibility requirements and believe an SBA loan might be right for you, the team at Mid Penn Bank can help you secure an excellent SBA loan option.

SBA Loan Mid Penn Bank



The material on this site was created for educational purposes. It is not intended to be and should not be treated as legal, tax, investment, accounting, or other professional advice.

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