How to Qualify for an SBA Loan in 2023

Jan 20, 2024

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Small Business Administration (SBA) loans are a key source of funding for businesses across the country. The SBA doesn't actually lend directly to businesses. Instead, it makes it easier for businesses to access loans by guaranteeing a portion of each SBA-backed loan approved by a third-party lender.

Learn more about SBA loans, and how to qualify for one.

To qualify for an SBA loan, you must:

Generally, an SBA loan is best suited for meeting long-term rather than short-term business needs. This is particularly true for entrepreneurs who aren't able to get approved for traditional lending products and want to avoid higher-interest options, such as credit cards. Fortunately, not every borrower must have a fantastic credit score in order to qualify for an SBA loan.

SBA-imposed cap on interest rates

Interest rates below national average for credit cards

Potential to borrow up to $5.5 million

Repayment terms up to 25 years

SBA guarantee of at least 50% of loan if borrower defaults

Generally rigorous application process

Inconsistent requirements among SBA lenders

Rejection of most SBA loan applications

Potential collateral requirement

Possible requirement for personal guarantee of loan

Be sure to shop around to get the best deal on an SBA loan. You may be able to negotiate a loan's interest rate, payoff period, and fees. To find an SBA-approved lender, use the agency's Lender Match tool.

Generally, you must meet the following requirements to qualify for an SBA loan:

Standard 7(a) loans can be used for an array of purposes, such as expanding a business, buying real estate, refinancing debt, or purchasing equipment. Lenders tout loan features such as attractive interest rates and low down payments.

The maximum amount for a standard 7(a) loan is $5 million. SBA guarantees a standard 7(a) loan at 85% for amounts up to $150,000 and 75% for amounts greater than $150,000.

The 7(a) small loan is a sibling of the standard 7(a) loan. The primary difference with a 7(a) small loan is that the maximum amount you can borrow is $350,000. Proceeds can be earmarked for the same purposes as a standard (7a) loan.

SBA guarantees a 7(a) small loan at 85% for amounts up to $150,000 and 75% for amounts greater than $150,000.

SBA Express loans, part of the SBA's 7(a) loan program, offer the easiest application process and the fastest approval times among all SBA loans. These loans, with payoff periods as long as 25 years, are designed for purposes such as refinancing debt, buying equipment, or improving real estate. The loan also can be used as a line of credit.

The maximum amount for an SBA Express loan is $500,000. SBA guarantees 50% of an Express loan.

SBA microloans are designed to help small businesses and some nonprofit childcare centers rebuild, reopen, repair or improve their operations. They’re geared toward entrepreneurs such as veterans, women, minorities, and startup founders, and those with lower credit scores. Proceeds can be put toward items such as working capital, supplies, furniture, and equipment.

The maximum amount for a microloan is $50,000. The average microloan amount is around $13,000. Interest rates generally are 8% to 13%.

504 loans are provided through SBA-licensed certified development corporations (CDCs). The maximum amount available is either $5 million or $5.5 million, depending on the type of business or project.

Proceeds from a 504 loan can go toward real estate, heavy equipment, and other fixed assets.

A business can borrow anywhere from $500 to $5.5 million through an SBA loan. Depending on the type of loan, proceeds can be used for purposes such as working capital, business expansion, equipment acquisition, furniture purchases, and debt refinancing.

To find SBA lenders, use the agency's Lender Match tool. To narrow down the possibilities:

Documents you need to provide for an SBA loan application include:

A borrower often can negotiate with a lender regarding the interest rate, payoff period, and fees for an SBA loan.

The SBA provides access to an array of loans. But SBA loans aren't the only source of funding for a business. Among the alternatives are traditional loans, grants, and credit cards.

SBA loans tend to come with lower interest rates, lower credit score requirements, and better payoff terms than traditional business loans do. However, a bank or credit union might provide different types of business loans, such as those solely for buying equipment or real estate. A loan from a bank or credit union might be appealing if you already have a relationship with a financial institution and have a solid credit record.

One of the benefits of a traditional loan is that it may be approved faster than an SBA loan.

Aside from business loans, the SBA offers small business grants. For instance, grants are available to small businesses that engage in scientific research and development, and to businesses involved in exporting goods or services. A number of other government agencies provide business grants, as do corporations and nonprofit organizations.

The biggest advantage of business grants is that the money doesn't need to be paid back.

Unlike a personal credit card, a business credit card is—as the name suggests—taken out in the name of a business.

A business credit card is aimed at helping separate business expenses from personal expenses. The credit limit for a business credit card typically is higher than the credit limit for a personal credit card. However, business credit cards tend to charge higher interest rates than SBA loans and traditional business loans do.

Business credit cards generally are a better option than a business loan when it comes to meeting short-term financial needs. In addition, a business card might be preferable if you can score a low- or no-interest promotional interest rate and you want to take advantage of various credit card perks.

Generally, you’re disqualified from getting an SBA loan if your business is involved in illegal activities, speculative ventures, multilevel marketing, gambling, investing, or lending, or if the owner is on parole.

The SBA itself does not set credit score requirements. However, an SBA lender might insist that a borrower have a minimum credit score. The minimum score differs based on the lender and the type of SBA loan.

In some cases, no collateral is required for an SBA loan. But in other situations, collateral is required. For example, if a business borrows more than $350,000 through a standard 7(a) loan, a lender must have collateral worth as much as the amount of the loan.

In general, SBA loans are approved in 30 to 90 days—and up to six months—depending on the lender and the type of loan. SBA Express loans can be approved within 36 hours.

Small Business Administration. "Types of 7(a) Loans."

Small Business Administration. "Loans."

Citizens Bank. "SBA Express Loan."

Small Business Administration. "Microloans."

Small Business Administration. "7(a) Loan Application Checklist."

Small Business Administration. "Grants."

U.S. Chamber of Commerce. "48 Grants, Loans, and Programs to Benefit Your Small Business."