The 14 Types of SBA Loans
1. Paycheck Protection Program
The Paycheck Protection Program is a unique
type
of SBA loan created by the CARES Act as a response to the coronavirus pandemic.
This SBA loan program provides 100% federally guaranteed loans to help businesses with
their
payroll and other operating expenses. All business loan payments are deferred for 10
months,
and the SBA will forgive the loan proceeds that are used to cover 24 weeks of payroll
costs,
rent, utilities, and mortgage interest.
The Paycheck Protection Program is a unique
type
of SBA loan created by the CARES Act as a response to the coronavirus pandemic.
Here are the details you need to know about this SBA loan:
Interest rate of 1%
Maturity of five years
No collateral, personal guarantees, or borrower or lender fees payable to SBA
Loan amounts up to 2.5 average monthly payroll costs with a maximum of $10 million
Additionally, it’s important to note that businesses who take out a PPP loan are
eligible
for loan forgiveness for the amount spent on payroll costs, rent on a leasing agreement,
payments on utilities, and additional wages to tipped employees.
You can currently apply for a PPP loan through existing SBA 7(a) lenders or through any
federally insured depository institution, federally insured credit union, and Farm
Credit
System institution that is participating. See a list of banks that are participating in
PPP
here.
Apply for a PPP Loan Now
2. SBA 7(a) Loan Program
Most small business owners seeking an SBA
loan
start off with the 7(a) loan program. These loans accounted for more than 80% of the
total
volume of loans that the SBA guaranteed in 2019.
7(a) loans are general purpose small business loans, and you can use them for a wide
variety
of purposes. In addition, as shown above, the SBA 7(a) loan program contains within it a
variety of different sub-programs to consider.
Since the 7(a) loan program—or one of the SBA loan types within it—will be the obvious
choice for the majority of business owners, let’s dig deeper into exactly how this loan
program works, who it’s for, and how to proceed if you determine that this is the right
SBA
loan option for you.
How the SBA 7(a) Loan Program Works
As with the vast majority of SBA loan programs, funding provided through the 7(a) loan
program doesn’t actually come from the Small Business Administration.
Rather, the borrowing process works similarly to a traditional bank business loan, with
the
only difference being that the SBA acts as a guarantor to reduce the level of risk to
lenders. Many large banks loan money as part of the 7(a) loan program, along with
several
community banks and some online banks.
SBA 7(a) Loan Program Uses and Requirements
Since the 7(a) loan program offers so much flexibility in use of funds, it is far easier
to
narrow down the individual businesses or circumstances for which 7(a) loans are not a
good
fit.
You can’t use this type of SBA loan to reimburse a business owner for outstanding
expenses,
to pay delinquent taxes, or to buy out one of your business owners.
Other than that, eligible 7(a) loan uses include:
General working capital
Purchasing a building or equipment
Paying the salaries of your employees until you turn a profit
Purchasing inventory or general supplies
Refinance debt
When it comes down to it, pretty much any expense you can think of can be covered by a
loan
from the 7(a) program. This is what makes the 7(a) loan the default choice for most
small
business owners seeking funds through the U.S. Small Business Administration.
To qualify for the 7(a) program, you must have:
A strong personal credit history (a FICO score of at least 650 is typical)
Solid financial record
Generally at least two years in business
You’ll also need to put up some collateral and sign a personal guarantee.
SBA 7(a) Loan Program Rates and Terms
Interest rates on 7(a) loans vary based on your intermediary lender as well as the size
of
your loan and repayment schedule. The SBA sets maximum interest rates, however, that
lenders
can’t exceed.
Subject to those maximums, individual lenders will determine the exact rate depending
upon
the applicant’s qualifications and the level of industry risk facing each business.
Generally, you can expect these SBA loan rates to vary from the market prime rate +
2.25% to
prime rate + 4.75%. The prime rate is a market interest rate that serves as a benchmark
for
many types of loans.
In addition to your interest rates, fees also affect your loan cost. The main fee on SBA
7(a) loans is the SBA guarantee fee, which goes up to 3.75% of the guaranteed amount of
the
loan.
Repayment terms also range depending on the purpose of the loan:
Working capital: Up to seven years
Equipment: Up to 10 years
Real estate: Up to 25 years
How to Apply for the SBA 7(a) Loan Program
Several lenders participate in the 7(a) loan program.
This includes large banks like Chase, Bank of America, and Wells Fargo, as well as
smaller
community banks. Whenever possible, you’ll want to apply through an SBA Preferred
Lender.
These lenders are authorized to make approval decisions without the SBA’s review, which
speeds up the application process.
Your SBA loan application will require a lot of paperwork and details, so we recommend
allowing at least six weeks for the application process before you need cash in hand. A
Fundera loan specialist can help you determine if you’re eligible for the SBA 7(a) loan
program and put together your loan application.
See Your Loan Options
3. SBA 7(a) Sub-Programs
As we illustrated in our SBA loan types
chart
above, within the umbrella of the 7(a) loan program, there are actually several
individual
types of SBA loans.
Beyond the general 7(a) standard loan, there are different loans for certain industries,
financing needs, and entrepreneurial demographics. These SBA loan programs are less
common
than the standard 7(a) loan, but they could be a good fit for some businesses.
Here are the loan programs under the 7(a) loan umbrella.
7(a) Small Loan
Loans up to $350,000.
The SBA determines eligibility, and the turnaround time (five to 10 days) is faster than
the
traditional 7(a) loan.
4. SBA Express
Loans up to $350,000 with a faster
turnaround time.
These loans have a 36-hour turnaround for approval, but that means smaller loan
amounts and higher interest rates.
If you’re looking for the SBA’s Patriot Express Loan Program, it’s no longer
active—but the SBA Express Loan is a good alternative to this program.
5. Export Express
This program is for exporters looking
for a streamlined method to obtain SBA-backed financing for loans up to $500,000.
You’ll get an answer on approval in 24 hours.
6. Export Working Capital
Export Working Capital loans, going up to $5 million, are short-term loans for export businesses.
7. Veteran's Advantage
Loans of up to $350,000 for
veteran-owned businesses.
These VA SBA loans come with reduced fees on financing.
8. CAPLines
This SBA line of credit program is designed to provide working capital and cash flow solutions for small business owners—especially seasonal businesses, contractors, and builders.
9. SBA CDC/504 Loan Program
The second of the major SBA loan
programs is the CDC/504 loan program. If you need significant funds to purchase
or renovate land, buildings, or equipment, the SBA 504 loan could be your
perfect fit.
The terms, qualifications, and application process for this type of SBA loan are
more complex than the more general 7(a) loans.
Multiple parties are involved with making CDC/504 loans, making for a more
time-intensive process. Plus, there’s typically more at stake here since CDC/504
loans have no set maximum on the bank portion and can cover huge multi-million
dollar projects.
How the SBA CDC/504 Loan Program Works
As we mentioned, CDC/504 loans have a somewhat complex structure:
A bank funds up to 50% of the project costs.
A nonprofit certified development company (CDC) funds up to 40% of project
costs. These nonprofits are affiliated with the SBA and aim to create jobs and
enhance development in their local economies.
The final 10% of project costs come from the borrower, most often in the form of
a cash down payment.
seeking two separate loans—the CDC portion of the loan which is subject to SBA
guidelines, and the bank portion which is not.
The exact process and terms, particularly of the CDC portion of your loan, can
vary widely based on your geographic area and your local certified development
company’s specific goals.
SBA CDC/504 Program Uses and Requirements
Since multiple parties are involved with CDC/504 loans and high dollar amounts
are at stake, it’s no wonder that these loans only accounted for about 20% of
the total SBA loan portfolio in 2019.
Compared with the other primary SBA loan types, this one fits for a more
specialized subset of small business borrowers. Generally, CDC/504 loans are
designed for:
As with the 7(a) loan program, you’ll need to meet specific SBA loan requirements to qualify for the CDC/504 program:
SBA CDC/504 Loan Program Rates and Terms
As we’ve mentioned, the CDC/504 loan is actually two separate loans, and that
distinction extends to cost.
Banks can charge their own interest rates on their portion of the loan, without
any intrusion from the SBA.
However, the SBA sets guidelines for the maximum interest rates on the CDC
portion of the loan. The CDC can only charged fixed interest rates. These
interest rates usually range from around 5% to 6%.
The repayment terms range from 10 to 25 years.
How to Apply for the SBA CDC/504 Loan Program
Provided that you meet the criteria for a CDC/504 loan, you’ll want to first
connect with a CDC in your local community to begin the application process.
In some cases, your local CDC will be the one to secure your business loan. In
other cases, the CDC may work in partnership with another SBA-approved lender.
Remember that if a CDC/504 loan does not turn out to be the right fit for your
business, the 7(a) loan program can also be used to purchase fixed assets and
make upgrades—that might end up being a more accessible choice.
See Your Loan Options
10. SBA Microloan Program
Small businesses with very high
overhead or startup costs may seek SBA loans for hundreds of thousands or even
millions of dollars. But other business owners might need a much smaller amount
to take the next major step in their business.
Businesses in the first place, so many lending institutions won’t even entertain
a business loan application for $50,000 or less.
It is for exactly this reason that the SBA created the microloan program—often
referred to as SBA startup loans—which works with small, nonprofit intermediary
lenders in local communities to fund loans under $50,000.
How the SBA Microloan Program Works
Unlike the other types of SBA loans, the Microloan program stands out as one of
the only options in which the funds for individual loans come directly from the
SBA.
Nonprofit intermediaries borrow up to $5 million at a time directly from the
Small Business Administration, and then dole out that capital to individual
borrowers according to their own qualification standards.
SBA Microloan Program Uses and Requirements
Although more limited than the other SBA loan programs, SBA Microloans can be
used for a relatively wide variety of purposes, including:
Purchasing materials or equipment
Paying staff
Paying for advertising or marketing
Working capital needs
However, you cannot use an SBA Microloan to refinance debt or to purchase real
estate.
Overall, an SBA microloan can be a great option for any small business owner who
would see a positive impact on their business from capital less than $50,000.
This being said, the exact qualification terms and minimum requirements vary
among intermediary lenders, so you should check with your local intermediary to
determine their exact application process and standards. However, you can
generally expect to need:
A personal credit score of at least 600
A well-formulated business plan (especially for newer businesses)
Collateral on the loan
To be willing to sign an SBA loan personal guarantee
SBA Microloan Program Rates and Terms
Although borrowers can obtain up to $50,000 through this program, the average
Microloan that the SBA funded in the fiscal year 2019 was just $14,739.
SBA Microloans have shorter terms compared to the other types of SBA loans. They
carry terms of up to six years with interest rates between 6.5% and 13%.
The average Microloan interest rate in the SBA’s 2019 fiscal year was 7.5%.
How to Apply for the SBA Microloan Program
The SBA works through local intermediaries to issue microloans, so you’ll want
to first find a local intermediary in your area and contact them to learn more
about the application process and requirements.
Despite the smaller size of this SBA loan type, you can expect the application
process to be equally thorough. Getting microloan approval and receiving the
funds in your bank account can take several weeks.
Therefore, we suggest submitting your SBA microloan application as soon as
possible, long before you have an immediate need for funds.
See Your Loan
Options
11. SBA Disaster Loan Program
Although SBA 7(a) loans, CDC/504
loans, and microloans are the most common types of SBA loans, the SBA disaster
loan program is a unique program designed for businesses and homeowners in
recovery.
The SBA disaster loan program provides low-cost financing for economic injury,
mostly that which comes as a result of a natural disaster.
Like the SBA 7(a) loan program, the SBA disaster loan program has several
individual loan programs within it.
Let’s take a look at the details:
How the SBA Disaster Loan Program Works
This SBA loan program is unique not only in that it offers consumer lending, but
also in that it offers direct SBA lending.
This means that, through this SBA loan type, the SBA is lending its own capital
straight to the borrower, rather than simply providing a guarantee or lending
through an intermediary.
SBA Disaster Loan Program Uses and Requirements
The SBA Disaster Loan Program offers affordable funding for businesses and
homeowners recovering from a nationally declared disaster.
This loan program also provides funding to small businesses that have an
essential employee who is a military reservist called for active duty.
For each of the different types of SBA disaster loans, you’ll need to meet
specific requirements to qualify. The individual loan programs will also
restrict the way you can use your loan proceeds as well.
SBA Disaster Loan Program Rates and Terms
When you apply for this type of SBA loan, the SBA will try to determine whether
or not you have available credit elsewhere.
If you do, your maximum business loan interest rate will be 8%, but if you
don’t, the maximum interest rate on your SBA disaster loan will be 4%.
Repayment term lengths for disaster loans can stretch as long as 30 years, which
is lengthy, even relative to other SBA loan programs.
How to Apply for the SBA Disaster Loan Program
To apply for funding through the SBA disaster loan program, you’ll need to
register for a FEMA ID before you do anything else. You’ll also want to make
sure that your intended use of funds fulfills SBA stipulations before applying.
Small businesses apply for SBA disaster funding will need the following
documents:
SBA Form 5C (as well as other SBA forms)
Contact information for all applicants
Social security numbers for all applicants
FEMA registration number
Deed or lease information
Insurance information
Income records
Account balances
Monthly expenses
IRS Form 4506-T
12. Business Physical SBA Disaster Loans
This SBA loan type provides up to $2
million in funding for replacing or repairing the following business assets:
Real property
Machinery
Equipment
Fixtures
Inventory
Leasehold improvements
13. Economic Injury SBA Disaster Loans
Perhaps your business didn’t sustain
physical injury from a declared disaster, but it did see business slow down
majorly.
If this is the case, then the Economic Injury SBA disaster loan is the SBA loan
program for you.
This loan offers business funding up to $2 million.
14. Military Reservists Economic Injury SBA Disaster Loans
Finally, if a key employee is
called for active duty, this SBA loan program was made just for you.
You could be eligible for up to $2 million in funding to smooth out your
cash flow while your team member serves.