Small business guide to SBA loans

Small business guide to SBA loans

by Joe Sweeney
October 17, 2016

Small business guide to SBA loans

Small business guide to SBA loans

by Joe Sweeney
October 17, 2016


Like so many government endeavors, the Small Business Administration (SBA) can be both incredibly helpful and terribly confusing. Here's how to use it effectively to help your small business.

There are many organizations that can help you structure and finance your business, understand permitting, laws and regulations in your state or local municipality, provide guidance on filing and paying your taxes, and operate as a sounding board for the many important decisions you will make as a business owner. But very few of them do it in a way that keeps your money in your pocket.

That's where the SBA comes in.

The SBA has been helping small businesses and entrepreneurs for more than 60 years. But while it's an incredible resource for small business owners, few can clearly understand everything it has to offer. This post will help you navigate the SBA, explaining its core functions and the key resources available to entrepreneurs and small business owners.

Express lane: SBA essentials for small business owners

If you want your quick fix on the SBA, there are really only two things most small business owners need to know about. Click on either link to skip ahead to that section, or keep reading for a more in-depth look at the SBA's resources:

  • The SBA's General 7(a) Loan Program

4 key impact areas of the SBA

While the SBA offers a seemingly endless array of opportunities and resources, the organization focuses on delivering value through four key impact areas.

Helping businesses find capital: The SBA provides small businesses with financing options, from microlending to large debt and equity investment capital needs (venture capital).

Entrepreneurial development: The SBA provides free, face-to-face mentoring, online learning, workshops, and seminars for small businesses throughout the United States and U.S. territories.

Government contracting/federal procurement: The U.S. government is the largest single purchaser of goods and services in the world. Every year, our federal government awards more than $500 billion in contracts. Whether it's building roads or developing technological infrastructure, there are government contracts available across a wide range of industries.

The SBA works with federal agencies to award at least 23% of these government contracts to small businesses, with specific goals for small disadvantaged businesses (SDB), businesses owned by women (WOSB) or service-disabled veterans (SDVOSB), and businesses located in historically underutilized business zones (HUBZone firms).

Do the math: 23% of $500 billion. That's $115 billion annually that the SBA works with federal agencies to allocate to small businesses. That sum is larger than the entire GDP of more than 130 countries, up for grabs for small businesses like yours.

Securing government contracts is a great way to grow your business and, assuming you provide the service as promised, it could be a reoccurring source of annual revenue for your firm. 

Advocacy: The SBA reviews congressional legislation and, when needed, testifies and advocates on behalf of small businesses. It also continuously assesses the impact and regulatory burden of new legislation on small businesses and the business environment.

SBA business loans

If you're planning to start your own business or expand an existing business, you may need financing help. The SBA participates in a number of loan programs designed for business owners who may have trouble qualifying for a traditional bank loan.

In most cases, the SBA does not make direct loans (there are, however, a few exceptions). Rather, it guarantees loans provided by other institutions that meet specific guidelines, much like the Federal Housing Authority (FHA) guarantees but does not actually issue mortgage loans.

The SBA's most common loan program by far is the 7(a) loan:

General 7(a) Loan Program

Most businesses will qualify for this, though you might want to do your due diligence and double-check the eligibility list if you're involved in lending, insurance, or speculative business operations.

The borrowed funds can be put toward a wide variety of uses: providing working capital, paying expenses, investing in equipment, helping you establish a new business, or even helping you complete an acquisition to expand your current business. Assuming you have a sound business reason for the loan, other than simply paying yourself back as the business owner, your use of funds will most likely qualify within SBA guidelines.

  • How much money can you borrow from an SBA loan program? SBA loans have a maximum of $5 million, and there is no minimum amount you can borrow.
  • What will my interest rate and fees be? Rates are competitive, but the actual interest rate will be negotiated between you and the lender, subject to the SBA maximum and minimum guidelines for interest rates. There is a sliding scale of fees charged based on the amount of money borrowed: Loans less than $150,000 have no fees, while loans of $700,000 or greater charge 3.5% plus an additional 0.25% on the guaranteed portion above $1 million (the SBA guarantees 75% of the loan value). There are no prepayment fees on SBA loans, except when a loan with a 15-year maturity or greater is paid off in the first three years.
  • How long will it take to find out if I'm approved? The SBA has an SBAexpress program that accelerates the turnaround time and will provide a response time of only 36 hours.

It's worth noting that every SBA loan program requires collateral, though the SBA will not decline a loan based on insufficient collateral if all other considerations are met and all available assets are pledged (both personal and business).

Other Loans to Help with Starting and Expanding Businesses

  • Certified Development Company (CDC) 504 Loan Program: Trying to find financing for a long-term asset purchase for your company? The CDC loan provides growing businesses with long-term, fixed-rate financing ideal for acquiring large assets, such as land, equipment, or buildings.
  • Microloan Program: Need a very small loan? This program offers very small loans to startups and owners looking to grow their small businesses. The maximum loan amount in the microloan program is $50,000. With microloans, the SBA makes funding available to nonprofit local lenders, who in turn make all the credit and lending decisions locally.

Disaster Loans

  • Disaster Assistance Loans: Disaster loans from the SBA are intended to provide financial assistance to victims of disasters or to individuals in a declared disaster area. You may qualify for this type of loan even if you don't own a business.
  • Economic Injury Loans: Has your agriculture business suffered a financial loss from some bad news out of your control? These loans help assist small businesses, especially small agricultural cooperatives and nonprofit organizations, as they recover from economic losses resulting from physical disaster or an agricultural production disaster.

Export Assistance Loans

  • Export Express: Are you an exporter who needs money fast? These loans provide exporters and lenders with a streamlined method of obtaining financing for loans and credit lines up to $500,000. Lenders use their own credit decision making process and their own loan documentation; but this program is intended to let exporters get access to their funds faster. The SBA provides an expedited eligibility review with a response in less than 24 hours.
  • Export Working Capital: Need more funding to help your business generate sales overseas? These loans are targeted at businesses that are able to generate export sales but need additional working capital to support these opportunities.
  • International Trade Loans: Need funds to be more competitive internationally? The proceeds of these loans enable borrowers to be in a better position to compete in the international market. IT loans are designed for businesses that plan to start or continue exporting, or those adversely affected by competition from imports.

Veteran and Military Community Loans

  • Military Reservist Economic Injury Disaster Loan: Did you lose an employee to military service? These loans offer funds to eligible small businesses to meet ordinary and necessary operating expenses that could have been met, but now can't be met, because an essential employee was called up to active duty as a military reservist.

Special Purpose Loans

  • CAPLines: Need a short-term loan to meet payroll? These loans help small businesses meet their short-term and cyclical working-capital needs through the SBA umbrella program called CAPLines.
  • U.S. Community Adjustment and Investment Program (CAIP):  This is established to assist U.S. companies that are doing business in areas of the country that have been negatively affected by the North American Free Trade Agreement (NAFTA). To be eligible, a business must reside in a county noted as being negatively affected by NAFTA, based on job losses and the unemployment rate of the county.

This list isn't exhaustive, but we covered the most common SBA loans.  To learn more about them, click on the loan names.

Do you think you meet the criteria for any of these SBA loans? To start the application process, visit a local bank or lending institution that participates in SBA programs.

Loan applications are structured to meet SBA requirements, so that the loan is eligible for an SBA guarantee. This guarantee represents the portion of the loan that SBA will repay to the lender if you default on your loan payments. These guarantees may require you, the business owner, to meet more requirements than if you were applying for a traditional loan.

The SBA Loan Application Checklist provides a list of forms and documents you and your lender will need to create a loan package to submit to SBA. Explore more about loans, grants, and funding options through the SBA.


SCORE, previously known as the Service Corps of Retired Executives, is a nonprofit community of more than 10,000 business advisors and mentors across the U.S. Their time and expertise are available free to small business owners. To date, SCORE has served more than 8 million people.

  • Have an idea for a business?
  • Want to create a business plan?
  • Need help with marketing your existing business?
  • Trying to figure out how to balance your company's books for the first time?
  • Looking to raise capital to expand your business?

SCORE can help you regardless of what business stage you are at.

SCORE also holds free online workshops on a variety of business topics. Type in your ZIP code on the free online workshop page and answer a few brief questions to find a SCORE mentor in your area.

Who Qualifies as a Small Business?

There was a lot of political jargon flying around during the 2012 presidential election about what is and what isn't a small business; it can leave you scratching your head.

Does it even matter? Yes. The distinction is important if you want to qualify for SBA funding and resources.

To be a small business, you must meet industry size guidelines established by the SBA, which are based on your industry and North American Industry Classification System codes (NAISC).

The SBA defines a "small business" in terms of the average number of employees over the past 12 months, or average annual receipts over the past three years.

In addition, the SBA defines a U.S. small business as an entity that:

  • Is a for-profit company.
  • Has at least one office in the United States.
  • Operates the majority of its business within the U.S. and/or pays taxes here.
  • Is independently owned and operated.

Not sure if you meet the requirements? Use the SBA tool to find out. And if you need additional help figuring out your NAISC code, visit



Joe Sweeney is a social entrepreneur, committed to helping individuals and organizations grow and solve problems. Most recently, he was the co-founder and CEO at 100state, a nonprofit, startup community of entrepreneurs, educators, and innovators in Madison, Wis. Joe was recently named one of 53 entrepreneurs on Madison Magazine's "M List: The New Who's Who" for his work with 100state. 

The post Navigating the Small Business Administration appeared first on The Simple Dollar.

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