SBA Loans
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What are SBA loans?

SBA loans are longer-term, small business loans partially guaranteed by the government. This provides SBA loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender—typically banks. The three main SBA loan programs let you borrow money for nearly any business purpose—including working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate—through these SBA-guaranteed loans.

SBA loan options and benefits

  • Loan amounts up to $5 million
  • Terms up to 10 years for business, acquisition, equipment or tenant improvement
  • Terms up to 7 years for working capital and inventory
  • Flexible collateral options

SBA Business Loans are best for:

  • Business acquisition
  • Equipment
  • Debt refinance, working capital and inventory
  • Tenant improvement, partner buyout
  • For-profit businesses

Basics of SBA loans

The “SBA” in SBA loans stands for the Small Business Administration.

The Small Business Administration is a federal agency helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to conventional small business loans.

The SBA is able to guarantee a percentage of the loans administered by traditional banks through their use of federal money, so those financial institutions have more incentive to lend money to small businesses.

The SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders. This leads to lenders considering more small business for loans.

This makes Banks more inclined to lend you money even if you don’t fit their strict credit criteria. They can service a whole different set of customers than usual—without making too many sacrifices.

Cost and Fees of SBA Loans 

Guarantee fee of 1.7% for loans up to $150,000 and 2.25% for any SBA 7(a) loan greater than $150,000. Be aware that your guarantee fee might be included in the total cost of the loan.

The SBA charges a guarantee fee for the service of guaranteeing the loan. The lender originally pays the guarantee fee, but it also can just pass that expense on to the borrower.

Some partnered banks might also charge an origination fee or a loan packaging fee, depending on which banks you’re working with.

Interest Rates

Prime rate + 2.25% – 4.75%

SBA 7(a) loans come with interest rates in either fixed or variable (typically adjusted quarterly) varieties. Your bank lender determines which it will offer.

To protect borrowers, the SBA puts a ceiling on 7(a) loan rates by limiting the “spread” a bank is allowed to apply on top of the loan’s base interest rate.

In other words, the SBA restricts how much a bank can make off your SBA loan.

If your loan amount is more than $50,000 and the term is less than seven years, your rate will be set by the prime rate and the maximum spread will be at most 2.25 percentage points. For SBA loans of more than $50,000 and seven years or longer, your rate will still be determined by the prime rate, but that spread increases to 2.75 percentage points. Like all types of loans, the interest rate you end up paying depends on your credit score and the length of your repayment term.

And finally, when you get your offer, be sure to calculate your APR. The APR will be different than your interest rate, incorporating any guarantee fees or origination fees you’re charged to get the true cost of the SBA loan.