What Are SBA 7(a) Loans?
The agency’s most popular financing option is the SBA 7(a) loan. The SBA created the 7(a) to level the playing field for small businesses to secure working capital from commercial lenders.
A startup business that wouldn’t have the cash flow history to secure a traditional loan can be eligible to secure an SBA loan since it’s partially guaranteed by the federal government (up to 85%).
- Average interest rates: 5% to 10%
Maximum loan amounts:
Standard - $5 million
Small Loan - $350,000
SBA Express Loan - $500,000
Export Express - $500,000
Export Working Capital - $5 million
International Trade - $5 million- Term length: 10 years for working capital loans, 25 years for real estate loans
- Minimum credit score needed: 640+
- Down payment: 10% to 20% of the total loan amount
Pros
- Backed by the SBA up to 85%
- Long term lengths
- Capital can be used for any type of business expense
- Competitive interest rates
Cons
- High paperwork and documentation requirements to apply
- The time to get funded is long compared to traditional loans
- Requires a down payment
- Some collateral is needed to secure a loan
What Are SBA Microloans?
The SBA Microloan program is designed to provide funding to nonprofit lenders that provide financing to for-profit businesses. Compared to 7(a) loans, SBA Microloans have a maximum financing amount of $50,000 and aren’t guaranteed by the federal agency.
- Average interest rates: 8% to 13%
- Loan amounts: Up to $50,000
- Term length: Up to 6 years
- Minimum credit score needed: 575+
- Down payment: Not required
Pros
- Great financing option for underserved business owners like women, veterans, and minorities
- Business owners with limited credit history can qualify
- Low interest rates
- Longer term length compared to traditional loans
Cons
- Limited to $50,000 in working capital
- Lengthy process can take 30 days or more
- Must provide a business plan with estimated financial projections
- Some collateral is needed
