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How Do SBA Loans Work? What’s the Process?


Before you apply for a loan from the SBA, it’s worth getting familiar with the loan application process so you know what to expect moving forward.


First things first: The SBA itself doesn’t actually lend you the money. What they do is guarantee a business loan from a lender, like a bank. This gives additional assurance and encourages banks to finance businesses they otherwise might not approve for a loan.


To begin the loan application process, you need to establish a dialogue with an SBA-approved lender either directly or through a broker. The right lender will be able to walk you through a number of different loan options and recommend the financial vehicle that makes the most sense for your unique situation. You’ll have to submit a pile


of documentation and financial information—your credit score, personal and business financial statements, several years’ worth of tax returns, resumes, business plans, authorization for credit and background checks, your completed loan application paperwork, and more—to determine your eligibility.


Over the next few weeks, the lender will assess your qualifications across five categories: your ability to repay the loan, your business experience, the equity you’ve invested in your company, how much debt you have and how likely you are to repay it, and whether or not you need to put up collateral to secure financing.


Let’s say the lender approves your application. Hooray! Once the lender has made an affirming decision, the loan closing process begins. Expect to sign a lot of documents once again—like a promise to pay, security documentation, insurance forms, and several SBA documents, and more. This process can last as long as three weeks.


The bottom line? Applying for a traditional SBA loan is often a long, time-consuming process with multiple steps that can take months to wrap up. Several entities are involved in the decision-making process and each step takes time. Unless you can afford to wait several months to secure financing for your small business, you are probably better off looking for financing elsewhere.




1. SBA 7(a) Loans

The most common loan available through the SBA is a 7(a) loan which provides $30,000 to $5 million to small business owners. Qualified companies can use the funds to fund startup costs, purchase equipment, buy new land, repair existing assets, expand an existing business, acquire a new business, refinance debt, purchase inventory and

supplies, and more.

To qualify for financing, business owners need to have good credit and good business history. In most cases, borrowers will have to put up collateral in order to secure financing.

Generally speaking, repayment terms do not exceed 10 years for most loans and 25 years for real estate loans. Interest rates can fall anywhere between 5–10 percent.

2. SBA 504 Loans

Small businesses that need long-term loans for fixed asset acquisitions—like buying property, buildings, or heavy equipment—can find the funding they need through the SBA 504 Loan program.

If approved, they can qualify for up to $5 million in financing. In most instances, owners are required to guarantee at least 20 percent of the loan.

“These loans are made available through Certified Development Companies (CDCs), which are the SBA’s  ommunity-based partners,” Manger explains. “The advantage of this program is that it provides terms of 10 years, 20 years, and 25 years, which helps free up cash flow for small businesses.”

To qualify for funding, businesses can not be worth more than $15 million and they must have an average net income of $5 million or less after taxes over the two previous years, according to the SBA. Nonprofits and businesses engaged in passive or speculative activities can’t get 504 loans.

SBA 504 Loans have fixed rates attached to them. You can use them in a variety of ways, including:

  • Purchasing buildings
  • Purchasing land and land improvements, which include grading, street improvements, utilities, parking lots, and landscaping
  • Building new facilities or renovating existing ones
  • Buying machinery or equipment that you intend to use over the long term
  • Refinancing debt that stems from expanding a business through facilities or equipment
  • The 504 program, however, comes with some restrictions. You can not use these funds to buy inventory, consolidate debt, or as working capital.
  • According to the SBA, businesses usually need to create or retain one job for every $65,000 in financing they receive via 504 Loans; small manufacturers need to create or retain a job for every $100,000 in SBA funding.
  • In lieu of that, CDCs fund businesses that meet community development goals—like improving or stabilizing the economy, stimulating the development of other businesses, or bringing new income into the community. CDCs also fund businesses that help them meet their public policy goals, including revitalizing a community, expanding exports, increasing businesses owned by women, veterans, or minorities, and aiding rural development, among other things. What’s more, CDCs are more likely to approve loans that help them update facilities to meet health, safety, and environmental requirements.

3. SBA 8(a) Business Development Loans

Each year, the government aims to give out at least 5 percent of all federal contracting dollars to disadvantaged small business owners. One of the mechanisms they use to achieve that goal is the SBA’s 8(a) Business Development program.

Businesses approved for the program can earn sole-source government contracts of up to $4 million for goods and services and $6.5 million for manufacturing.

To qualify for 8(a) financing, small businesses must be at least 51 percent owned by a U.S. citizen entrepreneur who is socially or economically disadvantaged. Owners must have less than $4 million in assets and a personal net worth of $250,000 or less; their average adjusted gross income over the previous three years needs to be $250,000 or less, too. Owners must also manage day-to-day operations and their business needs to have a track record of successful


To find out whether you’re eligible for an 8(a) Business Development loan, click here to visit the SBA’s “Am I Eligible?” page.

4. SBA Micro loans

The SBA micro loan program—which was created to help minority, veteran, women, and low-income entrepreneurs—awards qualified businesses with anywhere from $500 to $50,000. Borrowers have to sign a personal guarantee and may have to put up collateral to secure financing.

“The SBA’s Micro loan program is designed to provide access to capital to traditionally underserved communities through mission-oriented not-for-profit lenders,” Manger says. “SBA regulators place a limit on the interest rates and fees that can be charged.”

In 2017, the SBA approved nearly 5,000 micro loans totaling almost $70 million; the average loan was $13,884 and carried a 7.5 percent interest rate. Repayment terms for micro loans can’t exceed 10 years.

According to Manger, 8 percent of micro loan borrowers return to the SBA when seeking larger amounts of capital.

5. SBA Community Advantage Loans

In 2011, the SBA launched its Community Advantage Loans program, which is designed to support businesses that operate in underserved communities.

Under the program, up to $250,000 is available to startups and established companies that wish to expand. Funds are relatively flexible and you can use them to cover working capital costs, buy inventory, acquire assets, and more.

Qualified businesses generally have between seven and 10 years to repay the loan, plus interest, which usually hovers somewhere between 7 percent and 9 percent.

6. SBA CAPLines

The SBA offers working capital loans to businesses that need to solve short-term cash flow problems or meet seasonal financing obligations.

The loans—which can reach as high as $5 million with a maximum maturity of 10 years—are perhaps best for businesses that need access to credit lines to ensure they’re able to meet their recurring operating costs and absorb unforeseen expenses.

“SBA CAPLines are a revolving asset-based line of credit,” Manger says. “Small businesses that buy and sell inventory or need to fund contracts would benefit from this type of financing.”

Today, there are four CAPLine programs:

Working Capital CAPLine funds. You can use these funds to cover short-term working capital needs. You cannot use these funds to pay taxes.

Contract CAPLine funds. Contractors typically use these to finance specific contracts—including general and administrative expenses. You cannot use these funds to buy assets, pay taxes, finance debt, or as working capital loans.

Seasonal CAPLine funds. If your business needs to pay for inventory or offset high receivables during the busiest times of the year (for example, a house painting business), look in to Seasonal CAPLine funds. In some cases, you may also use the funds to absorb increased labor expenses that are seasonal.

Builder’s CAPLine funds. You can use these to finance construction and renovation projects. Approved expenses include labor, supplies, materials, equipment, direct fees, landscaping, and utility connections, among other things.

While the cost of these loans will vary based on your specific financial situation, the lender you partner with, and how much money you take out, generally speaking, you can expect to pay somewhere between 7.25 percent and 9.75 percent in interest.

Since CAPLines are lines of credit, you only have to pay interest on the money you spend—not the entire credit line.

7. SBA Export Loans

The SBA also offers financing for companies that need working capital advances on export orders, receivables or letters of credit under its Export Working Capital Program.

Businesses can apply for these loans prior to finalizing an export sale. If approved, you can use the funds to finance supplies, inventory, and the production of export goods, cover foreign accounts receivable, and as working capital during long repayment periods.

Under this program, up to $5 million is available; loan maturities are generally one year or less. To secure financing, you’ll need to provide a personal guarantee from all owners (20 percent or more).

According to Manger, the SBA has a dedicated team of 21 regional export finance managers located across the country that can help with SBA Export Loans. The agency offers three programs designed to help small business exporters:

The Export Working Capital Program provides exporters with up to $5 million. The SBA offers a 90 percent guaranty for short-term loans and lines of credit for export working capital.

The Export Express Loans Program gives exporters up to $500,000 in short-term loans and lines of credit for export purposes. These loans are fast and flexible, as the SBA delegates authority to participating lenders.

The International Trade Loan Program provides exporters with up to $5 million in long-term loans for facilities, equipment, and permanent working capital that will enhance export ability. Borrowers can also refinance existing debt under this program.

If you’re unsure about which program is best for you, talk to your lender or a trusted financial advisor.

8. SBA Disaster Loans

The SBA offers loans to businesses that have suffered from natural disasters. Typically, the SBA makes these comparatively low-cost loans available to replace or repair damaged property and offset economic losses in the wake of disasters.

If a natural disaster affects your business, you may be entitled to up to $2 million in relief to repair real estate, equipment, inventory and other fixtures. Loans can be issued of up to 20 percent more than the total loss if the funds are used to protect property against similar damages in the future.

Up to $2 million may also be available to businesses that lose revenue and are unable to meet financial obligations they would have otherwise been able to pay if the natural disaster did not occur.

In the event of a disaster, the SBA assesses damages to determine whether businesses are eligible for compensation under the Disaster Loans program. Interest rates won’t exceed 4 percent for businesses that don’t have credit elsewhere, or 8 percent for businesses that do. Repayment terms can extend to 30 years, depending on the finances of the business.


In addition to meeting the numerical standards for small businesses, your business must:

  • Be a for-profit business of any legal structure
  • Be independently owned and operated
  • Not be nationally dominant in its field
  • Be physically located and operate in the U.S. or its territories
  • Businesses outside the U.S. may still be counted as small if they have an operation in the U.S. that makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor.


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Address: 5010 N. Parkway Calabasas Suite 201, Calabasas Ca 91302 Disclaimer: Restrictions Apply. Some loans may take longer than 7 days to close. Terms subject to change. This is not a commitment to lend. Pacific Capital Funding Corp is licensed by Cal DRE Lic.: 02039562