An overview of SBA loans

The Small Business Administration’s (SBA’s) loan program is designed to help small business owners get the financing they need to run their business. While many small business owners likely know about the most common loan, the 7(a) loan, there are other SBA-backed loans available for small businesses.

Here’s a quick overview of what you need to know.

Types of SBA loan programs

The SBA helps small businesses obtain loans by setting guidelines for the loans and reducing the risk to the lenders. SBA-backed loans typically come with competitive terms. By accessing some of the loans, you may also receive special counseling and education to help you run your business, and unique benefits.  

Microloans

With an average loan of around $13,000 and a maximum amount of $50,000, a microloan helps small businesses and some not-for-profit childcare centers cover the costs of starting up and expanding. The microloans can be used for a variety of purposes, including providing working capital, buying inventory and supplies, repairing premises, or enhancing small business processes.

The maximum repayment term is six years.

This type of loan works well for online or home-based businesses. Freelancers might also find it helpful for expanding their business.

Applying for a microloan

First, find an SBA-designated intermediary in your location. All microloans are lent and managed by banks, so you’ll work with a local lender rather than the SBA directly.

Each intermediary will have its own credit requirements and lending criteria, which will may include some form of collateral. They will also set their own interest and repayment terms.

504 loans

The SBA’s 504 loan program, also known as a Certified Development Company (CDC) loan provides long-term, fixed-rate financing for business owners to buy major fixed assets that enable business growth and job creation.

The maximum loan amount is $5.5 million, but for certain projects, the borrower can receive loans for up to three projects, to a total maximum of $16.5 million.

Uses of a CDC/504 loan

The CDC/504 loan was created to help small businesses expand and can be used to: 

• Purchase or construct items like real estate, land and new facilities. 
• Buy long-term machinery and equipment. 
• Make improvements to utilities, parking lots and landscaping. 
• Upgrade, renovate, modernize, or improve existing facilities, land, streets, and parking lots.  

However, you won’t be able to use a CDC/504 loan for stock, working capital, repaying or refinancing debt, or investing in rental real estate.

Are you eligible?

To get the CDC/504 loan you’ll have to operate your business for a profit with a realistic business plan and relevant management experience. Before applying for your loan you’ll need to have tried to use other financial resources, including your own personal ones.

Other conditions your business will need to meet include having: 

• A tangible net worth of less than $15 million. 
• An average net income of under $5 million after taxes (over the last two years). 

You’ll also have to show you can repay the loan on time from your business’s projected operating cash flow.

Applying for a CDC/504 loan

Certified Development Companies are regulated by the SBA and will work with your bank to provide the CDC/504 loans. Get in touch with your local CDC to apply.

The disaster loan program

A disaster loan is a low-interest, long-term loan that can be used to either replace or repair certain business assets that were destroyed or damaged in an SBA-declared disaster area.

Your damaged or lost assets could include inventory, machinery, equipment, furniture, fixtures and your premises. You may even be able to apply for further funds to refinance your existing mortgage or to protect against future damage.

You might be able to borrow up to $2 million for a term of up to 30 years.

Types of disaster loans

There are three different kinds of SBA disaster loans offered to businesses. They are the: 

• Business physical disaster loan – if you need to replace or repair property, stock, supplies, equipment or other assets that were damaged in a disaster. 
• Economic injury disaster loan (EIDL) – if you have a small business that’s struggling to meet its financial obligations because of a disaster. 
• Mitigation assistance – helps small businesses operating after a disaster that are looking for protection against future disasters.  

Additionally, Military Reservist loans help eligible small businesses that have an essential employee called to active duty cover their operating expenses.

Special kinds of 7(a) loan programs

The 7(a) loan program is the main program for providing financial support to small business owners. Specific terms and eligibility vary depending on the loan.

CAPLines

This program is aimed at helping your small business meet its short-term working capital needs. Up to $5 million can be used to finance: 

• Seasonal working capital. 
• Direct costs of certain construction, service and supply contracts, subcontracts, and purchase orders. 
• Working capital lines of credit with special repayment requirements.
• Direct costs of commercial and residential construction. 

For most CAPLines loans the maximum maturity is 10 years. A guarantee from all holders of at least 20 percent ownership in the business are required to be approved for the loan.

SBA Export loans

The SBA has a number of loan programs specifically aimed at helping your small business to develop or grow its export activities. They are the: 

• Export express loan program provides up to $500,000. The SBA will respond to your application within 24 hours.  
• Export working capital program (EWCP) provides up to $5 million to pay for export transactions. 
• International trade loan program provides up to $5 million for working capital and fixed assets. 

Specific terms and eligibility vary depending on the loan and the lender. Some are determined by the SBA and some are determined by the lender.

Next steps

If you’re looking for financing for your small business, the Small Business Administration may have the resources you need. Visit the website and explore the SBA’s loan programs to determine whether you’re eligible and how to apply.  

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