SBA loans: the cheaper, slower route, and who it really suits
Sterling's take If you can wait and you have clean books, an SBA loan through your bank is usually the cheapest business money going. We don't arrange them, so start at sba.gov's Lender Match or with your own bank.
Want a straight answer for your business?
See who'll fund meAn SBA loan is a loan from a bank or other participating lender that the U.S. Small Business Administration partly guarantees to that lender. The guaranty lets lenders offer longer terms and capped rates to businesses they might otherwise turn down. The price of that is time and paperwork. Ask Sterling and our funding partner do not arrange SBA loans, and we have no connection with the SBA. If an SBA loan fits, go to sba.gov's Lender Match or your own bank.
The main programs
| Program | Amount | Rate | Term | Common uses |
|---|---|---|---|---|
| 7(a) | Up to $5 million | Negotiated, subject to SBA maximums | 10 years or less, up to 25 years for real estate | Working capital, equipment, real estate, refinancing, buying a business |
| 504 | $25,000 to $5.5 million | Fixed | 25 years for real estate, 10 years for equipment | Land, buildings, long-life equipment |
| Microloan | Up to $50,000 | Negotiated with the intermediary | No more than 6 years | Working capital, supplies, equipment |
The 7(a) program is the SBA's primary business loan program, and the maximum 7(a) loan amount is $5 million.
How the cost works
7(a) rates are negotiated between you and the lender but capped by the SBA. The caps are pegged to the prime rate or an optional peg rate. For variable-rate 7(a) loans the maximums are:
| Loan amount | Maximum variable rate |
|---|---|
| $50,000 or less | Base rate plus 6.5% |
| $50,001 to $250,000 | Base rate plus 6.0% |
| $250,001 to $350,000 | Base rate plus 4.5% |
| Over $350,000 | Base rate plus 3.0% |
The SBA publishes maximum fixed rates separately. On top of interest, lenders pay the SBA an up-front guaranty fee and are allowed to pass it on to you, so ask what it will be.
The bigger saving is usually the term. Here's the maths on $100,000 at an assumed 11% APR, repaid monthly:
| Term | Monthly payment | Total repaid | Interest |
|---|---|---|---|
| 24 months | $4,660.78 | $111,858.81 | $11,858.81 |
| 10 years | $1,377.50 | $165,300.01 | $65,300.01 |
The 10-year term costs more in total interest, but the monthly payment is less than a third of the 2-year one. For a business buying an asset that earns for a decade, that lower payment is the point. The 11% is an assumption for illustration, not an SBA rate; run your lender's figures in the loan payment calculator.
Prepayment can cost you on long loans. For 7(a) loans with a maturity of 15 years or more, a prepayment fee applies if you voluntarily repay 25% or more of the balance within the first 3 years: 5% of the prepayment in the first year and 3% in the second.
Who it suits
- Businesses with clean, up-to-date financial statements and tax returns.
- Owners who can wait for full underwriting rather than needing money this week.
- Long-term needs: property, long-life equipment, buying a business, refinancing expensive short-term debt into a longer loan.
- Owners prepared to pledge collateral and sign a personal guarantee.
Who it doesn't suit
- An urgent need. SBA loans go through full underwriting, so they're the wrong tool for a payroll gap next Friday.
- A business without organized books. The paperwork is heavier than for most other products.
- A business that can already get the credit it needs on reasonable terms elsewhere. To qualify for 7(a), a business must not be able to obtain the desired credit on reasonable terms from non-government sources.
- Businesses in ineligible categories, which the SBA lists; your lender will check.
Sterling's take: slow and cheap beats fast and dear whenever the need can wait. Be honest with yourself about whether it can.
What lenders look at
The SBA says eligible businesses must be operating for profit, located in the U.S., small under SBA size standards, creditworthy and able to show a reasonable ability to repay. In practice lenders also look at:
- Credit history, for the business and the owners.
- Cash flow, from financial statements and tax returns, and often projections.
- Collateral. For 7(a) loans of $50,000 or less, the SBA does not require collateral; for $50,001 to $500,000, the lender follows its own collateral policies, though a loan isn't meant to be declined solely for inadequate collateral. The SBA notes many lenders ask for an asset such as a home, car or inventory.
- Personal guarantees from the owners. Expect to sign one.
- A clear use of funds and a plan for repayment.
How to find a lender
Two routes:
- Your own bank. Ask whether it makes SBA loans and which programs.
- Lender Match on sba.gov. You answer a short questionnaire, and the SBA prepares a summary of interested lenders two business days after you submit. It is not a loan application, and using it doesn't mean you will be matched or offered a loan.
Red flags
- Anyone charging you a fee up front to "get you an SBA loan" or claiming special access to the SBA.
- A company whose name, logo or website implies it is the government. The SBA's site is sba.gov.
- An "SBA loan" offer with a factor rate or daily debits. That is not how SBA loans work.
See our page on funding scams for more.
How it compares
| SBA 7(a) | Term loan (non-SBA) | Equipment financing | Merchant cash advance | |
|---|---|---|---|---|
| Rate | Capped by SBA rules | Set by the lender | Usually lower, asset-backed | Factor rate, usually highest per year |
| Term | Up to 10 years, 25 for real estate | Months to years | Matched to the asset | Months |
| Paperwork | Heavy | Moderate | Moderate | Light |
If the SBA route doesn't fit your timing or paperwork, compare a term loan or equipment financing, and price every offer as an APR.
Run your own numbers: Loan payment calculator
Monthly payment
$4,992.41
- Number of payments
- 24
- Total repaid
- $119,817.84
- Total interest
- $19,817.84
- Interest per $1 borrowed
- $0.20
- Same deal as a factor rate
- 1.198
Level payments on an amortising loan. Fees aren't included: add them with the offer checker.
Ready for a straight answer?
Two minutes of questions. One funding specialist. No impact on your credit score.
Questions owners ask
Does Ask Sterling arrange SBA loans?
No. Neither Ask Sterling nor our funding partner arranges SBA loans, and we have no connection with the SBA. Use the SBA's own Lender Match tool or speak to your bank.
Does the SBA lend me the money?
For 7(a) loans, no. A bank or other participating lender makes the loan, and the SBA guarantees part of it to the lender, which lets the lender take on loans it might otherwise turn down.
Do I need collateral for an SBA loan?
For 7(a) loans of $50,000 or less, the SBA does not require collateral. Above that, lenders follow their own collateral policies, though a loan isn't meant to be declined solely because collateral is short.
Why would I choose a faster, dearer product over an SBA loan?
Usually because of timing or eligibility: the need won't wait for underwriting, the paperwork isn't ready, or the business doesn't meet the program's requirements. If none of those apply, compare the SBA route first.
Is Lender Match an application?
No. The SBA says it is a tool to help businesses find lenders, not a loan application, and using it does not mean you will be matched or offered a loan.