SBA Loans


Are you a small business with good credit?

Is your company too young or too small to qualify for a traditional loan?

Before taking an expensive loan from an alternative lender, consider an SBA loan!

What are SBA loans?

The SBA (Small Business Administration) is a federal agency that exists to help small businesses. One way they do that is by connecting borrowers (small businesses) with lenders. While the SBA does not directly provide funding, they back loans up to 75-85%. This reduces risk for lenders, creating more affordable rates for small businesses.

The SBA mainly partners with banks, but it also works with credit unions, private sector lenders, community development organizations, micro-lending institutions, and in some cases, nonprofits.

Lenders must adhere to the guidelines set by the SBA, which creates fair conditions for small businesses in need of cash flow solutions. You’ll get affordable rates and repayment terms spread out over several years, without the need for large down payments or risky collateral.

There are several types of SBA loans, each designed for different needs. We’ll focus on the 3 most common types: 7(a), CDC/504, and Microloans.

SBA 7(a) Loans

The 7(a) is the most common and popular SBA loan, which can provide anywhere from $25,000 to $5 Million to qualifying small businesses. Companies have the flexibility to use these funds for a variety of needs. These include:

  • funding startup costs
  • buying new equipment
  • purchasing new land or real estate
  • repairing assets
  • expanding business
  • refinancing debt
  • restocking inventory

If you plan to use the loan for working capital, you can pay it off within 10 years. For fixed-asset loans, you can get a maturity term of up to 25 years.

The SBA sets a maximum “spread”, which is the amount lenders can charge on 7(a) loans in addition to the current prime rate. Therefore, if the prime rate is 3.25% and the maximum spread is 2.75%, you’ll get a rate of 6%. The maximum spread varies according to loan amount and repayment schedule, but you can expect 7(a) overall rates to stay in the range of 5.5 to 9%.

Under the umbrella of the 7(a) loan, there are actually 9 types, each with varying maximum loan amounts, guaranteed percentages, interest rates, speed of funding, collateral requirements, and specified uses. We’ve described the “Standard” 7(a), but we can help you determine if other types are better suited to your business’s needs.

SBA CDC/504 Loans

Are you looking to invest in real estate or new equipment in order to expand or maintain your business? If so, the CDC/504 loan may be the perfect source of funding. This type of loan provides up to $5 million, which can be paid off in 10-25 years. Currently, you can expect very reasonable rates between 3.5% to 6%. However, the funds must be used for fixed assets—real estate, buildings, machinery, equipment, etc. The funds cannot be used for working capital, debt consolidation, or inventory.

SBA CDC/504 loans have a unique provider structure. Typically, 50% of the funds are financed by a bank, 40% by CDCs (Certified Development Companies), and 10% by you, the small business. CDCs are nonprofit companies with a mission to support and revitalize communities. Therefore, part of the approval process is making sure the purpose of your loan contributes to the community in some way (stabilizing the economy, creating jobs, improving health/safety, etc.).

SBA Microloans

A microloan, as the name implies, provides smaller loans to small businesses in need of working capital, inventory, furniture, or equipment. It cannot be used to pay off debt or purchase real estate. The program offers up to $50,000 for approved borrowers, but the average microloan is around $13,000. Repayment terms vary, but they can’t last beyond 6 years. For these short-term loans, the average rates fall between 6.5% and 13%, which may be determined by the repayment term.

Unlike other SBA loans, Microloans are not backed by the SBA. However, the funds are provided by trusted intermediary lenders—usually nonprofit organizations—who are approved by the SBA.

Microloans were created to help small business owners who traditionally have trouble getting conventional loans. Women-owned and minority-owned companies, in particular, have benefited from the Microloan program. In addition, it can help small companies who’ve suffered financially as a result of complying with environmental safety and health requirements.

Guarantee Fees

The SBA charges a small percentage of the guaranteed portion of the loan. For loans with terms of less than a year, the fee starts at .25%. Loans of more than $150,000 come with 2% fees, while loans beyond $700,000 could carry guarantee fees of up to 3.75%. Guarantee fees vary with repayment terms. Keep in mind that these fees apply to only the guaranteed part of the loan. If the SBA is backing 80% of a $500,000 loan, with a guarantee fee of 3%, then the fee attached to $400,000 would be $12,000. Also note that as Microloans are not guaranteed, they do not come with guarantee fees. 

An SBA loan may come with other fees as well—including an application processing fee, closing fee, servicing fee, late fee—but these are fairly minimal and won’t offset the general affordability of the loan.

Pros and Cons of SBA Loans

SBA loans should be the obvious choice for small businesses that have good credit, but can’t obtain traditional bank loans. Nonetheless, here’s a look at some advantages and disadvantages.


Lower interest rates than alternative loans

Minimal down payments & minimal collateral required

Manageable repayment terms

Flexible use of funds

Tailored specifically for small businesses like yours!


Limitations on loan amounts

Requires fairly high credit score

So many types of SBA loans may be difficult to navigate (We can help!)

The approval process may take longer than with alternative lenders

How to Qualify for SBA Loans

Because there are many types of SBA loans with different criteria for qualifying, we can’t offer an exact formula. However, if your credit score is above 680, your annual revenue is above $150,000, and you’ve been in business for at least 2 years, we believe it’s worth your time to apply. While the application process can be a bit lengthy, you’ll be rewarded by the low rates in comparison with other loans.


Annual Revenue


Time in Business


Credit Score

The type of SBA loan you pursue will determine exact requirements, but be prepared to submit a driver’s license, bank statements, balance sheet, tax returns, business plan, or other documents that highlight your borrowing history and financial health.

Does an SBA loan make sense for your small business? Contact Gateway today! We’ll walk you through your options and find you the best cash flow solution for your specific needs.