Understanding and Comparing the 14 Types of SBA Loans

SBA loan programs are the individual setups through which the SBA facilitates small business lending. Though all programs will offer affordable, government-guaranteed financing, different types of SBA loans offer a variety of funding possibilities based on your business’s history, the amount of capital you need, and how you plan to use the funds.

Here’s a brief summary of all of the available SBA loan types:

1. Paycheck protection program (PPP): Offers funding to small businesses affected by the novel coronavirus pandemic
2. Standard 7(a) loan program: The SBA’s most popular and most general loan program, good for working capital—also houses the next six sub-programs on this list
3. 7(a) Small loan: A 7(a) loan up to $350,000 that’s typically faster to fund
4. SBA Express loan: SBA loans that come with a 36-hour approval turnaround time
5. SBA Export Express: SBA loans for businesses that need to finance export needs with a fast turnaround time
6. Export Working Capital: Short-term loans up to $5 million for export businesses
7. Veteran’s Advantage: SBA loans specifically for veterans, up to $350,000 in capital
8. CAPLines: The SBA’s version of a business line of credit
9. CDC/504 loan program: The SBA’s version of a commercial real estate loan
10. Microloan program: Intended for smaller businesses that need up to $50,000 for working capital
11. Home and Personal Property SBA Disaster loan: Offer up to $200,000 for repairing personal property after declared disaster
12. Business Physical SBA Disaster loan: Offer up to $2 million for repairing business property after a declared disaster
13. Economic Injury SBA Disaster loan: Funding for businesses that have suffered a loss of business as a result of a disaster
14. Military Reservists Economic Injury SBA Disaster loan: Loans for businesses with a key employee called for active duty

In this guide, we’ll break down three primary SBA loan programs, plus 10 other sub-programs—explaining how they work, who they’re best for, as well as the typical rates and terms—so that you have all of the information you need to determine which of these SBA loans is the right fit for your business.

As you can already see, there are several different types of SBA loans.

Therefore, before we compare these loan products, it’s worth explaining exactly how an SBA loan works. In short, the way an SBA loan works—in terms of the guarantee, loan amount, interest rates, eligibility requirements, etc.—will vary from program to program.

This being said, however, a hallmark of SBA loans is that they offer low-rate, long-term funding. Overall, SBA loans have some of the lowest interest rates that a business owner can find—with long repayment terms that translate to manageable monthly payments.

Plus, because most SBA loan programs will mean lessened risk for lenders in some form or fashion, SBA lenders are more willing to work with small businesses. Together, participating lenders issued over $143.5 billion in SBA loans in the SBA’s fiscal 2019 year.

On the other hand, there are some drawbacks to the SBA loan programs. When it comes down to it, qualifying for an SBA loan is tough—these loans go only to the most creditworthy of borrowers. Additionally, getting an SBA loan takes patience. The average loan processing time is four to six weeks, even with an experienced partner like Fundera helping you with your application.

In this way, any of the types of SBA loans will be best for borrowers who don’t have an immediate need for funds. It’s also important to note that, although we’ll review the most popular and common SBA loan programs, there are additional programs that the SBA offers for different entrepreneurs.

For example, they help facilitate loans for women, as well as SBA Community Advantage Loans for underserved markets in specific locales.

Now that you have a better sense of the general mechanics of SBA loan programs, let’s learn more about each of the different types of SBA loans.

To start, in the SBA loan types chart below, you’ll find a summary of the options:

SBA Loan Types Chart

With this overview in mind, let’s break down these different types of SBA loans in greater detail.

The Paycheck Protection Program is a unique type of SBA loan created by the CARES Act as a response to the coronavirus pandemic.

This SBA loan program provides 100% federally guaranteed loans to help businesses with their payroll and other operating expenses. All business loan payments are deferred for 10 months, and the SBA will forgive the loan proceeds that are used to cover 24 weeks of payroll costs, rent, utilities, and mortgage interest.

Here are the details you need to know about this SBA loan:

• Interest rate of 1%
• Maturity of five years
• No collateral, personal guarantees, or borrower or lender fees payable to SBA
• Loan amounts up to 2.5 average monthly payroll costs with a maximum of $10 million

Additionally, it’s important to note that businesses who take out a PPP loan are eligible for loan forgiveness for the amount spent on payroll costs, rent on a leasing agreement, payments on utilities, and additional wages to tipped employees.

You can currently apply for a PPP loan through existing SBA 7(a) lenders or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. See a list of banks that are participating in PPP here.

Most small business owners seeking an SBA loan start off with the 7(a) loan program. These loans accounted for more than 80% of the total volume of loans that the SBA guaranteed in 2019.

7(a) loans are general purpose small business loans, and you can use them for a wide variety of purposes. In addition, as shown above, the SBA 7(a) loan program contains within it a variety of different sub-programs to consider.

Since the 7(a) loan program—or one of the SBA loan types within it—will be the obvious choice for the majority of business owners, let’s dig deeper into exactly how this loan program works, who it’s for, and how to proceed if you determine that this is the right SBA loan option for you.

As with the vast majority of SBA loan programs, funding provided through the 7(a) loan program doesn’t actually come from the Small Business Administration.

Rather, the borrowing process works similarly to a traditional bank business loan, with the only difference being that the SBA acts as a guarantor to reduce the level of risk to lenders. Many large banks loan money as part of the 7(a) loan program, along with several community banks and some online banks.

Since the 7(a) loan program offers so much flexibility in use of funds, it is far easier to narrow down the individual businesses or circumstances for which 7(a) loans are not a good fit.

You can’t use this type of SBA loan to reimburse a business owner for outstanding expenses, to pay delinquent taxes, or to buy out one of your business owners.

Other than that, eligible 7(a) loan uses include:

• General working capital
• Purchasing a building or equipment
• Paying the salaries of your employees until you turn a profit
• Purchasing inventory or general supplies
• Refinance debt

When it comes down to it, pretty much any expense you can think of can be covered by a loan from the 7(a) program. This is what makes the 7(a) loan the default choice for most small business owners seeking funds through the U.S. Small Business Administration.

To qualify for the 7(a) program, you must have:

• A strong personal credit history (a FICO score of at least 650 is typical)
• Solid financial record
• Generally at least two years in business

You’ll also need to put up some collateral and sign a personal guarantee.

Interest rates on 7(a) loans vary based on your intermediary lender as well as the size of your loan and repayment schedule. The SBA sets maximum interest rates, however, that lenders can’t exceed.

Subject to those maximums, individual lenders will determine the exact rate depending upon the applicant’s qualifications and the level of industry risk facing each business.

Generally, you can expect these SBA loan rates to vary from the market prime rate + 2.25% to prime rate + 4.75%. The prime rate is a market interest rate that serves as a benchmark for many types of loans.

In addition to your interest rates, fees also affect your loan cost. The main fee on SBA 7(a) loans is the SBA guarantee fee, which goes up to 3.75% of the guaranteed amount of the loan.

Repayment terms also range depending on the purpose of the loan:

• Working capital: Up to seven years
• Equipment: Up to 10 years
• Real estate: Up to 25 years

Several lenders participate in the 7(a) loan program.

This includes large banks like Chase, Bank of America, and Wells Fargo, as well as smaller community banks. Whenever possible, you’ll want to apply through an SBA Preferred Lender. These lenders are authorized to make approval decisions without the SBA’s review, which speeds up the application process.

Your SBA loan application will require a lot of paperwork and details, so we recommend allowing at least six weeks for the application process before you need cash in hand. A Fundera loan specialist can help you determine if you’re eligible for the SBA 7(a) loan program and put together your loan application.

As we illustrated in our SBA loan types chart above, within the umbrella of the 7(a) loan program, there are actually several individual types of SBA loans.

Beyond the general 7(a) standard loan, there are different loans for certain industries, financing needs, and entrepreneurial demographics. These SBA loan programs are less common than the standard 7(a) loan, but they could be a good fit for some businesses.

Here are the loan programs under the 7(a) loan umbrella.

The second of the major SBA loan programs is the CDC/504 loan program. If you need significant funds to purchase or renovate land, buildings, or equipment, the SBA 504 loan could be your perfect fit.

The terms, qualifications, and application process for this type of SBA loan are more complex than the more general 7(a) loans.

Multiple parties are involved with making CDC/504 loans, making for a more time-intensive process. Plus, there’s typically more at stake here since CDC/504 loans have no set maximum on the bank portion and can cover huge multi-million dollar projects.

As we mentioned, CDC/504 loans have a somewhat complex structure:

• A bank funds up to 50% of the project costs.
• A nonprofit certified development company (CDC) funds up to 40% of project costs. These nonprofits are affiliated with the SBA and aim to create jobs and enhance development in their local economies.
• The final 10% of project costs come from the borrower, most often in the form of a cash down payment.

It is important to understand that if you pursue a CDC/504 loan for your business, you are effectively seeking two separate loans—the CDC portion of the loan which is subject to SBA guidelines, and the bank portion which is not.

The exact process and terms, particularly of the CDC portion of your loan, can vary widely based on your geographic area and your local certified development company’s specific goals.

Since multiple parties are involved with CDC/504 loans and high dollar amounts are at stake, it’s no wonder that these loans only accounted for about 20% of the total SBA loan portfolio in 2019.

Compared with the other primary SBA loan types, this one fits for a more specialized subset of small business borrowers. Generally, CDC/504 loans are designed for:

• Purchasing real estate
• Purchasing machinery or equipment
• Purchasing or renovating land
• Renovating or remodeling existing facilities

As with the 7(a) loan program, you’ll need to meet specific SBA loan requirements to qualify for the CDC/504 program:

• Excellent personal credit (at least 650)
• Create or retain at least one job for every $65,000 of funding that the CDC provides or meet other public policy goals
• Meet certain owner-occupancy requirements

We recommend checking with your local CDC to determine whether your business will meet these standards before pursuing a 504 loan application.

As we’ve mentioned, the CDC/504 loan is actually two separate loans, and that distinction extends to cost.

Banks can charge their own interest rates on their portion of the loan, without any intrusion from the SBA.

However, the SBA sets guidelines for the maximum interest rates on the CDC portion of the loan. The CDC can only charged fixed interest rates. These interest rates usually range from around 5% to 6%.

The repayment terms range from 10 to 25 years.

Provided that you meet the criteria for a CDC/504 loan, you’ll want to first connect with a CDC in your local community to begin the application process.

In some cases, your local CDC will be the one to secure your business loan. In other cases, the CDC may work in partnership with another SBA-approved lender.

Remember that if a CDC/504 loan does not turn out to be the right fit for your business, the 7(a) loan program can also be used to purchase fixed assets and make upgrades—that might end up being a more accessible choice.

Small businesses with very high overhead or startup costs may seek SBA loans for hundreds of thousands or even millions of dollars. But other business owners might need a much smaller amount to take the next major step in their business.

Banks are already reticent to loan money to small businesses in the first place, so many lending institutions won’t even entertain a business loan application for $50,000 or less.

It is for exactly this reason that the SBA created the microloan program—often referred to as SBA startup loans—which works with small, nonprofit intermediary lenders in local communities to fund loans under $50,000.

Unlike the other types of SBA loans, the Microloan program stands out as one of the only options in which the funds for individual loans come directly from the SBA.

Nonprofit intermediaries borrow up to $5 million at a time directly from the Small Business Administration, and then dole out that capital to individual borrowers according to their own qualification standards.

Although more limited than the other SBA loan programs, SBA Microloans can be used for a relatively wide variety of purposes, including:

• Purchasing materials or equipment
• Paying staff
• Paying for advertising or marketing
• Working capital needs

However, you cannot use an SBA Microloan to refinance debt or to purchase real estate.

Overall, an SBA microloan can be a great option for any small business owner who would see a positive impact on their business from capital less than $50,000.

This being said, the exact qualification terms and minimum requirements vary among intermediary lenders, so you should check with your local intermediary to determine their exact application process and standards. However, you can generally expect to need:

• A personal credit score of at least 600
• A well-formulated business plan (especially for newer businesses)
• Collateral on the loan
• To be willing to sign an SBA loan personal guarantee

Although borrowers can obtain up to $50,000 through this program, the average Microloan that the SBA funded in the fiscal year 2019 was just $14,739.

SBA Microloans have shorter terms compared to the other types of SBA loans. They carry terms of up to six years with interest rates between 6.5% and 13%.

The average Microloan interest rate in the SBA’s 2019 fiscal year was 7.5%.

The SBA works through local intermediaries to issue microloans, so you’ll want to first find a local intermediary in your area and contact them to learn more about the application process and requirements.

Despite the smaller size of this SBA loan type, you can expect the application process to be equally thorough. Getting microloan approval and receiving the funds in your bank account can take several weeks.

Therefore, we suggest submitting your SBA microloan application as soon as possible, long before you have an immediate need for funds.

Although SBA 7(a) loans, CDC/504 loans, and microloans are the most common types of SBA loans, the SBA disaster loan program is a unique program designed for businesses and homeowners in recovery.

The SBA disaster loan program provides low-cost financing for economic injury, mostly that which comes as a result of a natural disaster.

Like the SBA 7(a) loan program, the SBA disaster loan program has several individual loan programs within it.

Let’s take a look at the details:

This SBA loan program is unique not only in that it offers consumer lending, but also in that it offers direct SBA lending.

This means that, through this SBA loan type, the SBA is lending its own capital straight to the borrower, rather than simply providing a guarantee or lending through an intermediary.

The SBA Disaster Loan Program offers affordable funding for businesses and homeowners recovering from a nationally declared disaster.

This loan program also provides funding to small businesses that have an essential employee who is a military reservist called for active duty.

For each of the different types of SBA disaster loans, you’ll need to meet specific requirements to qualify. The individual loan programs will also restrict the way you can use your loan proceeds as well.

When you apply for this type of SBA loan, the SBA will try to determine whether or not you have available credit elsewhere.

If you do, your maximum business loan interest rate will be 8%, but if you don’t, the maximum interest rate on your SBA disaster loan will be 4%.

Repayment term lengths for disaster loans can stretch as long as 30 years, which is lengthy, even relative to other SBA loan programs.

To apply for funding through the SBA disaster loan program, you’ll need to register for a FEMA ID before you do anything else. You’ll also want to make sure that your intended use of funds fulfills SBA stipulations before applying.

Small businesses apply for SBA disaster funding will need the following documents:

• SBA Form 5C (as well as other SBA forms)
• Contact information for all applicants
• Social security numbers for all applicants
• FEMA registration number
• Deed or lease information
• Insurance information
• Income records
• Account balances
• Monthly expenses
• IRS Form 4506-T

As we mentioned, the SBA disaster loan program has multiple loan types within it.

Each of the four SBA disaster loan programs will address a slightly different need. Let’s learn more.