SBA stands for “Small Business Administration.” The Small Business Administration is a government agency, not a business lender. Applications for SBA Loans are not sent directly to the SBA. Instead, you must apply through one of three types of financial institutions: commercial banks, credit unions, or alternative business financing facilitators like United Capital Source. These loans help small business owners just like you start or grow businesses. What makes an SBA Loan different than all other business loans is that the SBA guarantees up to 85% of loans up to $150,000 and up to 75% of loans over that amount and up to $500,000. This means that even if the borrower defaults on the loan, the financial institution would still get back 85% or 75% of the borrowed funds. The SBA also sets limits on the interest rates and fees lenders can charge. The SBA, however, does not approve or reject applications. That’s all up to the financial institution, each of which has its own criteria for approval. Once the institution approves an application, it submits its own application requesting the SBA’s guarantee.

How it Works

This is the most popular type of SBA Loan. It can be used for almost any purpose: hiring more people, purchasing new equipment, paying off existing debts, ordering bulk inventory, etc. You can access up to $5M, with repayment terms of up to 25 years for commercial real estate and 10 years for all other purposes. Interest rates range from 7.75% – 15.75%. There is a 1.7% guarantee fee for loans up to $150K and a 2.25% fee for loans greater than that amount. This fee might be presented as part of the total cost of the loan. There may also be an origination fee or loan packaging fee. 7(a) Loans cannot be used for certain purposes. These purposes include purchasing a building that will be leased to another business, reimbursing a business owner for a previous investment in the business, and repaying debts owed to the US government.