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Everything You Need to Know About SBA Lending

The Small Business Administration works with lenders to provide entrepreneurs and small businesses with the capital needed to help expand their businesses.

By Jeff DwyerStaff Writer
Updated 8:08AM 08/24/23

Do you want to invest in a franchise but are lacking the required capital? If so, you may have already considered taking out a Small Business Administration (SBA) loan. This is a common practice that many entrepreneurs, startups and established businesses have utilized in order to help grow their brands and scale their businesses. In fact, according to Forbes, in 2021, at least 34% of small businesses applied for an SBA loan.

Small businesses may choose to apply for an SBA loan for a number of reasons, including business expansion, equipment purchases, marketing assistance and financing.  

SBA Loan Types

The SBA is a federal agency that provides financial support to small businesses; however, it doesn’t directly lend money to these businesses. Instead, it partners with approved lenders such as banks and credit unions. There are a number of different lending programs available, including:

This is the SBA’s primary and most flexible loan program. 7(a) loans can be used for a variety of general business purposes, such as expanding a business, providing working capital, buying real estate, refinancing debt or purchasing equipment. This program offers loan guarantees to lenders, which in turn, reduces their risk and encourages them to provide loans to small businesses that may not otherwise qualify for traditional financing.

The maximum amount for a standard 7(a) loan is $5 million.

The SBA’s 504 loan program is focused specifically on facilitating real estate and equipment purchases. It involves three parties: the borrower, a traditional lender and Certified Development Corporations (CDC). The CDC provides a portion of the financing, the lender covers a percentage and the borrower contributes a down payment.

The maximum amount available is either $5 million or $5.5 million, depending on the type of business or project.

Microloans are geared toward entrepreneurs, startups and small businesses that need smaller amounts of capital. These funds can be used as working capital, or to purchase supplies, furniture and equipment.

The maximum amount for a microloan is $50K.

How to Qualify

In order to qualify for an SBA loan, there are certain requirements and criteria that your business needs to meet. The specific requirements can vary depending on the type of SBA loan you’re applying for. 

According to Investopedia, these are the general requirements you need to meet in order to qualify for an SBA loan:

  • For-profit venture
  • Physically located and operate in the U.S. or its territories
  • Must have invested your own time or money in the business
  • Unable to get money from another lender
  • Have a clean criminal record
  • Typically must not owe money to the federal government

Finding a Lender

If you’ve decided that taking out an SBA loan is the right path for you but don’t know where to start, the SBA provides a free Lender Match tool that can connect you with suitable lenders.

The process of getting an SBA loan is not as quick as a conventional loan. In general, SBA loans can take anywhere from 30 days to six months to be approved, depending on the lender and type of loan.

While taking out a loan through SBA can be an extremely useful tool to help you realize your dream of business ownership, it’s crucial not to go into the process of opening a business with limited capital. By doing so, you’re opening the door to potential unwanted stress and may also limit how much you can scale your operations. However, by approaching this process with a clear understanding and armed with the right information, you can select the appropriate loan for your needs and kickstart your entrepreneurial journey.