SBA Loan Programs & Which One Is Best for You

Your business is rolling along well and you’re ready to expand, increase working capital or refinance existing high interest debt. Where do you turn for low cost funds? The small business loan landscape can be daunting but there’s a government agency looking out for you.

While the words “government agency” might make you balk, the Small Business Administration’s low-cost loan programs are helping small business owners across America reach their entrepreneurial dreams.



SBA loans are generally known as the “gold standard” due to low rates, long terms and very low payments. If you’re seeking stability, growth and savings, an SBA loan can be your best bet.

SBA Loans for Small Businesses

There are three types of SBA loan programs available for business owners:

  • The 7(a) Loan Program
  • The CDC/504 Loan Program
  • The Microloan Program

Here’s information you need to know so you can make an informed decision on the right SBA loan for your small business.

The 7(a) Loan Program

The 7(a) loan program is the most popular because of its low rates, favorable terms and wide use of loan proceeds.

The 7(a) Loan Program: How It Works

Here are fast facts about this popular program:

  • Loans aren’t funded by the SBA itself but by SBA approved lenders
  • A lender can recover a portion of the loan in case of default because of the SBA guarantee
  • Small businesses need to meet both lender’s criteria and the 7(a) requirements

Who is the 7(a) Loan Program For?

The 7(a) program is for established small business owners with healthy credit scores who are interested in additional working capital, high interest debt refinance or a commercial real estate purchase or refinance.

Interest Rates for 7(a) SBA Loans

Most 7(a) term loans are repaid with monthly payments of principal and interest. As of June 2018, SmartBiz SBA 7(a) loans through its bank partners have variable rates of 6.25% - 8.50% calculated by Prime Rate plus 1.50% to 3.75%. Always confirm rates with your lender so you don’t face any surprises about the total cost of a 7(a) loan.

SBA 7(a) Loan Amounts

SmartBiz Loans offers working capital and debt refinance loans from $30,000 - $350,000 through its marketplace of SBA bank lenders. Also offered are SBA Commercial Real Estate Loans from $500,000 to 5 million. In 2018, the average SBA 7(a) loan was $417,316.

Repayment Terms

Most 7(a) term loans have a 10-year term with no prepayment penalty. Commercial real estate SBA loans have a 25-year term.

Minimum Requirements

Lenders may have slightly different requirements. In general, the following apply:


  • 2+ years in business
  • Owners must be U.S. citizens or legal permanent residents
  • Personal credit scores above 650
  • Cash flow to support loan payments


  • Bankruptcies or foreclosures in the last 3 years
  • Prior default on government backed loans
  • Outstanding tax liens
  • Loan proceeds cannot be used for unpaid taxes

Use of Loan Proceeds

Loan proceeds can be used in the following ways. Check with your lender for specifics.

  • Working capital
  • Equipment purchases
  • Adding employees
  • Increasing marketing
  • Refinancing existing debt
  • Commercial Real Estate purchase or refinance

The CDC/504 Loan Program

This program is described by the SBA as a win-win-win for the small business, the community and participating lenders.

The CDC/504 Loan Program: How It Works

The 504 Loan Program was created to give small businesses low cost funds for expansion or modernization.

Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs (Community Development Corporations) typically fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner.

SmartBiz Loans does not offer SBA 504 loans.

Who are 504 Loans For?

A 504 SBA loan might be a good fit for small business owners interested in purchasing a commercial real estate property and if their unique business circumstances fit with the public policy goals of your local CDC.

504 Loan Interest Rates

The SBA sets the maximum interest banks can charge on CDC/504 loans. As of May 2018, the current rate ranges from 4.88% to 5.15%, depending on loan size and amount.

504 Loan Amounts

The maximum SBA loan amount for 504 SBA loans is $5 million.

504 Loan Repayment Terms

For land and buildings, there’s a 20 year term. Loans for machinery and equipment have a 10 year term.

Minimum 504 Loan Requirements

Your business must be for profit, you’ll need to present a comprehensive business plan and relevant management expertise is required. Additionally, you must meet the following conditions:

  • Operate your business in the United States or its territories.
  • The business net worth must be less than 15 million dollars
  • Your business must have an average net income less than $5 million
  • You must have the ability to repay the loan on time based on cash flow

Use of 504 Loan Proceeds

The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including:

  • The purchase of buildings, land and land improvements
  • The construction of new facilities or modernizing, renovating or converting existing facilities
  • The purchase of long-term machinery
  • The refinancing of debt in connection with an expansion of the business

The Microloan Program

The Microloan Program is for very small businesses, including start-ups and provides loans of up to $50,000. Although SmartBiz Loans does not offer microloans, we do offer SBA 7(a) loans from $30,000.

How It Works

The SBA loans money to community based non-profit, non-traditional lenders who turn around and make these types of loans to small businesses.

Who Are Microloans For?

These small loans help small business owners who need less than $50,000 to strengthen and grow their business.

Microloan Interest Rates

Microloans have interest rates between 8%-13% and must be fixed rate and fixed term with regularly scheduled payments.

Microloan Amounts

Borrowers can apply for up to $50,000 with the average loan size funded by the SBA just $14,215 in 2016.

Repayment Terms

Microloans have a repayment term of up to six years.

Minimum Requirements

Check with your individual lender as requirements can vary. In general, a credit score of at least 640 is required. Additionally, the business owner will need to either put up collateral or sign a personal guarantee.

Use of Proceeds

Proceeds from an SBA Microloan can be used for most business expenses but not for paying down debt or real estate purchases.

SBA Loans: The Bottom Line

From keeping up with your seasonal payroll increase to getting money to grow your business, there are a lot of good reasons to get financing. Small businesses serve as the backbone of the U.S. economy and SBA loans provide the low cost funds that hard working entrepreneurs deserve.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.