How SBA loans work: a private lender lends, the SBA guarantees part of it
The SBA does not lend to you directly. You apply with an SBA lender; the SBA guarantees up to 85% of loans of $150,000 or less and up to 75% of larger ones (50% for SBA Express). That guarantee is why lenders accept longer terms and capped rates.
| Program | Amount | Term | Used for |
|---|---|---|---|
| 7(a) | Up to $5 million | Up to 10 years; 25 for real estate | Working capital, equipment, real estate, buying a business, refinancing |
| SBA Express | Up to $500,000 | Revolving lines up to 10 years | Faster 7(a) using the lender's own forms |
| 504 | $25,000 to $5.5 million | 25 years real estate; 10 years equipment | Land, buildings, major equipment; fixed rate |
| Microloan | Up to $50,000 | No more than 6 years | Working capital, supplies, equipment |
To qualify, a business must operate for profit in the U.S., be small under SBA size rules, be creditworthy, and be unable to get the credit on reasonable terms elsewhere. Business Funders is not affiliated with the SBA.
True cost: the SBA caps the rate, so a $500,000, 10-year 7(a) loan costs at most about $292,900 in interest
| Loan amount | SBA cap | Cap today |
|---|---|---|
| $50,000 or less | Prime + 6.5% | 13.5% |
| $50,001 to $250,000 | Prime + 6.0% | 13.0% |
| $250,001 to $350,000 | Prime + 4.5% | 11.5% |
| Over $350,000 | Prime + 3.0% | 10.0% |
At the cap, a $500,000 loan over 10 years has a $6,607.54 monthly payment and $292,904.42 in total interest. A $50,000 loan at the 13.5% cap over 10 years runs $761.37 a month and $41,364.57 in interest. Your rate can be lower; it cannot legally be higher than the cap.
The lender pays the SBA an upfront guaranty fee and may pass it on to you. On loans of 15 years or more, paying off 25% or more in the first 3 years triggers a prepayment penalty.
Pros and cons: the lowest capped cost, at the price of paperwork and time
Pros
- Rates capped by the SBA.
- Long terms keep monthly payments low.
- SBA does not require collateral on 7(a) loans of $50,000 or less.
Cons
- More documents and a slower process than online lenders.
- You must show you cannot get the credit on reasonable terms elsewhere.
- Guaranty fees and, on long loans, early prepayment penalties.
When an SBA loan fits, and when it doesn't
It fits when
- Buying real estate, a business or major equipment.
- Refinancing expensive debt into a long, capped loan.
- You can wait weeks, not days.
Look elsewhere when
- You need cash this week; consider a line of credit while the SBA loan is in process.
- The business is very new or not yet creditworthy.
Red flags: anyone who claims to be the SBA, or charges you to apply
Watch out
The SBA itself does not make 7(a) loans to businesses. You always work with a lender.
Be careful with anyone charging fees to "guarantee" SBA approval.
A rate above the SBA cap for your loan size.
State rules: federal SBA rules apply everywhere
SBA rate caps, terms and guaranty rules are federal, so they are the same in every state. A state commercial financing disclosure law may also apply, depending on the lender and the deal. See the state disclosure law lookup.
This is general information, not legal advice, as of Oct 20, 2026.
Alternatives to an SBA loan
- Term loan: faster, usually more expensive.
- Equipment financing: bank and SBA equipment loans run roughly 4% to 15% APR for strong borrowers.
- Line of credit: for working capital that comes and goes.