The complete guide to SBA loans (and startup-friendly alternatives)
Learn how SBA loans work, their pros and cons, and how they compare to alternative financing options for small businesses and startups.
Rho Editorial Team
A Small Business Administration (SBA) loan is a business loan backed by the US Small Business Administration. By guaranteeing part of the loan, the SBA reduces risk for the lender. This makes it possible for borrowers to access funding with more favorable interest rates, longer repayment terms, and lower down payments than many conventional business loans.
SBA loans matter because they provide a path to capital when traditional financing options are out of reach. Small business owners can use them to secure working capital, purchase real estate, or cover equipment purchases—areas where cash flow alone may not support growth.
For startups, SBA loans are just one option. Other non-dilutive financing options include working capital loans, venture debt, and flexible lines of credit. We’ll take a look at different loan programs founders often turn to, compare terms, assess eligibility, and help you choose a solution that supports your goals.
What is an SBA loan?
An SBA loan is a type of business loan issued by a lender such as a bank or credit union, but partially guaranteed by the U.S. Small Business Administration. This guarantee reduces the risk for financial institutions, making them more willing to extend credit to small business owners who might not otherwise qualify.
The purpose of an SBA loan is to help businesses access capital for a wide range of needs. Depending on the loan program, funds may be used for working capital, fixed assets, or long-term investments like commercial real estate.
Most SBA loans share several common features:
Lower down payments compared to conventional loans
Longer repayment terms, sometimes up to 25 years for real estate
Competitive interest rates, often capped by SBA guidelines
Partial SBA guarantees that make approval more feasible for borrowers
In short, SBA loans bridge the gap between traditional lending and government support, giving small businesses access to capital that fuels stability and growth.
Types of SBA loans
There are several types of SBA loans, each designed for different business purposes. Knowing how they work helps you, as a borrower, evaluate the right loan program for your startup's needs.
1 - SBA 7(a) loans
The SBA 7(a) loan is the most common SBA financing option. These loans can be used for a wide variety of purposes, including working capital, real estate purchases, equipment purchases, and even acquiring another business. The maximum loan amount is $5 million, with repayment terms extending up to 25 years for real estate and 10 years for most other uses.
For many small business owners, SBA 7(a) loans offer lower interest rates, smaller down payments, and greater flexibility than conventional business loans.
2 - SBA Express loan
An SBA Express loan is a streamlined version of the 7(a) program. Approval is typically faster—sometimes within days—and loan amounts are capped at $500,000. These loans are commonly used for working capital or short-term financing needs.
Because the process is accelerated, SBA Express loans can be especially appealing to businesses that need funds quickly. However, they often come with higher interest rates than standard 7(a) loans, making it important for borrowers to compare costs.
3 - SBA 504 loans
SBA 504 loans are designed for long-term financing of major fixed assets, such as commercial real estate, machinery, or heavy equipment. The structure is unique: a Certified Development Company (CDC) partners with a private lender and the SBA to fund the project. Typically, the CDC finances 40% of the loan, the private lender covers 50%, and the borrower contributes a 10% down payment.
This structure allows small business owners to access large-scale funding with relatively low upfront costs, making SBA 504 loans popular for construction, expansion, or significant equipment purchases.
4 - Microloans
The SBA’s microloan program provides smaller amounts of capital—up to $50,000—often used by startups or very small businesses. These loans are frequently used for working capital, modest equipment purchases, inventory, or supplies.
Microloans are administered by intermediary nonprofit organizations, not directly by the SBA. Because of this, terms can vary, but most microloans have relatively short repayment terms (up to six years).
5 - Disaster loans (EIDLs)
Disaster loans, also known as Economic Injury Disaster Loans (EIDLs), are issued in federally declared disaster zones. They help businesses recover from events like hurricanes, floods, or wildfires by providing long-term, low-interest financing. Funds can be used for operating expenses, repairs, or to replace damaged property.
Unlike most SBA loans, disaster loans are issued directly by the SBA rather than through a bank or SBA lender. The maximum loan amount is $2 million, and repayment terms can extend up to 30 years depending on the borrower’s ability to repay.
Each of these loan programs comes with its own eligibility requirements and restrictions. Choosing the right one depends on your company’s stage, financial position, and funding needs.
SBA loan eligibility requirements
Not every borrower qualifies for an SBA loan though, since each loan program comes with defined eligibility criteria. The SBA sets minimum standards to ensure funds are reserved for qualified businesses that can demonstrate an ability to repay.
The business must operate as a for-profit small business located in the United States, and it must not engage in prohibited industries such as speculative real estate, gambling, or lending.
Companies must meet the SBA’s size standards for your industry, which are based on either average annual revenue or number of employees. These standards are designed to ensure SBA financing is reserved for true small businesses rather than larger corporations.
Applicants must demonstrate creditworthiness, which generally means having a solid credit history and a strong credit score. While there is no fixed minimum score across all programs, most lenders look for good credit as a baseline.
A clear ability to repay the loan must be shown through accurate financial statements, a detailed business plan, and reliable projections of cash flow.
Depending on the specific loan program and the loan amount, collateral may be required. For example, larger SBA 7(a) loans and SBA 504 loans often require liens on business assets, while smaller programs such as microloans may be unsecured.
These requirements help lenders and the Small Business Administration mitigate risk, but they can also be hurdles for startups that lack operating history or substantial assets.
Benefits of SBA loans
For many small business owners, SBA loans provide advantages that conventional business loans cannot. The government guarantee makes it possible for lenders to extend more favorable terms, which can be a lifeline for companies with limited access to credit.
SBA loans often come with lower interest rates than many private term loans, since part of the risk is absorbed by the Small Business Administration.
Borrowers typically gain access to longer repayment terms, which can extend up to 25 years for real estate and 10 years for working capital or equipment financing.
SBA programs generally require smaller down payments, which makes it easier for businesses to preserve cash for other needs.
Many SBA loan programs cap fees and limit prepayment penalties, giving borrowers more flexibility to refinance or pay off loans early if their circumstances change.
The funds can be used for a wide variety of purposes, from covering day-to-day working capital to purchasing equipment, financing commercial real estate, or even refinancing existing debt.
These features make SBA loans an attractive option for traditional small businesses that need affordable, long-term capital to grow and stabilize their operations.
SBA loan risks and considerations
SBA loans help many small business owners, but they are not frictionless. Startups and fast-growing companies often find the tradeoffs material once they start a loan application with an SBA lender.
Time and complexity
The loan application and underwriting process can be demanding. Borrowers prepare financial statements, tax returns, a business plan, use-of-proceeds detail, and ownership disclosures. Reviews occur with both the lender and the U.S. Small Business Administration. Multiple rounds of questions are common, which extends timelines and requires solid bookkeeping and cash flow records.
Slow approvals relative to urgent needs
Funding can take thirty to ninety days, depending on the loan program. That can delay hiring, inventory buys, or equipment purchases that support working capital cycles. An SBA Express loan offers faster credit decisions, but disbursement still depends on lender processes.
Eligibility screens that rule out many startups
SBA eligibility is not only about a good credit score. Businesses generally must be for-profit, meet Small Business Administration size standards, demonstrate an ability to repay from cash flow, and show that credit is unavailable elsewhere on reasonable terms. Very young startups without revenue, thin credit history, or incomplete financial statements can struggle to qualify.
Personal guarantees and collateral
SBA guarantees reduce risk for the lender, not for the borrower. Owners with twenty percent or more typically provide a personal guaranty, so personal assets can be at risk if the business cannot repay. Lenders often file liens on business assets. For larger loan amounts, lenders may require additional collateral when available. Limited collateral is not always a reason for denial on SBA 7(a) loans, but lenders must still take available collateral, which can restrict flexibility for future financing or refinancing.
Rates, fees, and repayment terms
Interest rates are usually variable rates and tied to a public base rate with caps set by the Small Business Administration. Longer repayment terms can improve monthly cash flow but increase total interest expense over time. Guaranty fees, packaging fees, and closing costs add to the effective cost of capital, and some programs include prepayment penalties for early payoff on longer-term maturities.
Use-of-proceeds restrictions
Funds must follow program rules. Passive real estate investment, floor-plan financing, and non-business personal expenses are not allowed. Change-of-ownership transactions have specific requirements. Lenders will test that proceeds align with the loan program and that working capital is sized to a realistic operating plan.
Program-specific considerations
SBA 7(a) loans are the most common business loan program. It supports working capital, equipment purchases, partner buyouts, and owner-occupied real estate. Maximum loan amount and repayment terms vary. Personal guarantees are standard, and interest rates are usually variable.
SBA 504 loans are designed for fixed assets and commercial real estate through a partnership between a bank and a Certified Development Company, also called a CDC. Borrowers face owner-occupancy requirements and a structured debenture with its own fees and prepayment rules. Down payments are typically lower than many conventional real estate loans, but are still meaningful.
SBA Express loans provide quicker credit decisions and smaller maximum loan amounts. Speed helps, yet underwriting and closing tasks still take time, and interest rates can be higher than standard 7(a) loans.
Microloans offer smaller loan amounts through nonprofit intermediaries for startups and very small businesses. Documentation is lighter, but capital is limited, and repayment terms are shorter.
Disaster loans are available only when a qualifying event is declared. These are not a general working capital solution and come with event-specific rules.
How startups should think about SBA loans
SBA loans can be a valuable tool for certain businesses, but they are not always the best fit for every model—especially for startups still building traction.
When SBA loans make sense
An SBA loan may be a strong choice if:
You are a small business with consistent cash flow and reliable revenue streams.
You need long-term financing for commercial real estate, equipment purchases, or refinancing existing debt at more favorable interest rates.
You are prepared to complete a detailed loan application, provide financial statements, and work through the underwriting process in exchange for lower costs and extended repayment terms.
You meet eligibility standards, including for-profit status, acceptable credit history, and the ability to demonstrate repayment capacity.
Where startups face challenges
For startups, the picture looks different. Many SBA loan programs require at least two years of operating history, sufficient collateral, and a solid credit score from the founders. These eligibility standards can be difficult for young companies to satisfy. Even when they do qualify, the timeline often creates friction. Waiting thirty to ninety days for approval and disbursement may not align with growth initiatives such as product development, rapid hiring, or inventory expansion.
Because of these hurdles, many early-stage companies explore alternative financing options such as microloans, revenue-based financing, term loans, or a revolving line of credit. These options may offer faster approvals, fewer collateral requirements, and more flexibility to match the unpredictable growth trajectory of a startup.
SBA loans vs. other financing options
SBA loans are one of the most recognizable business loan programs, but they are far from the only option available to small business owners and startups. Understanding how they compare to other financing types helps founders evaluate tradeoffs around eligibility, loan amount, interest rates, and repayment terms.
Financing type | Strengths | Considerations | Best fit |
SBA loans | Backed by the U.S. Small Business Administration, with favorable interest rates, lower down payments, and longer repayment terms. | The application and underwriting process is complex; approvals can take 30–90 days; strict eligibility standards; collateral and personal guaranties are often required. | Small business owners with steady cash flow and established credit history who need working capital, commercial real estate, or equipment purchases. |
Microloans | Smaller loan amounts (up to $50,000) with lighter documentation; often available to startups with limited operating history. | Limited funding capacity; shorter repayment terms; interest rates may be higher than SBA 7(a) loans. | Very small businesses or startups seeking initial working capital or equipment purchases. |
Line of credit | Flexible access to capital that can be drawn as needed; interest paid only on amounts used; good for cash flow gaps. | Usually requires strong creditworthiness; lower maximum loan amounts than term loans; variable rate risk. | Businesses with seasonal cycles or unpredictable working capital needs. |
Term loans | Predictable repayment terms; fixed-rate or variable-rate structures available; can finance larger expenses such as equipment or real estate. | Faster approval than SBA loans, but rates and down payments are typically less favorable; eligibility depends heavily on credit score and collateral. | Businesses with defined one-time financing needs and the ability to service regular principal and interest payments. |
Venture debt | Non-dilutive capital designed for VC-backed startups; complements equity by extending runway; flexible structures tailored to high-growth companies. | Typically requires existing venture backing; higher interest rates than SBA loans; covenants and warrants may apply. | High-growth startups in SaaS, CPG, hardware, or other capital-intensive sectors. |
Revenue-based financing | Repayments tied to monthly revenue, providing flexibility when cash flow fluctuates; no fixed down payments or collateral required. | Total repayment amount is often higher than traditional business loans; best suited for recurring-revenue businesses. | Startups and small businesses with recurring or predictable monthly revenue. |
Choosing the right path forward with Rho
SBA loans remain an important part of small business financing. They can help established companies secure working capital, purchase real estate, or invest in equipment purchases with repayment terms that ease pressure on cash flow.
For startups, the calculation is different. Strict eligibility requirements, collateral demands, and long approval timelines often conflict with the speed and flexibility high-growth companies need. That’s why it’s essential to weigh SBA loans against other financing options—whether that means microloans, a line of credit, venture debt, or revenue-based financing. Each comes with tradeoffs in interest rates, loan amount, and repayment terms, but together they give founders a broader set of tools to fund growth.
At Rho, we believe access to the right funding structure should never be a blocker to scaling your business. Our platform gives founders the financial infrastructure to manage growth with confidence—helping you compare options, track cash flow, and stay prepared for your next raise.
If you’re deciding between SBA loans and other financing options, the real question is, “Which structure will best support my business today and in the future?”
Get started with Rho today, and start building the foundation to fund what’s next.
FAQs founders have about SBA loans
What is the maximum loan amount for SBA loans?
The maximum loan amount depends on the loan program. For example, SBA 7(a) loans can be as high as $5 million, SBA 504 loans typically finance up to $5.5 million for fixed assets or commercial real estate, SBA Express loans cap at $500,000, and microloans are limited to $50,000. Disaster loans can reach $2 million depending on the extent of losses.
Do SBA loans require a down payment?
Yes. Many SBA loan programs require down payments, especially for real estate and equipment purchases. SBA 504 loans usually require a minimum of 10% down, though this can increase depending on the borrower’s creditworthiness and collateral position.
What role does a Certified Development Company (CDC) play in SBA 504 loans?
A Certified Development Company, or CDC, is a nonprofit organization authorized by the Small Business Administration to deliver 504 loans. In this structure, a CDC partners with a private lender to finance major fixed assets like commercial real estate or heavy equipment.
Can SBA loans be used for refinancing existing debt?
Yes. SBA loans can refinance qualified business debt if it was originally used for business purposes and meets eligibility requirements. Refinancing through an SBA loan can reduce interest rates or extend repayment terms, improving cash flow for small business owners.
Are SBA loans fixed-rate or variable-rate?
Most SBA 7(a) loans are variable-rate and tied to the prime rate, but some lenders may offer fixed-rate structures within SBA guidelines. SBA 504 loans often include a fixed-rate debenture through the CDC portion, which provides stability for long-term real estate financing.
Do SBA loans affect personal credit history?
Yes. Because most SBA loans require a personal guaranty, late payments or defaults can affect the borrower’s personal credit score. Founders should be prepared for lenders to review both personal and business credit history during the loan application process.
What is Lender Match on SBA.gov?
Lender Match is an online tool offered by the U.S. Small Business Administration that connects small business owners with SBA-approved lenders. After submitting basic information about the loan amount and use of proceeds, borrowers are introduced to lenders who may be a fit for their financing needs.
What industries can qualify for SBA loans?
Most for-profit businesses qualify as long as they meet SBA size standards and use proceeds for eligible business purposes. However, some industries—such as speculative real estate investment, lending companies, and certain non-profit organizations—are excluded under SBA rules.
