Business Finance Guide · SBA
SBA loans: longer terms, capped rates
7(a), 504 and microloans compared, with the rules lenders follow.
An SBA loan is a business loan made by a bank or other lender and partly guaranteed by the U.S. Small Business Administration, which lets lenders say yes to owners they might otherwise turn down.
The SBA itself rarely lends money to businesses. Instead, it promises to repay a lender a large share of the loan if the borrower defaults. That guaranty lowers the lender’s risk, so it can offer longer terms, smaller down payments and loans to newer businesses. In return, borrowers accept more paperwork, SBA fees and SBA rules on rates and use of funds.
The programs are large. The SBA reported about 85,000 7(a) and 504 loans totaling roughly $45 billion in fiscal year 2025, the highest volume in its history.
The three main SBA loan programs
SBA loan programs compared
| 7(a) | 504 | Microloan | |
|---|---|---|---|
| Loan size | Up to $5 million | Up to $5.5 million | Up to $50,000 (average about $13,000) |
| Uses | Working capital, equipment, real estate, buying a business, refinancing | Land, buildings, long-life equipment; no working capital | Working capital, inventory, supplies, equipment; no real estate |
| Rate | Negotiated; capped by SBA | Fixed, pegged to 10-year Treasury rates | Set by the intermediary lender |
| Maximum term | 10 years; 25 for real estate | 10, 20 or 25 years | 7 years |
| Who lends | Banks and SBA-approved lenders | Certified Development Company with a bank | Nonprofit intermediary lenders |
7(a) loans
The 7(a) program is the SBA’s main loan program. It covers working capital, equipment, real estate, changes of ownership, refinancing and starting a business, up to $5 million. It comes in several versions: 7(a) Small loans of $350,000 or less, Standard 7(a) loans above $350,000, and SBA Express loans of up to $500,000, which lenders approve on their own in exchange for a smaller 50% guaranty.
How much of a 7(a) loan the SBA guarantees
Maximum guaranty percentages. Export loans carry up to 90%. Source: SBA.
504 loans
The 504 program finances major fixed assets, such as buying or building a facility or long-life machinery, with long-term fixed rates. A Certified Development Company (CDC) works with a bank, and the borrower typically contributes as little as 10% of the project. Terms run 10, 20 or 25 years, and the rate is pegged to an increment above 10-year U.S. Treasury rates.
Microloans
SBA microloans of up to $50,000 are made by nonprofit, community-based intermediaries that also provide coaching. The average is about $13,000, and the maximum term is seven years. They suit startups and very small businesses, but cannot be used to buy real estate or pay existing debts.
SBA rate caps
Lenders and borrowers negotiate 7(a) rates, but the SBA sets maximums. For variable-rate loans, the cap is a base rate, usually the prime rate, plus a spread that shrinks as loans get larger:
Maximum spread over the base rate, variable 7(a) loans
Percentage points above the base rate. SBA publishes separate maximums for fixed-rate loans. Source: SBA.
Two other rules matter. SBA loans with terms of 15 years or longer carry a prepayment fee if you prepay 25% or more in the first three years: 5% in year one, 3% in year two and 1% in year three. And lenders pay an upfront SBA guaranty fee that they can pass on to you; the SBA publishes the amounts each fiscal year.
How often SBA loans are approved
Outcomes for SBA loan or line of credit applicants (2025)
- 32%Fully approved
- 29%Partially approved
- 40%Denied
Shares may not total 100% because of rounding. Source: Federal Reserve Banks, 2026 Report on Employer Firms.
SBA applicants had the highest denial rate of any product in the Federal Reserve’s 2025 survey. That partly reflects who applies: SBA loans exist for businesses that cannot get credit on reasonable terms elsewhere. A complete, well-organized application is the biggest factor you control.
Who is eligible
- Operate for profit as an operating business located in the United States.
- Be small under SBA size standards, which vary by industry.
- Not be an ineligible business type, such as passive real estate investment or lending.
- Be unable to get the credit on reasonable terms from non-government sources.
- Be creditworthy and show a reasonable ability to repay.
Collateral rules are flexible for small loans: for 7(a) loans of $50,000 or less, the SBA does not require collateral, and for loans above that a lender may not decline a loan solely because collateral is short.
How to apply for an SBA loan
SBA loan steps
- Pick the program7(a) for most needs, 504 for buildings and major equipment, a microloan for $50,000 or less.
- Find a lenderUse the SBA’s free Lender Match tool, ask your bank or contact a local Certified Development Company.
- Prepare the packageBusiness plan, tax returns, financial statements, debt schedule, ownership details and SBA Form 1919.
- Expect a personal guaranteeOwners with significant stakes are generally required to guarantee SBA loans personally.
- Compare offersAsk for the rate, fees, term, collateral and any prepayment penalty in writing.
- Close and use the funds as approvedSBA loans must be used for the purposes in the loan agreement.
The SBA’s Sacramento District Office and the region’s Small Business Development Centers help owners choose a program and prepare an application at no cost. Read our comparison of a business loan vs. SBA loan before you decide.
Common uses of SBA loans
SBA 7(a) loans are especially common for buying an existing business, because they allow longer terms than most conventional acquisition loans and can finance goodwill. A buyer purchasing an established Sacramento restaurant, for example, can combine the purchase, equipment upgrades and working capital in one 7(a) loan. Franchise owners also use 7(a) loans, and the SBA keeps a franchise directory that lenders check for eligibility.
504 loans are the program of choice for owner-occupied commercial real estate. A business that has been leasing for years can buy its own building with a small down payment and a long, fixed rate, turning rent into equity. Manufacturers use 504 loans for heavy machinery with a long useful life.
Common mistakes
- Calling the SBA to apply. You apply through a participating lender, not the SBA.
- Incomplete packages. Missing tax returns, unsigned forms and unexplained credit issues are the most common causes of delay.
- Ignoring fees. Ask for the guaranty fee, packaging fees and closing costs in writing.
- Using funds for unapproved purposes. SBA loan proceeds must be used as the loan agreement states.
Key terms
- Guaranty: the SBA’s promise to repay the lender a set share of the loan if the borrower defaults.
- Certified Development Company (CDC): a nonprofit, SBA-certified partner that makes 504 loans.
- Equity injection: the owner’s cash contribution to a project.
- Preferred lender: a lender the SBA allows to approve 7(a) loans without prior SBA review.
- SBA Form 1919: the borrower information form required for every 7(a) loan.
The bottom line: SBA loans are among the best financing available to small businesses, with long terms, capped rates and room for newer firms. They take longer and ask more of you, so start early, choose the right program and bring a complete package.
Free help in the Sacramento region
You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.
Key takeaways
- SBA loans are made by lenders and partly guaranteed by the SBA: up to 85% on 7(a) loans of $150,000 or less and 75% above that.
- 7(a) loans reach $5 million, 504 loans $5.5 million and microloans $50,000.
- Variable 7(a) rates are capped at the base rate plus 3% to 6.5%, depending on loan size.
- Terms run up to 10 years, or 25 years for real estate, which lowers monthly payments.
- SBA applicants had a 40% denial rate in 2025, so a complete application matters.
Frequently asked questions
Does the SBA lend money directly?
Generally no. Banks, credit unions, Certified Development Companies and nonprofit microlenders make SBA loans, and the SBA guarantees part of each loan.
What is the maximum SBA loan amount?
7(a) loans go up to $5 million, 504 loans up to $5.5 million, SBA Express loans up to $500,000 and microloans up to $50,000.
How long does it take to get an SBA loan?
SBA processing for 7(a) loans takes about 2 to 10 business days once the lender submits it, but gathering documents and lender underwriting usually make the whole process several weeks or more.
Can I use an SBA loan to start a business?
Yes. 7(a) loans and microloans can be used to start a business, though lenders expect a solid plan, relevant experience and an owner investment.
Do SBA loans require a down payment?
Often. 504 projects typically require about 10% from the borrower, and 7(a) lenders usually expect an equity injection for startups and business purchases.
Sources
- SBA: 7(a) loans
- SBA lender resources: Types of 7(a) loans, terms, guaranty and maximum rates
- SBA: 504 loans
- SBA: Microloans
- SBA: Lender Match
- SBA: 2025 Annual Report release (about 85,000 7(a) and 504 loans, $45 billion)
- Federal Reserve Banks: 2026 Report on Employer Firms (2025 Small Business Credit Survey)
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- Business Resources: all guides →
