What is an SBA loan and how do I qualify?

November 16, 2023 | 8 minute readEn español

Jeremy Wilson

Answered by
Jeremy Wilson
SBA Product Manager
Bank of America

A Small Business Administration (SBA) loan is supported by the U.S. Small Business Administration, which allows financial institutions to provide business loans with more favorable terms or more flexible underwriting criteria than conventional loans. Because they are backed by the government, SBA loans encourage banks to lend to companies they might not be able to work with otherwise. For small company owners who can’t qualify for a traditional business loan, these infusions of capital may be the ideal option.


How is an SBA loan different from a traditional business loan?

With the government backing SBA loans, lenders can provide business loans with less stringent credit standards and lower down payments than conventional loans. Repayment terms on SBA loans are longer than traditional loans, extended to up to 10 and even 25 years in some cases. Plus, on loan terms of less than 15 years, there is no prepayment penalty. This allows companies to preserve their cash for growth or other needs.


What types of SBA loans are available?

There are several types delivered through two categories of SBA-certified lenders. Institutions designated as preferred lenders are authorized to make final decisions on certain types of loans on behalf of the SBA, which can create a faster and easier process. Other approved lenders need to submit loan requests to the SBA for approval.


SBA 7(a) loans

SBA 7(a) loans can be used for a variety of approved purposes including the purchase or refinance of commercial real estate, new construction, expansion or renovation, working capital, and business acquisitions or partner buyouts.


Ideal for:


  • Working capital, improvements or refinancing
  • Equipment, including machinery and vehicles
  • Furniture and other office essentials such as printers, fixtures and more
  • Purchasing, refinancing, building or renovating commercial property
  • Business acquisition and partner buyouts


Loan maturity:


  • Up to seven years for working capital
  • Up to 10 years for business acquisition, partner buyouts and equipment
  • Up to 25 years for owner-occupied real estate purchase, refinance and construction


Maximum loan amount:


  • $5 million


SBA Express loan

This type of 7(a) loan is generally used for equipment and working capital.


Ideal for:


  • Working capital, improvements or refinancing
  • Equipment, including machinery and vehicles
  • Furniture and other office essentials such as printers, fixtures and more
  • Purchase or refinance of owner-occupied commercial real estate




  • Longer loan terms
  • Lower down payments
  • Easier to qualify


Loan maturity:


  • Up to seven years for working capital
  • Up to 10 years for equipment
  • Up to 25 years for owner-occupied real estate purchase or refinance


Maximum loan amount:


  • The maximum size is $500,000, so the process of qualifying for one is more streamlined and accelerated than other 7(a) loans.


SBA 504 loans

These loans are typically used for financing commercial real estate, including the purchase or refinance of existing buildings or land and new construction. They can also be used for equipment purchases. SBA 504 loans actually involve two loans — one from a private lender, which provides up to 50% of funding in first trust deed position, and the other from a Certified Development Company (CDC), a community-based partner that provides up to 40% in second trust deed position. The applicant typically only needs to provide 10% of the total project costs as a down payment. The CDC portion is guaranteed by the SBA. The bank’s SBA specialist and the CDC work together with the goal of making it seamless for the applicant.


Qualifying criteria:


  • Your business must have a tangible net worth of less than $15 million.
  • Your business must have an average net income of less than $5 million after federal taxes for the last two years.


Ideal for:


  • Buying land
  • Financing long-term machinery
  • Purchasing existing buildings
  • Ground-up construction or renovation of an existing building
  • Refinancing existing commercial real estate debt


Cannot be used for:


  • Working capital
  • Inventory




  • Longer loan terms
  • Lower down payments
  • Easier to qualify


Loan maturity:


  • Up to 10 years for equipment
  • Up to 25 years for owner-occupied real estate purchase, refinance and construction


Economic Injury Disaster Loans (EIDL)

EIDL loans can be used to help a business recover from an emergency in a declared disaster area. They can be used for losses not covered by insurance or funding from the Federal Emergency Management Agency. The funds can also be applied to business operating expenses that could have been met in the absence of the disaster. These loans are typically — but not always — issued directly from the SBA.


  • Loan size: The maximum loan amount is $2 million.
  • Type: Term loan
  • Term: Up to 30 years


How to apply for an SBA loan

Each type of SBA program is unique, and loans often revolve around how the money can be used and the terms under which it should be repaid.


To apply for an SBA loan, follow these steps:


Step 1: Know exactly what your business needs are

Be able to answer the following questions:


  • Why do you need the money?
  • How much do you need?
  • How long will it take you to pay it back?
  • What is the current financial health of your business?
  • Do you have collateral to put up?
  • How fast do you need the money?


The answers you give will help determine your best course of action. Once you know how much you need and how it will be used, the better equipped you’ll be to determine the best loan option for your business.


Purpose of the borrowed funds

Back up your request with facts that support how much you are asking to borrow. Lenders appreciate the effort, and it will give them the confidence they need to trust in your ability to pay them back.

Step 2: Identify a lender who can issue an SBA loan

Types of lenders that handle SBA loans


  • SBA standard lender: This qualified lender must submit transactions for review and receive an SBA authorization upon approval for every loan.
  • SBA preferred lender: This lender is the more qualified of the two types. Loan approval times can be reduced because the SBA checks only the lender’s determination of eligibility for the borrower, not their underwriting. Bank of America is an SBA preferred lender.


The SBA’s Lender Match tool can help.


Step 3: Know what lenders are looking for

The six Cs of creditworthiness

  1. Capacity: Can your business absorb unexpected expenses or a downturn in the economy?
  2. Capital: Do your assets outweigh your liabilities? How much capital have you and others invested?
  3. Collateral: This includes accounts receivable, inventory, cash, equipment and commercial real estate.
  4. Conditions: Certain factors, such as the economy, industry trends and pending legislation, may affect your ability to make payments.
  5. Character: Personal integrity, industry experience, credit history and good standing are critically important.
  6. Communication: Your willingness to communicate candidly with your banker and your other advisors about the opportunities and challenges your business faces is key to a productive financial partnership.


Step 4: Select the type of loan that best meets your needs

Below are common types of SBA loans. Availability, term and structure vary by lender.


  1. SBA 7(a) Loan
  2. SBA Express Loan
  3. SBA 504 Loan
  4. Economic Injury Disaster Loans


Use the information above to become familiar with your options.


Step 5: Provide an overall financial snapshot of your business and have necessary documents ready

Be ready to share details about the financial side of your business. Provide the lender with a comprehensive background on your company, future growth plans and your own personal information. The actions below will help boost your business’s financial standing.


  • Maintain a good credit score
  • Borrow only what you know you can pay back
  • Present a repayment plan, complete with projections and a safety net
  • Show a history of paying bills on time
  • Provide collateral


For 7(a) and Express loans, look at the checklist the SBA has prepared before you apply to your lender. For a disaster assistance loan, you can start your application with the SBA online. If you’re applying for a 504 loan, we recommend setting up an appointment with a banker.


Step 6: Apply for your loan

Set aside an hour to complete the paperwork and reach out to your banker with any questions. Make sure to respond promptly to requests for additional information so the loan is processed promptly.


How long does it take to get approved for an SBA loan?

SBA loans take the same amount of time to get approved as a conventional loan for a similar purpose. A non-real estate loan can be approved and funded in approximately 30 to 60 days, while a real estate loan can be funded in approximately 60 to 90 days.


As a borrower, you can speed up the process by being actively engaged with your lender and providing the necessary documentation as quickly as possible. The faster you do that, the faster the lender can move forward.

Important Disclosures and Information

Small Business Administration (SBA) financing is subject to approval through the SBA 504 and SBA 7(a) programs. Loan terms, collateral and documentation requirements apply. Actual amortization, rate and extension of credit are subject to necessary credit approval. Bank of America credit standards and documentation requirements apply. Some restrictions may apply. 

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