SBA 7(a), 504 and microloans compared

The SBA runs several loan programs, and the names are easy to mix up. This guide puts the main ones side by side so you can see which fits what you’re trying to do. For a shorter overview, including when an SBA loan is worth the wait, see our SBA loans page.

The programs at a glance

7(a): the general-purpose program

The 7(a) program is the SBA’s most flexible. The SBA guarantees part of the loan, which lets lenders offer longer terms and lower rates than they otherwise might. You apply with the lender, not the SBA. The SBA’s own review time for standard 7(a) loans is listed at 5 to 10 business days, and 2 to 10 business days for 7(a) Small loans, on top of the lender’s underwriting.

Rate caps

Lenders set the rate, but the SBA caps it. For variable-rate 7(a) loans, the maximum is a base rate (usually the prime rate) plus a spread that depends on the loan size:

Loans with a maturity of 15 years or more carry a prepayment fee if you pay off a large part of the loan in the first three years: 5% in year one, 3% in year two and 1% in year three.

SBA Express

SBA Express loans go up to $500,000. The SBA guarantees 50% of the loan, less than standard 7(a), and in exchange the lender makes the credit decision itself, which can shorten the process.

504: for buildings and big equipment

A 504 loan finances major fixed assets that promote business growth and job creation, such as buying or building premises or long-life machinery. It’s structured in pieces: a bank usually lends part, a certified development company (CDC) lends part with an SBA guarantee, and you put in a down payment. The CDC portion has a fixed rate pegged to an increment above the 10-year Treasury rate, with terms of 10, 20 or 25 years. You can’t use 504 money for working capital or inventory.

Microloans: small amounts, with support

Microloans go up to $50,000 and are made by nonprofit intermediaries. The SBA says the average is about $13,000, rates are generally between 8% and 13%, and the maximum term is seven years. Many intermediaries also offer training or mentoring, and some work with startups that wouldn’t qualify for a bank loan.

What you’ll be asked for

Requirements differ by lender and program, but most SBA lenders ask for:

• Business and personal tax returns, usually for the last three years.
• Recent financial statements: a profit and loss statement and a balance sheet.
• A schedule of the business’s existing debts.
• A business plan or a description of how the money will be used, especially for a new business.
• Ownership details for everyone who owns 20% or more, who will usually be asked to give a personal guarantee.
• SBA forms, such as the borrower information form, which the lender will provide.

How long SBA loans take

Longer than most online business loans. Gathering tax returns, financial statements, a business plan and the SBA’s forms takes time, and the lender has to underwrite the loan before the SBA’s review starts. Expect weeks, and often a couple of months for 504 and larger 7(a) loans. If you need money this week, an SBA loan is unlikely to arrive in time.

Which program fits

• Working capital, inventory or a mix of needs: 7(a), 7(a) Small or SBA Express, or a microloan for smaller amounts.
• Buying or building premises, or heavy equipment: 504 usually offers the longest fixed-rate terms.
• A new business with little revenue: a microloan intermediary may be the most realistic starting point.
• Money needed within days: a non-SBA term loan or line of credit, which usually costs more. Compare the APR.

Where to start

The SBA’s free Lender Match tool on sba.gov sends your details to SBA lenders who may be interested in your loan. Local Small Business Development Centers and SCORE mentors can help you put together a business plan and financial statements at little or no cost, which is often what slows an application down. Talk to your own bank too: if it’s an SBA lender, it already knows your accounts.

Watch out for

Anyone who helps you get an SBA loan for a fee must disclose that fee on SBA Form 159. Be wary of anyone who claims to work for the SBA, uses an SBA seal, or promises approval: SBA rules (13 CFR 103.4) treat those as grounds for barring an agent.