What Is an SBA Loan? How SBA Loans Work, Types, Rates and 2026 Requirements

Last updated: October 2026

An SBA loan is a small business loan made by a bank, credit union or other approved lender and partly guaranteed by the U.S. Small Business Administration (SBA). The SBA does not usually lend the money itself. Its guarantee, up to 85% on smaller loans, lowers the lender's risk, so the lender can offer longer terms, smaller down payments and capped interest rates. The main programs are the 7(a) loan (up to $5 million for most business purposes), the 504 loan (up to $5.5 million for real estate and major equipment) and microloans (up to $50,000).

How SBA loans work

1. You apply to an SBA lender, not to the SBA. Banks, credit unions and some non-bank lenders participate. The SBA's free Lender Match tool can connect you with lenders.
2. The lender underwrites the loan with its own credit standards plus SBA eligibility rules.
3. The SBA guarantees part of the loan. If the business defaults, the SBA repays the lender a share of the loss. The borrower still owes the full debt, and owners of 20% or more usually sign personal guarantees.
4. You repay the lender, usually in monthly payments of principal and interest from the business's cash flow. You can estimate that payment for any amount, rate and term with our loan payment and funding calculator.

One rule shapes the whole program: SBA loans are meant for businesses that cannot get comparable credit elsewhere on reasonable terms. The lender must confirm this "credit elsewhere" test. In practice, many strong businesses still qualify because a conventional loan would require a bigger down payment or a shorter term.

Types of SBA loans

Program	Maximum amount	SBA guarantee	Typical uses	Maximum term
7(a) standard	$5 million	85% up to $150,000; 75% above	Working capital, equipment, real estate, refinancing, buying a business	10 years (25 for real estate)
7(a) small	$350,000	85% up to $150,000; 75% above	Same as 7(a), with a streamlined process	Same as 7(a)
SBA Express	$500,000	50%	Working capital, lines of credit, equipment	Same as 7(a)
Export Express	$500,000	90% up to $350,000; 75% above	Export-related working capital and equipment	Same as 7(a)
504 (CDC/504)	$5.5 million (SBA-backed portion)	Debenture from a Certified Development Company	Owner-occupied real estate, construction, long-life equipment	10, 20 or 25 years
Microloan	$50,000	Made by nonprofit intermediaries	Startups and small needs: inventory, supplies, equipment, working capital	7 years

SBA 7(a): the all-purpose loan

The 7(a) program is the SBA's main loan. The SBA lists permitted uses including real estate, short- and long-term working capital, refinancing business debt, equipment, furniture and fixtures, and changes of ownership. It is the most common way to finance buying an existing business; see our guide to a loan to buy an existing business.

SBA 504: real estate and major equipment

A 504 project is usually split three ways: about 50% from a bank first mortgage, up to 40% from a Certified Development Company backed by the SBA, and at least 10% from the borrower. The CDC portion carries a long-term fixed rate tied to 10-year Treasury yields. A 504 cannot be used for working capital, inventory or investment in rental real estate, and the business must occupy the property it buys (at least 51% of an existing building).

SBA microloans

Microloans go up to $50,000 through nonprofit community lenders, with an average of about $13,000 according to the SBA. They can fund working capital, inventory, supplies and equipment, but not real estate or paying off existing debt. Intermediaries often provide business training alongside the loan.

What changed for SBA loans in 2026

• Citizenship rule (March 1, 2026). 100% of the direct and indirect owners of a 7(a) or 504 borrower must be U.S. citizens or U.S. nationals whose principal residence is in the U.S. Lawful permanent residents (green card holders) no longer qualify as owners.
• Combined limit doubled (July 2026). A borrower can now have up to $10 million outstanding across 7(a) and 504 combined (for example, up to $5 million of 7(a) plus up to $5 million of 504), up from $5 million total. Individual loan maximums did not change.
• SOP 50 10 8.1 (October 1, 2026). The SBA's updated lending rules tighten business acquisitions: lenders must judge repayment on historical earnings rather than projections, debt service coverage of at least 1.25 for most purchases, a lender-ordered business valuation for every change of ownership, a quality-of-earnings report for acquisition loans over $3 million, and limits on how much of the 10% equity injection can come from seller notes.
• New fiscal year fees (October 1, 2026). FY2027 guarantee fees are listed below.
• Lower volume. The SBA approved 56,130 7(a) loans for $32.4 billion in fiscal 2026, double-digit declines from fiscal 2025, and 504 dollar volume fell 9% to $7.1 billion, as reported by American Banker. Expect lenders to be selective. Our SBA loans by state data breaks FY2024 to FY2026 lending down by state, lender and industry.

SBA loan rates and fees

Most 7(a) loans have variable rates tied to the Prime rate. The SBA caps how much a lender can add on top:

7(a) loan amount	Maximum variable rate	Cap with Prime at 7.00%
$50,000 or less	Prime + 6.5%	13.50%
$50,001 to $250,000	Prime + 6.0%	13.00%
$250,001 to $350,000	Prime + 4.5%	11.50%
Over $350,000	Prime + 3.0%	10.00%

Prime was 7.00% on October 26, 2026 (Federal Reserve H.15). Lenders can price below the cap; these are ceilings, not quotes.

Upfront guarantee fees for FY2027 (loans approved from October 1, 2026, with terms over 12 months), charged on the guaranteed portion:

• $150,000 or less: 2%
• $150,001 to $700,000: 3%
• $700,001 to $1 million: 3.5%
• Over $1 million: 3.5%, plus 3.75% on the guaranteed portion above $1 million

There is also an annual service fee of 0.55% of the outstanding guaranteed balance, normally paid by the lender. For FY2027, NAGGL reports that the upfront fee is waived for SBA Express loans to veteran-owned businesses and for loans of $700,000 or less to manufacturers and certain food supply chain and rural businesses.

Example: a $500,000 7(a) loan has a 75% guarantee ($375,000). The FY2027 upfront fee is 3% of that, or $11,250, which can usually be financed into the loan.

SBA loan requirements

• An operating, for-profit U.S. business that meets the SBA's size standard for its industry.
• Eligible business type. Passive businesses (such as landlords that do not occupy the property), lenders, speculative ventures and certain other types are ineligible. This means an SBA loan cannot buy an apartment building held as a rental investment.
• Ownership: 100% U.S. citizens or nationals living in the U.S. (since March 1, 2026).
• Ability to repay from cash flow. Standard 7(a) loans require a debt service coverage ratio of at least 1.15; most acquisitions require 1.25. See what DSCR is.
• Credit. The SBA sets no personal credit score minimum, but lenders do. 7(a) small loans use the FICO SBSS business score, with a minimum of 165.
• Equity injection. Startups and changes of ownership generally need at least 10% of the project cost from the borrower.
• Collateral. Not required on 7(a) loans up to $50,000. Above that, lenders take available collateral, but a loan should not be declined solely for lack of collateral.
• Personal guarantees from owners of 20% or more.

Our guide to business loan requirements compares these with bank and online lender minimums.

Pros and cons of SBA loans

Pros	Cons
Long terms (up to 10 years, 25 for real estate) keep payments low	More paperwork than most loans
Rate caps on 7(a) loans	Weeks to months from application to funding
Down payments as low as 10%	Guarantee fees on larger loans
Can finance goodwill when buying a business	Personal guarantees and liens on available collateral
Broad uses, including working capital	Strict eligibility, including the citizenship rule

How to apply for an SBA loan

1. Confirm eligibility: business type, size, ownership and use of funds.
2. Pick the program that matches the need: 7(a), 504, Express or microloan.
3. Gather documents. Lenders typically ask for SBA Form 1919 (borrower information), SBA Form 413 (personal financial statement) for each owner of 20% or more, two to three years of business and personal tax returns, year-to-date financial statements, a debt schedule, projections or a business plan, and business licenses and entity documents.
4. Find a lender. Use SBA Lender Match, your bank or a broker. Lenders differ in industry appetite and loan size.
5. Underwriting and approval. Experienced lenders with delegated authority approve in-house. Otherwise the SBA reviews the loan; it lists a turnaround of 5 to 10 business days for standard 7(a) loans, on top of the lender's own process.
6. Closing and funding. Expect appraisals, valuations, insurance and lien filings before funds are released.

Frequently asked questions

What does SBA stand for?

Small Business Administration, the federal agency that supports small businesses with loan guarantees, counseling and contracting programs.

Can I get an SBA loan with bad credit?

The SBA has no personal score minimum, but each lender sets its own, and borrowers must be creditworthy. Recent defaults, tax liens or delinquent federal debt are serious problems. If your score is low, a microloan or a CDFI lender may be more realistic; see our list of business loan alternatives.

Can a startup get an SBA loan?

Yes. Startups are eligible for 7(a) and microloans, but they usually need a strong business plan, relevant experience, collateral where available and at least a 10% equity injection.

How long does an SBA loan take?

It depends on the lender and the deal. Simple loans from experienced lenders can move in a few weeks; real estate and acquisition loans often take a few months because of appraisals, valuations and third-party reports.

Can I use an SBA loan to buy commercial real estate?

Yes, if your business occupies it: generally at least 51% of an existing building. Both 7(a) and 504 loans can finance owner-occupied property. Investment property you lease to others is not eligible. Compare other lenders in our list of the best commercial real estate lenders.

What is the difference between an SBA loan and a conventional bank loan?

Both come from a bank. The SBA guarantee lets the bank accept a smaller down payment, a longer term and less collateral than it would on a conventional loan, in exchange for more paperwork, guarantee fees and federal eligibility rules.

Not sure an SBA loan fits?

SBA loans are often the cheapest long-term option, but not every business qualifies, and not every need can wait. FSE (Funding Solutions Experts) is an independent commercial finance brokerage working with 50+ lending partners, from SBA and bank-style term loans to equipment financing and working capital. One application lets us compare what you may qualify for. Our application asks for at least one year in business and $10,000+ in monthly revenue. Approval and terms depend on each lender. Start a no-obligation application.

Sources

• U.S. Small Business Administration, Terms, conditions and eligibility (amounts, guarantees, rate caps, terms, collateral, SBA turnaround), 7(a) loans, 504 loans and Microloans
• Compliance Alliance, SBA ownership, citizenship and residency requirements (effective March 1, 2026)
• U.S. Small Business Administration, Small businesses now eligible for $10 million in SBA financing (July 7, 2026)
• ICBA Independent Banker, SBA doubles cumulative 7(a), 504 loan limit
• Womble Bond Dickinson, SOP 50 10 8.1 reshapes change-of-ownership lending
• American Banker, SBA starts new fiscal year with even tighter credit box (October 2026; FY2026 volumes)
• NAGGL, SBA notices announcing FY2027 7(a) and 504 fees
• Grasshopper Bank, SOP 50 10 8: what you need to know (SBSS 165, equity injection)
• Federal Reserve, H.15 Selected Interest Rates (Prime 7.00% on October 26, 2026)

Program rules were checked in October 2026. The SBA updates fees each fiscal year and revises its rules periodically; confirm current terms with your lender.