Owning a small business can involve navigating a wide range of financial challenges. With limited assets, many young companies struggle to secure financing, which can be a challenging task. That is where SBA loans come in. SBA loans are a special category of loans explicitly designed for emerging businesses that may not have the capital or other qualifications needed for other business loans.

What is an SBA loan?  

The term “SBA loan” describes a special category of finance products available to for-profit companies in the United States that meet the Small Business Administration’s (SBA) definition of a “small business.” While this standard varies by industry, it may be easily assessed online.  

Guaranteed by the SBA, these loans are typically issued by banks and credit unions. This guarantee provides the lender with a safety net, ensuring that the SBA will repay a portion of the loan to the financial institution if the business defaults.  

What are the most common types of SBA loans?  

Financial institutions nationwide offer a diversity of SBA loans that may be used for various business purposes. These can include anything from microloans to help cover the cost of starting up, to SBA Express Loans, which provide quick access to flexible funding. Two of the most common types of SBA loans are SBA 7(a) and SBA 504.  

The SBA 7(a) loan is the most flexible and widely used SBA loan. With a loan amount of up to $5 million, it is ideal for those who need quick access to financing to fund general business expenses such as equipment, working capital and acquisitions. It may also be used to repay business debt or to purchase real estate. Typically, these loans offer 10 years for working capital and up to 25 years for real estate, with a low down payment of only 10% - 20%.  

Another type of SBA loan is the SBA 504 loan, which may be used for long-term investments in fixed assets. The 504 loan is principally used for buying real estate or purchasing equipment. The SBA 504 loan is structured a bit differently than the SBA 7(a); the lender only provides 50% of the loan total, which the SBA does not guarantee. However, as in the SBA 7(a) loan, the borrower must make a 10% down payment. The remaining 40% is provided by a Certified Development Company (CDC), which is a non-profit organization approved by the SBA. SBA 504 loans are designed for long-term investments that will create or retain jobs.

What are the benefits of acquiring an SBA loan?  

SBA loans are designed to provide an accessible option for those starting or expanding a business and needing flexible terms. They typically offer competitive interest rates with more credit flexibility than other business loans. Because the SBA partially guarantees the loan, it is easier to obtain for those with less-than-perfect credit or limited capital and collateral.  

Additionally, these loans tend to have longer repayment terms, with equipment, working capital, and inventory loans offering up to 10 year terms and real estate loans up to 25 years. SBA loans often also require less upfront capital, with down payments as low as 10%, compared to 20–30% for conventional loans.  

How do SBA loans work?  

First, a small business must apply through an authorized bank or lender, such as Climate First Bank. The lender then reviews the business plan, finances, and credit, and submits the loan package for review to the SBA. However, SBA Preferred Lenders like Climate First Bank are able to provide a quicker turnaround time during underwriting by making the approval decision directly without having to wait for review by the SBA. Like any business loan, the borrower must use the loan for approved purposes and must repay it over time. Depending on the type of loan, the borrower may have flexibility in how the funds may be allocated.  

How can I apply for an SBA loan?  

Before applying for an SBA loan, a business must determine if it meets the requirements. First, the business must be a for-profit company based in the United States. Additionally, it must meet the SBA's standard size to be considered a “small business.” Lastly, the business must show the ability to repay the loan and meet any other eligibility requirements specific to the SBA loan type.  

After confirming eligibility, businesses should prepare financial statements, tax returns, a business plan, collateral information and other items as could be requested by the lender. Afterwards, the company would look for an SBA-approved lender and ideally one with Preferred Lender status, such as Climate First Bank. Preferred Lenders can reduce the underwriting and closing time by several weeks compared to other SBA lenders.

Climate First Bank is a Preferred Lender with the SBA. We have a brilliant team of SBA specialists nationwide who are ready to help you finance your business. When you choose Climate First Bank as your preferred SBA lender, you are not only supporting your business with growth opportunities but supporting our planet as well.  

Are you looking to grow your business? Get started today! Visit Climate First Bank's SBA page and reach out to our SBA Lenders to learn more about our financing options!