What Is an SBA Loan? Everything You Need to Know

An SBA loan is a government-backed small business loan that helps cover costs for businesses looking to start, expand, or sustain operations. The loan is issued by a private lender and backed by the federal government, particularly the Small Business Administration (SBA), a government agency supporting entrepreneurs and small businesses.

The government guarantee reduces lender risk and enables them to provide loans with favorable terms to small businesses, especially those that failed to qualify for conventional loans. It promotes economic growth by encouraging entrepreneurship, job creation, and innovation.

In the 2025 fiscal year, over $18 billion in SBA 7(a) has been approved.

How Do SBA Loans Work?

A borrower can apply for an SBA loan through a bank or credit union. The lender applies to the SBA for a loan guarantee. If the borrower defaults on the loan, the government pays the guaranteed amount to the lender.

Everyone with a minimum of 20% ownership in the borrowing company must provide an unconditional personal guarantee to the SBA to use personal assets for payments if the business is unable to repay.

Together, these guarantees mitigate the risk for lenders, increasing their likelihood of working with small businesses.

When the SBA approves the loan, the lender becomes responsible for closing the loan and disbursing the loan proceeds. The borrower repays the lender directly monthly.

Types of SBA Loans

SBA loans are of several types, with each loan program designed for specific business types. Here:

• 7(a) Loans: The most flexible and common SBA loan, the 7(a) loan is suitable for financing general business needs.
  Loan Size: Up to $5 million
• CDC/504 Loans: For purchasing long-term, fixed assets like machinery, land, facilities, etc.
  Loan Size: Up to $5 million ($5.5 million for select projects)
• Express Loans: Fast funding for working capital, real estate, and equipment purchases.
  Loan Size: Up to $500,000
• Microloans: For equipment, machinery, inventory, and supplies.
  Loan Size: Up to $50,000
• Disaster Loans: To cover expenses and repair damage from a declared disaster.
  Loan Size: Up to $2 million
• International Trade Loans: Long-term funding to expand export sales or compete globally.
  Loan Size: Up to $5 million
• Working Capital Pilot Program: A flexible line of credit for varied business needs.
  Loan Size: Up to $5 million
• Export Working Capital Loans: To support export sales.
  Loan Size: Up to $5 million
• Export Express Loans: Accelerated funding to grow exports.
  Loan Size: Up to $500,000

How to Apply for an SBA Loan?

The first step is to choose the loan that meets your business needs. For example, a 7(a) loan is flexible, while a 504 loan is perfect for large-scale investments. Then, check if you qualify:

• The business must be an American for-profit business.
• It must qualify as a small business under SBA guidelines.
• Evidence of financial necessity and an explanation of how the loan will be used.
• The business must have sought alternative funding before an SBA loan.
• Evidence of good credit and the ability to repay the loan.
• Not overdue on any current government-issued loans.

Step 1: Find an SBA Lender

Reach out to banks or credit unions offering SBA loans. Look for a lender familiar with SBA processes to help you navigate smoothly.

Step 2: Prepare Your SBA Loan Application

You’ll need to prepare several documents, including:

• SBA-specific forms: Form 1919, Form 912, and Form 413.
• Business financials: Profit & loss statement, cash flow projections, balance sheet.
• Supporting documents: leases, licenses, business plan.
• Credit reports for personal and business finances.

Step 3: Submit Your SBA Loan Application Package

Submit the complete package to your lender. The lender will review and may request additional documents before forwarding to the SBA. Once approved, you’ll receive the loan terms and begin the closing process. This may take several weeks to months depending on complexity.

Conclusion

Applying for and receiving an SBA loan is not complicated, as long as you are doing it right. With ALT Financial, you can seamlessly navigate the process and secure the funding for your business needs. Got a question? Call us at Call Now 1-800-981-5626