How Do I Choose the Best SBA Loan for Small Business?

Finding the right financing can make all the difference for a small business. With so many options out there, it’s hard to tell which one fits your needs. Luckily, SBA loans are a special option that can help small businesses access funding that might otherwise be out of reach. Keep reading while we explain how to choose the best SBA loan.

What is a SBA Loan?

A SBA loan is a small business loan partially guaranteed by the U.S. Small Business Administration (SBA). These loans are designed for businesses who may not typically qualify for other types of business loans.

For example, small businesses often struggle to secure funding because financial institutions see them as higher risk—the business might be new, have limited cash reserves, lack sufficient assets, or have a short credit history. Fortunately, SBA loans provide financial support, allowing small businesses to grow and stabilize.

While the SBA itself doesn’t lend money directly to borrowers, they partner with banks and other lenders to reduce their risk. This approach increases the number of small businesses that qualify, even if they don’t meet traditional lending standards.

Why are SBA Loans a Good Idea?

• Longer Repayment Terms: SBA loans for small businesses come with extended repayment schedules, making monthly payments more manageable.
• Competitive Interest Rates: Having SBA backing compels lenders to offer better rates than those for conventional business loans.
• Lower Down Payments: Businesses can make major purchases without draining their cash reserves.
• Flexible Use: Each SBA loan finances different business objectives. You can cover working capital, equipment, real estate, debt refinancing, or even buy a business.

How to Choose the Best SBA Loan for Small Business

Not every SBA loan is the same, so it’s important to select one that fits your business goals. Follow these steps to find the best SBA loan for your business:

1. Evaluate Your SBA Loan Eligibility

Even though SBA loans are designed to be accessible, the lenders still review factors like:

• Business Type: Your small business must be registered, generate profit, and be physically located in the USA or its territories.
• Business Size: The business must fall within the SBA’s size requirements, which differ by industry. In general, this means having fewer than 500 employees or generating less than $7.5 million in annual revenue.
• Credit Requirements: You must be creditworthy, meaning you can demonstrate your ability to repay the SBA loan. Even businesses with less-than-perfect credit may qualify, depending on other factors. (Explore how to build business credit here).
• Exhaustion of Other Financing Options: Since SBA business loans are meant for companies who can’t secure loans on reasonable terms from other sources, you must demonstrate you have explored traditional financing options but didn’t qualify.
• Loan Purpose: The SBA requires that you provide a clear and legitimate reason for needing the loan and how you will use the funds (i.e., working capital, equipment purchase, real estate, etc.).
• Investment/Equity: You must invest your own money into the business to demonstrate your financial commitment.

If you meet the SBA loan requirements, then you are off to a great start and can move forward in finding the right loan.

2. Understand Different SBA Loan Options

Before you apply, it helps to know your choices. The leading SBA loans for small businesses include:

• SBA 7(a) Loans: The most flexible SBA financing program. It’s used for working capital, buying equipment, purchasing inventory, or even purchasing a business—among other purposes. Loan amounts for SBA 7(a) are up to $5 million.
• SBA Express Loans: A streamlined version of the 7(a) program, but with quicker approval decisions and smaller loan amounts (capped at $500,000). These loans are ideal for time-sensitive opportunities.
• SBA 504 Loans: A program that combines financing from three sources. Typically, a bank provides part of the funding, the business owner contributes a small down payment, and the SBA works through a Certified Development Company (CDC) to cover another portion. This setup allows business owners to finance major investments—like commercial real estate or large equipment—with lower upfront costs and predictable long-term payments.

Other small business loan programs exist too! For example, there are SBA Microloans, SBA Disaster Loans, and SBA CAPLines. These are each meant for very specific purposes. However, for a vast majority of small businesses, the 504, 7(a), and Express programs are the most practical choice.

3. Determine Your Business Goals and Match with SBA Loan

It’s important to understand what your business requires. As mentioned, different loans are designed to support a variety of goals. Therefore, matching your objective with the right SBA loan will save time and improve your chances of approval.

• Commercial Real Estate: Purchase or renovate property with a long-term, fixed-rate SBA 504 Loan.
• Equipment or Machinery: Smaller purchases can use SBA 7(a), and larger, long-term investments can use SBA 504.
• Time-Sensitive Funding: If you need quick access for urgent expenses, the SBA Express Loan is the best choice for you.
• Working Capital or Inventory: Cover day-to-day expenses or inventory with a 7(a) Loan for flexibility.
• Expansion or Growth: If you want to add locations, products, or services, you have 2 options: SBA 504 Loan for major assets, or SBA 7(a) Loan for adaptable financing.
• Disaster Recovery: SBA Disaster Loans help businesses rebuild after declared natural disasters by covering repair and operational costs.
• Tenant Improvements or Renovations: The SBA 504 Loan is the best choice for major permanent improvements, and the SBA 7(a) Loan works best with smaller upgrades.
• Small-Scale or Startup Funding: SBA Microloans provide smaller amounts to launch or support new businesses with inventory and supplies.
• Business Acquisition: You can buy an existing business with a SBA 7(a) Loan.
• Debt Refinancing: Consolidate or refinance certain debts using a 7(a) Loan.

Identifying your business goals early guarantees that you will pick the SBA loan that best fits your priorities, repayment capacity, and growth plans.

4. Compare SBA Lenders

Yes, you should evaluate SBA loan interest rates, but it’s also important to review other factors:

For example, each SBA lender approaches SBA loans differently. This can impact your experience and outcomes with the lending process. Some business lenders offer faster turnaround times and more personalized service, or they might specialize in specific SBA loan types.

Remember to ask about their approval rates, processing timelines, and how much hands-on support they provide throughout the SBA loan application experience. Also, look at the full cost structure, including origination fees and service charges.

TIP: If you are looking for a long-term business banking relationship, it’s worth considering what other services they offer (i.e., business money market accounts, treasury management products, etc.).

5. Read the Fine Print on Loan Agreement

Before signing the dotted line, carefully review all loan terms. Understand repayment schedules, prepayment penalties, and collateral requirements. Most SBA small business loans require personal guarantees from owners with 20% or more ownership.

Even if it feels tedious, the details matter. Become familiar with business operation restrictions and understand any default consequences. Ultimately, you want to fully understand the commitment you are making!

Partner with Academy Bank: Top SBA Loans for Small Business

SBA loans are a game-changer for small businesses, offering the flexibility and affordability that traditional financing can’t match. The good news? You don’t have to look far—Academy Bank is a SBA-preferred lender with a strong track record of helping businesses receive funding.

We proudly offer the top SBA loans available: SBA 504 Loan, SBA 7(a) Loan, and SBA Express Loan. Each business loan type is tailored to different small business needs, so you can find the best match for your goals!

What sets Academy Bank apart:

• Personalized support
• Streamlined application process
• Competitive rates on all SBA loan products
• Full-service small business banking solutions

If you are ready to fuel your business growth with the right loan, Academy Bank is here to assist. Explore our SBA loan options today and bring your business goals to life.

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Want to explore other business lending options? Compare Academy Bank’s business loans.