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One key aspect that small business owners encounter when applying for Small Business Administration (SBA) loans is the SBA guarantee fee. This fee is a critical component of the loan process, yet it can cause confusion and questions among entrepreneurs. In this guide, we'll explain everything you need to know about it, including its associated costs, how it's calculated, and implications for your loan.

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New to SBA loans? Start with our overview of SBA loan options to explore types, terms, and how they work.

What is the SBA guarantee fee?

Because SBA loans are guaranteed up to 50-90% by the Small Business Administration, lenders pay guarantee (or guaranty) fees for some types of financing they issue under the program. These fees help cover the SBA’s costs in the event that a borrower defaults on a loan.

Although the guarantee fee is charged to the lender, the SBA allows lenders to pass the fee onto the borrower. Most lenders will typically do this.

Which SBA loans have guarantee fees?

Not every type of SBA loan will have a guarantee fee assessed. You can expect them for 7(a) and 504 loans, but not for SBA microloans. It’s also important to note that the guarantee fee is assessed only on the portion of the loan guaranteed by the SBA - not the total approved loan amount.

SBA guarantee fee costs (by program)

SBA guarantee fees are based on the guaranteed amount on your SBA, the type of SBA loan, and your repayment term.

SBA 7(a) loan guarantee fees

Guarantee fees for SBA 7(a) loans change each fiscal year. Usually, the SBA will publish updates to lender fees for the coming fiscal year in advance. However, in March 2025, the SBA published an update to lender fees in effect for the remainder of the fiscal year, which means 7(a) loans issued prior to March 27, 2025, and 7(a) loans issued after March 27, 2025 have different fees associated. 

Both are included in the tables below.

Guarantee fees for 7(a) loans issued after March 27, 2025

Guarantee fees for 7(a) loans issued before March 27, 2025

*The SBA guarantees a maximum of $3.75 million on 7(a) loans.

SBA Express loan guarantee fees for veterans

For SBA express loans made to businesses owned and controlled by a veteran or the spouse of a veteran, the guarantee fee is $0.

Export Working Capital Loans guarantee fees

Export Working Capital Program loans, another type of 7(a) loan, also have their own guarantee fee structure depending on the maturity term of the loan.

SBA 504 loan guarantee fees

Similar to the 7(a) program, the SBA publishes guarantee fees for the 504 loan program to remain in effect for the coming fiscal year.

Since the 504 program has a two-part funding structure, consisting of a portion of funding from the borrower, from a Certified Development Company (CDC), and a third-party lender, the SBA guarantee fee applies only to the CDC portion of the loan.

For the 2025 fiscal year, there is no guarantee fee on SBA 504 loans. However, the lender can charge the SBA’s annual service fee to the borrower for these loans, which is currently 0.331% for the 2025 fiscal year.

How are SBA guarantee fees calculated?

Calculating the SBA guarantee fee can seem complex, but once you understand the calculations behind it, it's much more manageable. Here is a simplified process:

1. Identify the guaranteed portion: Determine the amount of the loan that the SBA guarantees. This typically ranges between 50%-90% of the entire loan, depending on the specific SBA loan program.
2. Apply the fee structure: Using the fee rates provided by the SBA, which vary depending on the size and term of the loan, calculate the fee charged on the guaranteed portion.
3. Total loan cost: Add up the fee amount and any additional associated loan costs to understand the total cost of the loan.

Remember, the fee is based on the guaranteed portion of the loan, not the total loan amount, which means that the actual amount paid can be less than the full percentage of the entire loan.

Reach out to your SBA lender for assistance if you are having difficulties calculating potential guarantee fees. You can also check out the SBA’s online calculator to determine your guarantee fees.

Additional SBA 7(a) loan fees

Beyond the guarantee fee, small business owners should be aware of other potential charges associated with an SBA 7(a) loan. Here's a breakdown of other fees that the SBA allows lenders to collect from borrowers:

Packaging fees

Lenders can charge borrowers service and packaging fees for the SBA loan. This can take a few forms and structures, so it's important to understand what they are. These fees are for things like:

• Completing an application
• Completing documents related to an application, like business plans or cash flow projections
• Software or tech used to prepare documents

Here’s how packaging fees can be structured:

Flat fee:

The SBA allows lenders to charge a flat fee of up to $2,500 per loan without documenting services performed. Flat fees of above $2,500 require the lender to provide itemization and documentation to the SBA.

Hourly rate:

For packaging fees charged on an hourly rate, the fees must be reasonable and customary for the services performed. It must also be consistent with fees the lender charges on an hourly rate for similarly-sized non-SBA loans.

Percentage of loan amount:

For packaging fees structured as a percentage of the loan amount, the fee can’t exceed either: what the lender charges on a percentage basis for similar-sized non-SBA loans, or the following (whichever is less):

• For loans $150,000 or less: 5% of the loan amount
• For loans $150,001 or more: 3% of the loan amount

If the packaging fee is structured as a percentage of the loan amount, it cannot be more than $30,000.

Extraordinary Servicing fees

Extraordinary servicing fees are charged when your loan requires intensive, out-of-the-ordinary servicing. Examples of this could be: loan workouts, special monitoring, or complex restructures.

The fee must be reasonable and justified based on the services performed, and is subject to SBA approval. The fee can’t exceed 2% of the portion of the loan requiring the extraordinary servicing on most 7(a) loans, with the exception of EWCP loans and CAPlines.

Extraordinary Servicing fee limits for EWCP and CAPLine

Lenders can charge extraordinary servicing fees more that 2% on EWCP and Working Capital CAPlines that are disbursed on a Borrowing Based Certificate. However, these fees must be reasonable based on the extraordinary effort required, and can’t be higher than fees charged on a lender’s similarly-sized, non-SBA commercial loans.

Out-of-pocket expenses

You may see out-of-pocket expenses charged with your SBA loan. These cover necessary expenses for the lender, and typically include: filing or recording fees, photocopying, delivery charges, appraisal fees, and necessary reports.

Each out-of-pocket expense must be itemized and kept in the file for review by the SBA at any time.

You may have to reimburse your lender for any direct costs (including overhead) incurred for legal services by in-house counsel. However, these fees can’t exceed the cost of outside counsel, and must be assessed on an hourly basis.

Late payment fee

If you are more than 10 days delinquent on your regularly scheduled SBA loan payment, your lender can charge a late payment fee. It can’t exceed more than 5% of the regular loan payment.

Additional SBA 504 loan fees

Additional allowed fees for 504 loans differ in structure from 7(a) loans, and may be paid to several parties to the loan. Before you review the breakdown, here’s a quick refresher on some loan terminology that differs from 7(a) loans that you’ll see in use below.

• ‍Debenture: a loan funded by investors‍
• Net Debenture: the amount of the SBA portion of your loan that’s actually available for your project after required fees are taken out, or your take-home amount of the loan.‍
• Gross Debenture: the total amount raised through the debenture to fund the SBA portion of the loan, or the sticker price before any fees are deducted.

Conclusion

For small business owners accessing capital through SBA loan programs, understanding the SBA guarantee fee is fundamental. It's just as important to plan for this expense as it is to forecast other business costs. Always make sure to assess the full picture of loan costs and discuss any fee-related questions with your SBA-approved lender.

With careful consideration, the SBA's programs can be a powerful tool in growing and sustaining your business. Your efforts to comprehend the fee structures will position you to make well-informed financial decisions that keep your business's bottom line healthy. Remember, staying informed about the costs of borrowing is essential in the stewardship of your enterprise.

According to the U.S. Small Business Administration (SBA), small businesses account for 99.9% of all businesses in the U.S. But what exactly is a small business?

The SBA sets specific criteria to categorize businesses under the ‘small business’ designation, in order to determine eligibility for support initiatives and funding, like SBA loan programs. Below, we’ll dive deeper into how the SBA defines a small business, so you can determine whether you meet  and qualify for certain benefits.

The SBA definition of a small business.

The SBA defines a small business by the maximum number of employees, or maximum amount of annual receipts it has. However, these maximum limits depend upon the industry of the company, which we'll explore below.

Criteria for qualifying as a small business.

The SBA uses two possible size criteria that a business can qualify as “small” under - the Industry Size Standard, and the Alternative Size Standard.

SBA Industry Size Standard

For each industry classified by the North American Industry Classification System (NAICS), the SBA weighs economic characteristics like:

•  Degree of competition
• Average business size
• Start-up costs and entry barriers
• Distribution of businesses across the industry by size
• Technological changes
• Competition from other industries
• Growth trends
• Historical activity
• Unique factors

Then, the SBA establishes an industry size standard to define a small business in that industry, consisting of the maximum number of employees, or maximum amount of average annual receipts a business can have to be classified as small.

To find the specific size standard for your industry, here’s what to do.

1. Look up your NAICS code.

You’ll need to have your NAICS code on hand to find your size standards. This is a six-digit code number that helps companies explain what they do. You can use the NAICS search tool to find your industry, or read our guide on how to look up your NAICS code for more information.

2. Look up your SBA industry size standard.

Once you’ve found the NAICS code that best describes the primary activity of your business, or the one that produces the most revenue, you can find the SBA size standards for that industry.

Here’s a sampling of several industries and the maximum average annual receipts or number of employees that qualify them as a small business. In reality, there are hundreds of NAICS codes, so you should look at the complete listing in the SBA table of size standards.

3. Verify you meet the SBA size standard

Confirm your employee count, or your annual receipts meets the industry size standard. You can also use the SBA size standards tool to input your information and find out if you meet the SBA’s criteria for a small business.

In addition to maximum average annual receipts and maximum number of employees, the SBA will consider whether your company meets other eligibility requirements for SBA loans.

SBA Alternative Size Standard

Small businesses can also meet the SBA size requirement through the alternative size standard.

To meet this size standard, the business can’t have a tangible net worth over $20 million dollars, and the average net income after Federal income taxes (excluding carry-over losses) for 2 full years before the application can’t exceed $6.5 million.

Benefits of being classified as a small business.

If the SBA does classify your company as a small business, this opens the door to several resources and benefits.

SBA loans

There are a number of SBA loan programs that offer low rates and longer repayment terms you might not be able to find elsewhere.

The 7(a) loan is the SBA’s most popular program and offers up to $5 million in capital for small business owners. Upon approval, you can use this capital to cover a variety of expenses, such as startup expenses, real estate, short- and long-term working capital, and equipment.

Business development programs.

The SBA has Small Business Development Centers (SBDCs) throughout the U.S. to provide small businesses with counseling, training, and technical assistance. Another organization called SCORE also offers free mentorship and resources. You can utilize these development programs if you qualify as a small business.

Government contracts. 

The SBA works partners with federal agencies to award 23% of prime government contract dollars to qualifying small businesses. If you meet the SBA definition for small business, you can submit bids and take advantage of government contracts, which offer an additional, reliable stream of income. 

Research grants

The Small Business and Innovation Research research grants are designed to encourage small business owners to dive into technology and commercialization opportunities. While this is a highly competitive program, it also offers small businesses the chance to expand your technological investment and potentially profit from commercialization.

Tax incentives

As a small business, you can also save money with tax incentives. The Small Business Health Insurance Tax Credit, for example, gives eligible small business owners the chance to save up to 50% of employee health care costs, if they buy insurance from the Small Business Health Options Program (SHOP). Some cities, like Philadelphia, also award tax credits to entrepreneurs and small business owners.

Bottom line

If you believe you’re a small business owner, there’s a good chance the SBA does, as well. But your average annual receipts and number of employees may position you as a medium sized or larger business instead. That’s why it’s wise to do some research and determine where you stand. If the SBA does consider you as a small business, you’ll have access to resources, funding options, and incentives that larger businesses won’t qualify for!

Because small businesses are so critical to the country’s success, the federal government launched the Small Business Administration (SBA) to help foster American small businesses. 

The most popular way the SBA furthers its mission is through SBA 7(a) loans—if your business qualifies, you can get funding backed by the government that can help take your enterprise to the next level.

What is an SBA 7(a) loan?      

An SBA 7(a) loan is a form of financing that is partially guaranteed by the U.S. Small Business Administration. These loans are named after Article 7(a) of the Small Business Act of 1953, which launched the SBA and tasked the agency with supporting American small businesses through lending.

SBA 7(a) loans are popular for financing real estate purchases, working capital, and purchasing furniture and supplies. They’re also commonly sought for refinancing existing business debt.

Are all SBA loans 7(a) loans?

SBA 7(a) loans are the most popular type of loans offered by the SBA, so many people refer to them as “SBA loans”. Keep in mind that 7(a) loans are a specific loan program offered by the SBA, and there are several types of 7(a) loans. In addition, the SBA offers other types of loan programs, such as the 504 loan program, that don’t fall under this umbrella.

Looking for information on all SBA loans, not just 7(a) loans? Check out our guide to SBA loans here.

What can an SBA 7(a) loan be used for?        

Proceeds from a 7(a) loan may be used for:

• Working capital
• Equipment purchases and or/ installation
• Acquiring, refinancing, or making improvements to Real estate
• New-building construction
• Renovation or expansion
• Starting a new business
• Purchasing an existing business
• Refinancing current business debt
• Purchasing furniture, fixtures and supplies
• Multiple purpose loans
• Changes of ownership

Loan proceeds may not be used to:

• Pay off an existing business loan
• Buy out a partner
• Pay delinquent state or federal withholding taxes
• Anything else that wouldn’t be considered a sound business purpose as determined by the SBA

Types of SBA 7(a) loans

The SBA has a suite of different financing products under its 7(a) distinction, and each one is meant to fill a different need in the small business ecosystem.

When considering your options, think about how large of a loan your business needs, your intended use of the funds, and how quickly you need the money.

SBA loans require a fair amount of information and paperwork, so researching 7(a) loan types will save you time later.

Standard 7(a) loan

The standard 7(a) loan is the most common and most popular type of 7(a) loan backed by the SBA. The purpose of these loans is to allow small businesses to expand by funding working capital or the purchase of equipment, supplies, and real estate. 

A standard 7(a) loan is available in amounts of $350,000 to $5 million. The maximum SBA guarantee is 85% for loans up to $150,000 and 75% for loans greater than $150,000. The SBA requires lenders to collateralize all standard 7(a) loans. 

For standard 7(a) loans, while it is the lender's responsibility to perform credit analysis, loan structure and verify that the applicant meets SBA eligibility requirements, the SBA makes the final approval decision before providing a loan number. 

7(a) small loan

The 7(a) small loan is similar in many ways to the standard 7(a) loans, but it’s meant for businesses that need smaller amounts of funding to get off the ground or expand. 

The maximum loan amount is $350,000. Their turnaround time and eligibility decision process are the same as standard 7(a) loans. The SBA guarantees 85% of loans up to $150,000 and 75% of loans over that amount. Collateral is not required for loans under $50,000. The lender follows its collateral policy for loans greater than $50,000.

Applicants can usually expect a decision in two to 10 business days.     

SBA Express loan

The SBA express loan is built for speed—sometimes, entrepreneurs need funding ASAP.

The maximum amount for an express loan is $500,000, and an application will be responded to in 36 hours or less. These loans are 50% guaranteed by the SBA. Only lenders with SBA Express authority can issue these loans, and the lender makes all eligibility, collateral, and credit decisions under delegated authority.

7(a) Export Trade Finance

The SBA has 3 core 7(a) international trade finance programs geared towards helping small businesses be competitive in export markets.

Export express loan

The export express loan was specifically created as a streamlined option for businesses in the export industry or those looking to develop an export operation. It has many similar features to an SBA Express loan, but provides a higher guarantee to mitigate international credit risk.

The loans, with a maximum amount of $500,000, have a breakneck turnaround time of just 24 hours or less. Similar to SBA Express, lLenders make all eligibility and collateral decisions through delegated authority. The SBA guarantee is 90% for loans of $350,000 or less and 75% for larger loans. This funding can take the form of a term loan, or a revolving line of credit that can last up to seven years.

Export working capital loan

Also tailored for exporters, the export working capital loan is meant to fund working capital for businesses that generate export sales.

These loans can range up to $5 million, and the SBA guarantee is 90%. Eligibility decisions are made by the SBA or lenders who have delegated EWCP authority. Unlike other 7(a) loans, there is no maximum interest limit imposed by the SBA for export working capital loans. The decision turnaround time is five to 10 business days. 

Collateral is required, usually in the form of export inventory and personal guarantees from a business’ owners. This loan can take the form of a term loan, or a revolving line of credit for three years or less.

International trade loan

International trade loans are SBA 7(a) loans aimed at businesses that want to grow their export side or need to modernize their operation to handle foreign competition.

The maximum loan amount is $5 million, and the eligibility decisions, turnaround time, and SBA guarantee are the same as for export working capital loans. For international trade loans, the loan maturity is set at 10 years for permanent working capital.

Equipment and machinery, loans mature up to 10 years or at the useful life of the equipment (not to surpass 15 years). Real estate loans mature at 25 years.    

7(a) CAPLines

CAPLines of credit are a form of a standard SBA 7(a) loan that works as a line of credit instead of a loan.

Remember, a business line of credit is a form of financing that allows businesses to access money as expenses arise, similar to a credit card. With a business loan, on the other hand, a full amount is disbursed upon approval, and repayments are made based on the approved amount.

The loan maximums, terms, and decision process of CAPLines of credit are the same as for standard 7(a) loans. The SBA offers four types of CAPLines:

Working Capital CAPLine

A line of credit for businesses that are unable to meet credit standards for other long-term financing, typically businesses that provide credit to other businesses, and in which repayment is based on assets.

To be eligible for a Working Capital CAPLine, your business must generate accounts receivable (not notes receivable), and/or have inventory.

Contract CAPLine

A line of credit aimed at financing businesses that work on a contract basis. Rather than permanent working capital, this specific type of working capital is meant to be used for working capital for one or more specific projects.

Builders CAPLine

A line of credit for small general contractors or builders that construct or renovate residential or commercial buildings. To be eligible for the Builders CAPline, you must be a construction contractor or a homebuilder with demonstrated experience in profitable construction or renovation.

Seasonal CAPLine

The Seasonal CAPLine is a line of credit meant for businesses that operate on a seasonal basis to help provide working capital for the busy season. To be eligible, your business must have been in operation for at least one year, and be able to demonstrate a pattern of seasonal activity. You can’t use this working capital to weather downturn or slow seasons, and must use it to finance increases in accounts receivable, inventory, and associated labor costs.

7(a) Working Capital Pilot (WCP) Program

Launched on August 1, the WCP pilot program offers monitored lines of credit to businesses through the SBA 7(a) loan program. 

Through the pilot program, eligible businesses can receive a line of credit up to $5 million. In order to qualify, businesses must operate in industries like manufacturing, wholesale, or professional services and have at least one year of operating history.

Businesses applying must be able to provide financial statements, accounts receivable, and accounts payable, as well as regular inventory reports.

The loan guarantee is the same as regular SBA (7a) loans.

Eligibility requirements for SBA 7(a) loans

Most U.S. small businesses can qualify for an SBA 7(a) loan, but there are a few exceptions such as nonprofits and certain restricted membership organizations. The SBA also requires that business owners meet basic criteria around location, profit status, size, citizenship and access to other financing.

For a full breakdown of eligibility rules - including disqualifiers, credit considerations, and ineligible businesses, read our guide to SBA loan eligibility requirements.

SBA 7(a) loan terms

SBA loans are meant to support long-term small business growth.

Loan maturity terms, as a result, are based on the ability to repay, the purpose of the loan, and the life of assets financed by the loan. Loan maturity refers to how long it takes for a borrower to repay the loan. At the end of your loan maturity term, you’ll make the final repayment. 

The maximum maturities for SBA 7(a) loans are as follows.

• The maximum maturity for real estate is 25 years.
• The maximum maturity for equipment is 10 years.
• The maximum maturity for working capital or inventory is 10 years.

SBA 7(a) loans used to buy fixed assets, like real estate or equipment, carry a maturity limited to the economic life of those assets, not to exceed 25 years. Fixed assets, which also include commercial property or furniture, are assets meant for long-term use that cannot be quickly converted to cash.

SBA 7(a) loan rates

With SBA 7(a) loans, the interest rate is set by the lender. In most cases, the lender will determine a rate based on creditworthiness, loan amount and repayment terms, and the applicant either accepts or rejects that rate. In many cases, you might be able to further negotiate the rate with your lender.

Current SBA loan interest rates are tied to the prime rate, which can be fixed or variable. As of May 1, 2025, the prime rate is 7.5%. The SBA allows lenders to add a markup, but caps how high the rate can go.

Want to see exact SBA rate ranges for the current month, caps, and how your rate is calculated?

See our guide to SBA Loan Interest Rates for current figures and the full breakdown.

SBA 7(a) fees                            

Along with interest rates, you should expect to pay a guarantee fee to the lender for SBA 7(a) loans. This fee will be based on the size of the loan and the type of 7(a) loan you apply for. Guarantee fees for 7(a) loans for fiscal year 2025 range between 2% and 3.5%. 

For a full table and breakdown of guarantee fees on 7(a) loans, read our guide to SBA guarantee fees.

Notably, the SBA expressly prohibits lenders from charging most other fees, including processing, origination, application, renewal, and brokerage fees.

Lenders are, however, allowed to charge a flat fee of $2,500 per loan.

Curious what you might pay on an SBA 7(a) loan? Use our SBA Loan Calculator to estimate your payments!

How to apply for an SBA 7(a) loan                     

While hundreds of different lenders offer 7(a) loans, the process is fairly standardized by the SBA.

The SBA 7(a) loan application process involves three main steps: choosing the right loan, gathering financial documents, and submitting your application to a qualified lender. Depending on the loan type, approval timelines can range from a few days to several weeks.

For a detailed checklist of required documents, step-by-step guidance, and tips to speed up the process, explore “How to Apply for an SBA Loan: Complete Steps and Requirements.”

Alternatives to SBA 7(a) loans

The requirements for SBA 7(a) Loans can be stringent. Maybe you feel it isn’t right for your business at this time! Here are some potential alternatives to SBA 7(a) loans to explore:

• SBA Microloans- These loans are smaller, and geared to newer businesses, but come with less strict borrower requirements.
• SBA Express Loan - These loans don’t require SBA review, which means you could work with a lender who can provide you funds you need quickly, with slightly less requirements than an SBA 7(a) loan.
• Lendio - While you can apply for an SBA loan with Lendio’s quick application, we can also connect you with online lenders to offer other flexible financing options that work for your business.

Ready to apply for an SBA 7(a) loan?

Apply for an SBA loan with Lendio’s quick application. We’ll connect you with the right lender for your situation, and can, on average, get you funded with a 7(a) small loan in less than 30 days.

SBA loans are some of the most sought-after forms of small business financing, because of their favorable rates and terms. They also provide small businesses with a premium financial product, without necessarily having the established track record required by banks and traditional financial institutions. For a broader overview of how SBA loans work and what to expect, start with our SBA Loans overview.

However, the SBA loan program has strict eligibility criteria to qualify for 7(a) and 504 loans. As an added layer, the SBA-approved lender who provides your SBA loan will also have their own set of criteria for approval.

In this guide, we’ll break down the general eligibility requirements outlined by the Small Business Administration (SBA), specific criteria for each loan program, and common lender requirements that your small business will have to meet in order to qualify for this government-backed financing.

You’ll learn:

• General SBA loan eligibility requirements (for any SBA loan regardless of type)
• Specific qualification requirements for 7(a) and 504 loans
• What lenders look for, and their requirements to approve an SBA loan

General SBA loan requirements  

Before you can be considered eligible for any SBA loan program, there’s a standard list of eligibility requirements your small business must meet.

Business operations requirements

In order to qualify for an SBA loan, your small business must be:

• An operating business. There are some exemptions for Eligible Passive Companies (EPCs), according to the use of the loan proceeds.
• A for-profit business, officially registered and operating legally. ‍
• Located in, primarily operating in the United States, and authorized to do business in the state or territory where applying for a loan. If the business operates internationally, the loan proceeds can only be used exclusively for U.S. operations.

Size standards

To qualify for an SBA loan, businesses must meet the SBA’s definition of a small business. The business can qualify for this definition in one of two ways - by industry size standards, or by alternative size standards.

Learn more about how the SBA defines a small business.

Industry restrictions

The SBA identifies some business industries, types or characteristics that make them ineligible for SBA loan financing. There are some exceptions to each, but for the most part, if your business is any of the following, you won’t qualify.

• Nonprofit
• Government-owned organization
• Lender, or engages in loan packaging, lending, investment or financing
• Apartment building, mobile home park or nonmedical residential facility
• Developer or landlord leasing land and/or buildings
• Marijuana producer or engaged in the production or sale of marijuana products (some exceptions for hemp products that meet federal definition.)
• Church, synagogue, mosque, or other religious organization
• Business that restricts patronage for any other reason beyond capacity (ex: women’s health club)

Further, if your business engages in any of the following, you won’t qualify.

• Political or lobbying activities
• Gambling
• Illegal activities
• Live adult or lewd performances, services, presentations or displays
• Pyramid or multilevel sales distribution plans

Citizenship requirements

The SBA updated its citizenship eligibility requirements to limit SBA loans to businesses with 100% direct and indirect owners and guarantors who are U.S. citizens, U.S. nationals, or lawful permanent residents ("green card" holders).

A business is ineligible for an SBA loan if any owners or guarantors are “Ineligible Persons”, including foreign nationals, asylum seekers, refugees, visa holders, nonimmigrant aliens, and/or  DACA recipients.

“Credit Elsewhere” rule

If you apply for an SBA loan, you must be able to demonstrate that some or all of the desired funding is not available elsewhere on reasonable terms from non-government sources. In other words, you would not be able to be secure a loan for the amount from a bank or financial institution based on your credit history or other business characteristics. As of June 2025, lenders now assess personal liquidity of owners and guarantors when making the determination if you would be able to meet credit standards from non-government sources.

Going forward, lenders will now certify to the SBA that some of all of the loan is not available from:

• Personal liquidity of owners with 20% or more equity, their spouses and minor children, (with exceptions for reasonable funds to cover future medical, educational and retirement.)
• Conventional lenders or other non-government sources

Your lender will also need to provide detail on the specific factors that demonstrate weakness in your credit for the SBA. Going forward, your lender will not be able to use only your credit score to determine credit weakness.

Business character requirements

In order to be eligible for an SBA loan, your business cannot have any owner incarcerated, on parole, or probation. Criminal history may also prevent qualifying for a loan, depending on the nature of any convictions.

Your business also must be current on any existing government debt obligations, and can not have defaulted on any federal debt that resulted in a loss to the government. This includes prior SBA loans.

Finally, anyone applying for an SBA loan must be current on all federal, state and local taxes, and must have filed federal tax returns to be eligible.

Allowed use of funds

SBA loans have requirements around how funds are used. You can use any SBA loan to:

• Acquire, lease or improve land
• Purchase, convert, expand or renovate one or more existing buildings
• Build new buildings
• Buy or lease equipment or machinery

Each SBA loan program has additional specifications around allowed use of funds. You'll find more detail in the following sections for each loan program.

Guarantee and collateral requirements

Guarantee requirements

All individuals who own more than 20% of the business are required to submit an unlimited personal guarantee to secure an SBA loan, with the exception of SBA Disaster Loans under $200,000. This includes all SBA 7(a) loans, 504 loans, and most microloans.

If you use jointly-owned property as collateral for a loan, your spouse may also have to sign a limited guarantee.

Collateral requirements for SBA loans

Collateral is required for SBA loans in excess of $50,000. Here’s how it works:

To qualify for an SBA loan, there isn't a fixed amount of collateral you have to have. Lenders must use what's reasonable available to secure the loan, even if it doesn't cover the full amount.

So you aren’t required to have a minimum amount of collateral, but you are required to make what you have available depending on the size of your SBA loan.

General SBA loan requirements summarized

To qualify for an SBA loan, your business must:

• Be a for-profit, U.S.-based business in legal good standing
• Meet SBA size standards
• Operate in an eligible industry
• Have owners who are U.S. citizens, nationals, or lawful permanent residents
• Be current on federal, state, and local taxes
• Have no prior government loan defaults
• Demonstrate legitimate “credit not available elsewhere reasoning”

SBA program specific qualification requirements

In this section, we’ll cover additional requirements beyond the core SBA requirements that apply to 7(a) loans and 504 loans.

SBA 7(a) loan requirements

Once you’ve determined you meet the general SBA loan qualification requirements, there are a few more specific to the SBA 7(a) loan program you’ll need to meet.

Eligible uses of proceeds for 7(a) loans

In addition to the general requirements for use of proceeds, 7(a) loan proceeds can be used for:

• Debt refinancing
• Ownership changes

• Inventory
• Supplies and raw materials
• Working capital

Equity injection rules for 7(a) loans

Equity injections may be required in a few scenarios when applying for a 7a loan. If you’re:

• Starting a brand new business
• Buying an existing business

You’ll typically be required to provide an equity injection (put some of your own money into the business).

Equity injections can be:

• Cash you put into the business
• Seller financing
• Equipment or assets you’re contributing

If you aren’t starting or buying a business, you may not need an equity injection. Your lender will look over whether the existing equity in the business is strong enough. If it is not, you may still be asked to inject equity.

Cash flow requirements for 7(a) loan

When evaluating your application for an SBA loan, lenders will work off the assumption that loan repayment will happen from the businesses cash flow - not assets or collateral. So, if your financials don’t reflect a reasonable ability to repay the loan from cash flow, you won’t be approved.

Credit requirements fo 7(a) loan

The SBA does not require any minimum credit score, time in business, or average monthly sales for 7a loans. However, SBA lenders often have their own requirements for businesses to meet, which we will discuss below.

One notable credit requirement exception is a minimum business credit score (FICO score) of 165 for businesses applying for a  SBA 7(a) small loan. As of June 1, 2025, this increases from the minimum of 155.

SBA 504 Loan Requirements

These loans are intended for small business owners who want to expand their operations. In a nutshell, 504 loans (aka Certified Development Company loans) are laser-focused on real estate.

Eligible uses of proceeds for 504 loans

504 loans are strictly for fixed asset projects, such as:

• Buying land or buildings
• Constructing or renovating facilities
• Purchasing long-term machinery or equipment

Unlike a 7(a) loan, you can’t use a 504 loan for working capital, inventory, refinancing debt that isn’t for financing fixed assets, or buying a business.

Equity injection requirements for 504 loans

Most 504 loan borrowers are required to contribute at least 10% of the total project cost. This is because the loan is a two-part structure between a Certified Development Company (CDC) and a bank or private lender.

The bank typically finances 50%, the CDC finances 40% via the SBA, and you contribute 10-20%.

In some scenarios, you may need to contribute more (15-20%). For example, if your business is a startup (less than 2 years old), or the project involves special-use or limited-market property.

Economic development objectives requirements for 504 loans

504 projects must meet at least one of the following economic development objectives to be eligible for financing:

• Job Creation or retention - the project must create or retain at least 1 job per $90,000 of SBA-guaranteed financing ($140,000 for small manufacturers and energy public policy projects.) In addition, 75% of the jobs must be located in the same community as the project.
• Public Policy goals - The project meets one of the community development or public policy goals outlined by the SBA, including revitalizing a business district of a community, expanding exports, supporting minority, veteran, or women-owned businesses, meeting energy efficiency standards or reducing energy consumption, or supporting rural development.

Net worth and income limits for 504 loans

In order to qualify for an SBA 504 loan, businesses must meet the SBA’s size standards as mentioned before. However, it’s important to note that these cover restrictions on net worth and net income under the Alternative Size Standard. Your business (including associates), must have:

• A tangible net worth of $20 million or less
• An average net income (after federal taxes) for the two full fiscal years before applying of $6.5 million or less. This excludes any carryover losses.

SBA disaster loans requirements

An SBA disaster loan is a low-interest way to recover from the physical and economic damage caused by declared disasters. These loans are open to a more diverse range of businesses than other SBA programs. There are no size restrictions, and private nonprofit organizations, homeowners, and renters can qualify.

You can use a disaster loan for repairing or replacing personal property, real estate, equipment, machinery, inventory, and business assets. Basically, these loans are meant to help you get your operation back where it was before the disaster struck. You’re not allowed to use the funds to try expanding your business beyond where it was pre-disaster.

Here are the 4 main types of disaster loans:

1. Home and Personal Property Loans
To qualify for one of these loans, you aren’t required to own a business. Instead, this program is meant to help a wide variety of victims of a disaster.

2. Business Physical Disaster Loans
For times when a business or organization sustains damage during a disaster, these loans offer up to $2 million to assist in replacing and restoring damaged property. To qualify, you must live in the declared disaster area.

3. Economic Injury Disaster Loans
Not all damage from disasters is of the physical kind. These loans are meant to assist those who may not have experienced physical damage but have still been negatively impacted. If you qualify, you’ll get as much as $2 million to pay for expenses you would’ve been able to handle if not for the disaster.

4. Military Reservists Economic Injury Loans
These loans are meant for business owners who are employing one or more military reservists called to active duty. The SBA provides financing that makes it possible to continue your business operations.

If you have questions about whether or not you are in a presidential and SBA-declared disaster area, you can search by state and territory with the SBA’s online database. Common examples of disasters added to the database include fires, tornadoes, flooding, earthquakes, and drought.

For those who qualify, it’s important to follow the SBA loan requirements as carefully as possible. The first step is registering with the Federal Emergency Management Agency (FEMA). You can do this by calling FEMA at 1-800-621-3362 or visiting DisasterAssistance.gov. Once you’ve received a FEMA registration number, you’ll be eligible to fill out the SBA online application.

Before starting the application, make sure you have this additional information on hand:

• Contact information for all applicants
• Social Security numbers for all applicants
• Employer Identification Number for business applicants
• Deed or lease
• Insurance information
• Business income
• Business account balances
• Business monthly expenses

Once you’ve clicked submit on the application, you’ll need to sit back and wait for the SBA to review your documents and dispatch an inspector. Following an on-site evaluation from the inspector, the SBA will have an estimate for the cost of your damage. You should know that the SBA considers disaster loans a priority, so if you qualify, you’ll get the good news in as little as 3 weeks.

SBA Express Bridge Loans (EBLs) requirements

The Express Bridge Loan (EBL) Pilot Program was created to complement the other disaster loans provided by the SBA. It empowers 7(a) lenders to provide financing on an emergency basis. Of course, the only way to qualify is if the need is tied to a disaster-related purpose.

The key words in the name are “express” and “bridge.” Essentially, these loans provide expedited money to businesses hurt by presidentially-declared disasters. These loans are smaller than most, tapping out around $25,000. The idea is that they help you bridge the gap between the disaster and the arrival of more substantial loans.

This SBA loan program requires that you are located in a primary county or contiguous county that’s been presidentially-declared a disaster area, your business had established a banking relationship with the lender as of the date of the disaster, the funds are used for the survival or reopening of your business, and that the application process must be concluded within 6 months of the qualifying disaster.

Lender requirements for SBA loans

In addition to the eligibility requirements outlined by the SBA, lenders will have their own requirements to qualify for an SBA loan. While these requirements will vary, minimum requirements generally start at:

• Minimum two years time in business
• Credit score of 650+
• $50,000k + annual revenue

As of June 1, the burden is on lenders to verify applicants eligibility for SBA loans, which means your lender will require more documentation from you in areas where the SBA previously handled verification.

Required Documentation

• Six months of business bank statements
• Driver's license or state ID
• Voided check from your business account
• Month-to-date transactions
• Two years of business tax returns
• Two years of personal tax returns from any owners with 20% or more ownership
• Debt schedule
• Year-to-date profit and loss statement
• Year-to-date balance sheet

SBA Loans aren't your only option

While SBA loans are undeniably great, always account for the fact that they take extra time and effort to obtain. You can’t simply stroll along and expect positive results. Do your homework to find the best option, then meticulously gather all the required documents.

Ultimately, the biggest SBA loan requirement is patience. If time is limited and you don’t want to wait for the lengthy SBA approval process, there are other excellent loans you may want to consider. These alternatives include short-term loans, cash advances, equipment financing, and accounts receivable financing.

Each loan product has its pros and cons, which is why it can be helpful to get an expert’s opinion. For questions about a broader range of loan products, including short-term loans and other non-SBA options, feel free to talk to the experts at Lendio. We can answer any questions you have and guide you to the best choice for your needs.

SBA loan rates are tied to a base rate that changes with the market. Lenders can charge borrowers a rate that falls somewhere between the base rate and the maximum set by the government.

Current SBA rate maximums range from 10.5% to 15.5%.

Explore the most popular SBA loan programs and their rate structures to find out which one is the best fit for your company. 

Before we dive in, get familiar with the basics in our SBA loans overview- a great place to start if you're exploring funding options.

How SBA loan interest rates work.

SBA loan rates are regulated by the U.S. Small Business Administration. Private lenders negotiate their own rates with each individual borrower. But the offered loan rate cannot exceed the maximum set by the SBA for each loan program. 

The maximum is tied to a base rate, which can be one of the following:

• Prime rate: The most commonly used rate, currently at 7.5%
• Optional peg rate: Updated quarterly by the SBA based on market conditions, currently 4.5%

The borrower is then charged a markup (a percentage over that base rate). That varies based on:

• Loan amount
• Type of SBA loan
• Loan maturity date

Current SBA loan rates (May 2025).

Here is how each SBA interest rate breaks down, based on the loan program and other details. 

SBA 7(a) loan rates

SBA 7(a) loans can be used for general working capital needs and have interest rates that can either be variable or fixed. Fixed rates have a higher premium but never change, even if the base rate increases over time.

SBA 7(a) rates range from 3% to 8% above the base rate. Use the following table to compare rates for different loan sizes and term lengths. The current (May 2025) Wall Street Journal Prime Rate is 7.50%.

Historical Prime rates

SBA 504 loan rates

SBA 504 loans are designed to purchase assets that help with job creation or business growth, such as new facilities, machinery, or renovating an existing property. These loans are available through certified development companies (CDCs) and offer fixed interest rates.

You can apply for either a 10-year or a 20-year repayment period. The SBA 504 rates are incrementally pegged above the current rates for 5-year and 10-year U.S. Treasury issues. The rate typically totals 3% of the loan amount. 

Historical U.S. Treasury rates

SBA Microloan loan rates

Microloans from the SBA help newer small businesses with startup or expansion costs. Borrowers can get approved for up to $50,000, although the average loan size is $13,000. The maximum repayment term is six years.

Microloan rates are based on the lender’s cost of funds.

Loans over $10,000: 7.75% over cost of funds

Loans of $10,000 or less: 8.5% over cost of funds

Expect SBA microloan rates to range from 8% to 13%. 

SBA Express loan rates

SBA Express loans allow for a shorter approval time, so you can get faster access to capital. In fact, you'll get an initial response within 36 hours. The maximum loan amount is capped at $500,000 and rate maximums are the same as SBA 7(a) loans.

SBA Community Advantage loan rates

The SBA Community Advantage loan program was created to help businesses in underserved markets. These loans were capped at $350,000. Interest rates were negotiated by the lender but were subject to the SBA's maximums. This program was sunsetted in October 2023.

Lenders under this program are now licensed as Community Advantage Small Business Lending Companies in the 7(a) loan program and will continue to provide access to financing to underserved communities.

Typical SBA loan fees

In addition to paying interest on SBA loans, borrowers may also pay an upfront SBA Guaranty Fee.

Upfront fee on SBA 7(a) loans

This fee is based on the approved loan amount, including both the guaranteed and the unguaranteed portions.

To calculate monthly payments for your SBA loan, visit our SBA loan calculator. Need help finding the best interest rate for your SBA loan or other business term loan?

Apply with Lendio today!

Being your own boss can offer freedom and flexibility. Yet self-employment also comes with many challenges—especially where business funding is concerned. Fortunately, SBA loans can offer a pathway to affordable financing for freelancers, independent contractors, and other small business owners. But there are drawbacks to this type of funding as well. 

This guide covers how SBA loans work for self-employed business owners along with eligibility requirements and application tips. Plus, learn about alternative financing options available for self-employed individuals in case an SBA loan isn’t the right fit for you.

Understanding SBA loans for self-employed individuals

SBA loans are government-backed loans designed to help small businesses access critical funding to start, grow, and expand. Because the federal government helps guarantee SBA loans, they involve less risk and lenders can offer borrowers better terms including:

• Lower interest rates 
• Reduced fees
• Longer repayment terms
• Lower down payments. 

Both traditional and self-employed small business owners—such as sole proprietors, independent contractors, and freelancers—can apply for SBA loans. 

However, self-employed applicants may find it harder to qualify due to inconsistent revenue, limited collateral, or difficulty satisfying other eligibility requirements on SBA loan applications. (See below.)

Eligibility requirements for self-employed SBA loan applicants

As a self-employed business owner, especially a sole proprietor, banks may be hesitant to lend you money according to the SBA. Keep this detail in mind when you choose your business structure if you think you might want to access financing—now or in the future.

All borrowers, self-employed or otherwise, need to satisfy certain criteria when they apply for an SBA loan which can vary by loan program and lender. Typical minimum SBA loan requirements include:

• Own a legally registered, for-profit business located in the U.S. (or U.S. territories)
• Operate a business that doesn’t exceed SBA small business size standards (based on revenue or employee count)
• Have good credit scores (personal and business) 
• Provide enough collateral to secure loan
• Demonstrate you’re unable to access similar financing elsewhere
• Prove you don’t operate an ineligible business type for SBA loans
• Provide a personal guarantee from anyone with 20% or more ownership

SBA lenders often add borrowing requirements in addition to those above. For example, your business may need a minimum amount of revenue to qualify for certain SBA loans. Many lenders also require applicants to have at least two years in business for an SBA 7(a) or 504 loan, though some SBA startup loans may be available after as little as six months.

Types of SBA loans available for independent contractors

If you’re considering an SBA loan as a self-employed business owner, here are some financing options to research further. 

SBA Microloan

SBA microloans could be a solid funding resource for self-employed business owners who don’t need access to particularly large loan amounts. Highlights of these loans include: 

• Loan amount: Up to $50,000
• Average loan size: Around $13,000
• Interest rate: 8%-13% (at time of writing)
• Repayment term: Up to 7 years

Microloans are available through nonprofit intermediary lenders—community-based organizations that help eligible small business borrowers access vital financing for working capital, inventory, supplies, equipment, and other essential business needs.  

SBA 7(a) small loan

Another affordable financing solution to consider as a self-employed business owner is the SBA 7(a) small loan. Key features of the loan include:

• Loan amount: Up to $500,000
• Collateral: May not be required for loans of $50,000 or less
• Interest rate: Negotiable between lender and borrower

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Your creditworthiness and other factors help determine your APR and other loan terms. But lenders can’t charge you more than the SBA maximum. So, the loans should still be affordable compared to other business loans.

SBA Express loan

The SBA Express loan is a type of 7(a) loan that could work well for self-employed business owners who need access to fast funding. Loan highlights include:

• Loan amount: Up to $500,000
• Collateral: Typically not required for loans of $50,000 or less
• Approval time: Potentially within 36 hours

SBA Express loans also feature less paperwork compared to other SBA loan applications. Applicants only need to fill out SBA Form 1919 and complete any other lender-specific paperwork and documentation requirements. If an application qualifies for the loan, the full SBA Express Loan process could take as little as 30 days to complete.

SBA 504 loan

The SBA 504 loan program might also be worth considering for certain self-employed borrowers that need financing to build, improve, or refinance owner-occupied commercial real estate. Key loan features include: 

• Loan amount: Up to $5.5 million
• Down payment: 10%-15% (for businesses established two years or less)
• Repayment term: Up to 25 years

SBA 504 loans involve both a Certified Development Centers (CDCs) and a private lender, making the loan process more complex and time-consuming. If you qualify for this type of financing, it could take several months to complete the loan process.

SBA loan application process for self-employed individuals

Whether you’re self-employed or own a more traditional small business, the SBA loan application process may be intensive. But if you’re willing to put in a bit of legwork, your effort could be worthwhile to secure competitive business financing. 

Below are the basic steps of applying for an SBA loan while self-employed. 

1. Choose the right SBA loan. The SBA backs multiple types of loans. Different loan programs may work better for you depending on your needs and the eligibility criteria. 

2. Review eligibility requirements. Get a general idea of the minimum loan requirements you’ll need to satisfy before applying.

3. Check your credit. Review your personal and business credit scores before applying. (Tip: the minimum FICO SBSS score for an SBA 7(a) loan is typically 155.)

4. Prepare documentation. Be prepared with your business plan, financial paperwork (bank statements, business and personal tax returns, profit and loss statement, balance sheet, etc.), list of collateral, and other supporting documents. Preparing key information ahead of time could improve your chances of a successful loan application.

‍5. Choose an SBA-approved lender. There are several ways to find an SBA lender including searching for an online lender, working with a local bank or credit union, or using the SBA’s lender match system. Remember to compare offers to find the best deal for your situation.

Alternatives to SBA loans for self-employed borrowers

If you can’t find an SBA loan that works for you, here are some alternative borrowing solutions to consider.

• Business credit cards: A business credit card is a type of credit card designed for business use rather than personal expenses. Even as a self-employed business owner, these flexible spending accounts may be easier to qualify for compared to business loans—especially if you have good personal credit. But beware of personal guarantees and higher interest rates with these accounts.
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• Personal loans: Personal loans may be used for startups and businesses with revenue challenges, a lack business credit history, or little time in business. On the negative side, lenders may restrict how you can use the money you borrow with personal loans and you’re personally liable for the debt. According to the Federal Reserve, around 86% of entrepreneurs rely on personal credit (including personal loans) to finance their small businesses when they can’t access business credit. 
  ‍‍
• Online lenders: Business financing from an online lender could offer a variety of funding solutions such as business term loans, equipment loans, business lines of credit, startup business loans, and more. However, while eligibility criteria tends to be more lenient compared to traditional banks and credit unions, you may also face higher interest rates and shorter repayment terms.

Facing an SBA loan default can be a daunting experience, but you aren't alone. In February 2025, a Senate Committee hearing was held to discuss the ballooning rate of early defaults in the SBA 7(a) loan program. In 2024, over 1% of small business owners defaulted on their SBA loans in the first 18 months.

If your small business is at risk of defaulting, or has already defaulted on your SBA loan, understanding the implications and exploring available options can provide a path forward. This guide will cover what happens if you default on an SBA loan, managing SBA loan defaults, and your options for next steps.

What is an SBA loan default?

An SBA loan default happens when a borrower has continually failed to make the agreed-upon payments, and hasn't come to any resolution with their lender. Defaulting on an SBA loan, or any loan, can have negative impacts on your business, and potentially lead to steep legal or financial consequences. 

If you're worried you may not be able to make your agreed-upon payments, reach out to your lender to explore your options before the situation progresses to a default.

The difference between SBA loan default and SBA loan delinquency

As mentioned above, a default happens when you missed your payments and haven't worked things out with your lender. However, an SBA loan doesn't go into default immediately. 

Before this stage, usually when you first miss payments, your loan will be classified as delinquent. Your lender will begin to reach out over missed payments. After a period of time, on average three to four months, your loan will default if you have not paid your past due amount or contacted your lender.

What happens if an SBA loan goes into default?

Once an SBA loan goes into default, things get serious. Although time frames will vary depending on lender and loan terms, usually a lender will issue a formal demand letter for the amount due. You will then have 30-45 days to pay the entire amount.

Failure to do so means the lender can use several other measures to collect the amount due.

Asset Seizure

Any collateral that you used to secure your loan, such as business bank accounts, real estate, inventory, or equipment, can be seized by the lender and sold to recoup their losses.

A lender can also seize and sell your personal assets if you’ve filled out an SBA loan personal guarantee. The personal guarantee form is required for most SBA 7(a) loans from anyone who owns 20% or more of the business. This also applies to any other owners or individuals who signed personal guarantees.

Depending on asset seizure specifics, or if the assets seized are not enough to cover paying off the loan in full, you may face lawsuits at this stage.

Lender files with the SBA

The lender will also file a claim with the SBA for the guaranteed portion of the loan, and turn the remainder over to the SBA, who will take over attempts to collect on the loan. Generally, a borrower must be in default for more than 60 calendar days before a lender can put in a loan purchase request with the SBA.

SBA takes over account and attempts to collect

The SBA will repay the lender the guaranteed portion of the loan to recover their losses, but will continue to attempt to collect payment from you. In most cases, the SBA will issue a 60-day demand letter, which details that you must respond within 60 days, or your account will be turned over to the U.S. Treasury Department. At this point, you can repay the loan, or submit an offer in compromise.

Submitting an offer in compromise (OIC) is an option when you have genuine financial hardship. It's a settlement that the SBA will consider for eligible businesses, but it's not guaranteed, and the amount of forgiveness that the SBA will consider is subject to a number of factors.

The U.S. Treasury will step in

If payment and settlement is not reached, the SBA can contact the Treasury Department with either a notice to the Treasury Offset Program (TOP) or an Administrative Wage Garnishment (AWG) notice to an employer. With the former, the TOP allows the government to take a portion of federal wages or social security benefits that you're owed, as well as seize vendor payments and/or income tax refunds. 

An AWG allows wages to be garnished for up to 15% of disposable income (net pay after deductions). There is no statute of limitations for either TOP or AWG methods, and they will remain in place until the debt is paid, including interest and collection fees.

Communicate with your lender if you can't pay back a small business loan

Taking immediate action is crucial when you face a situation where you can't pay back a small business loan, as the consequences can escalate rapidly. Communicating clearly and transparently with your lender helps you both explore alternative solutions, such as restructuring payment terms, or arranging a temporary deferment until you can resume payments.

Maintaining communications also demonstrates your goodwill, which can help prevent the situation from progressing to more drastic collection methods.

Usually, a lender can offer two main types of assistance in this situation. Loan modification, or loan deferment, to help you through the situation until your business is in a better state to manage payments.

Loan modification

A loan modification refers to changes to the terms of the loan. For example, your lender could give you a term extension to push back the loan maturity date. This approach can provide immediate relief by reducing the size of your periodic payments, which can ease the cash flow burden on your business. 

Lenders may temporarily or permanently alter interest rates, which can lower repayment costs. Some lenders may also consider offering a temporary reduction in interest payments, with any deferred amounts added to the loan balance. However, it's important to thoroughly discuss these options with your lender to understand the long-term implications. Modifications can extend the loan duration and affect your future business financial planning.

Loan deferment

A loan deferment can work as a short-term solution for businesses in a difficult period of cash flow. Typically, a lender can defer your loans for repayment for three, six or sometimes even twelve months.

Your lender often provides you with short-term solutions to bridge financial hardship when it comes to paying your SBA loan back. If this is simply not an option, then these solutions will only delay the inevitable. In this case, if you cannot repay your loan, then proactively pursuing an Offer in Compromise with the SBA is a route to settle your debt for less than the owed amount.

The bottom line

Defaulting on an SBA loan can have serious repercussions both personally and professionally. However, by understanding the default process and proactively seeking solutions, before the situation progresses too far, you can navigate these challenges more effectively. 

Explore all options, maintain communication with lenders, and seek professional assistance when necessary. These steps can lead to a resolution that aligns with your financial and business goals, helping you regain control and stability.

To learn more about managing SBA loan defaults and discovering potential pathways for debt relief or forgiveness, consider reaching out to financial advisors who specialize in small business loan challenges. Your journey to financial stability and business success is not one you have to navigate alone.

Starting a small business is expensive. Almost every small business owner faces startup expenses, whether you’re a solopreneur needing a laptop or a construction company purchasing a lot full of heavy machinery. Inventory and equipment must be bought, employees or contractors must be paid, and rent comes due every month.

What’s harder, outside funding is often difficult to access when your company is young, but in need of capital. Startup business loans are a great way to bridge this funding gap—and even if you have a suboptimal credit score, there are forms of financing you can probably still access.

Best startup business loans for bad credit with easy approval.*

The following list highlights lenders from our selection of best business loans that offer minimum credit requirements of 650 or below and a minimum time in business requirement of six months or less.*

Additional lenders to consider

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Small business loan options for startups with bad credit.

If you’re starting a business with a lower credit score, there are several loan routes you can take. 

SBA loans

While the SBA 7(a) and SBA 504 loan programs were created for established businesses, the SBA does offer two startup loans.

1. Microloans

The Small Business Administration's (SBA) microloan program is designed specifically to assist small businesses, start-ups, and nonprofit child care centers. This program offers loans up to $50,000, with the average loan being around $13,000. The funds can be used for various purposes including working capital, inventory, supplies, and machinery or equipment. However, microloans cannot be used to pay off existing debts or purchase real estate.

To qualify for an SBA Microloan, the borrower must meet certain criteria:

• Credit history - The borrower's credit history is reviewed. While there isn't a minimum credit score requirement, a good credit history can improve the chances of approval.
• Collateral - Depending on the loan amount, the borrower may have to provide collateral to secure the loan.

Remember, the SBA doesn’t provide the loan itself, but instead, it works with approved intermediary lenders to offer these loans.

2. Community Advantage 7(a) Loans

The Community Advantage (CA) program (now under the SBA 7(a) program) is another offering by the SBA, aimed at promoting economic growth in underserved markets. Community Advantage Small Business Lending Companies (SBLCs) can provide up to $350,000 in funding. These funds can be used for a range of business activities, including startup costs, expansion of an existing business, and working capital.

To qualify for a Community Advantage loan, certain criteria must be met:

• Credit history - Similar to the SBA Microloan, the borrower's credit history is assessed. While no specific minimum credit score is set, borrowers with a good credit history typically have a higher chance of approval.
• Collateral - Depending on the loan amount, collateral might be required to secure the loan. The specifics regarding collateral are determined on a case-by-case basis.
• Location - The business must be located in an approved underserved market. These included businesses located in Low-to-Moderate Income communities, Empowerment Zones and Enterprise Communities, Historically Underutilized Business Zones, Promise Zones, Opportunity Zones, and rural areas. Additionally, each lender is authorized to work within a certain state or group of states.
• Demographics: Underserved markets also include newer businesses in operation for less than two years, businesses that are at least 51% owned by veterans, or businesses with at least 50% low-income workers.

Remember, as with the SBA Microloan program, the SBA does not provide the loan directly. Instead, it works with approved SBLCs to provide Community Advantage loans.

Online lenders

In the realm of bad credit business loans, online lenders often emerge as a viable option for startups. These lenders provide a variety of financing options, many of which are designed with lenient credit requirements, specifically catering to business owners with bad credit. While online lenders also offer SBA loans and term loans with more stringent credit requirements, they also offer alternative forms of financing.

Business Lines of Credit

Many online lenders provide business lines of credit that allow businesses to draw funds up to a maximum limit as needed. Similar to a credit card, you only pay interest on the amount you use, making it a flexible financing option.

Invoice Financing

Online lenders often offer invoice financing, allowing businesses to borrow against their outstanding invoices. This can provide immediate cash flow while waiting for customers to pay.

Business Cash Advances

A business cash advance, sometimes called a merchant cash advance, is an upfront sum of cash in exchange for a slice of future sales. This can be a beneficial option for businesses with strong sales but poor credit.

Equipment Financing

Equipment financing is offered in the form of a term loan or equipment lease for the purchase of qualified equipment. Since the equipment serves as partial collateral for the loan, equipment funders often have less stringent credit score requirements.

CDFIs

Community Development Financial Institutions, or CDFIs, are private financial entities that are primarily dedicated to delivering responsible, affordable lending to aid low-income, low-wealth, and other disadvantaged communities. CDFIs play a significant role in generating economic growth and opportunity in some of the nation's most distressed communities. They can offer an array of financial products and services, including business loans, to help underserved communities join the economic mainstream.

CDFIs are found across the United States, and you can locate one near you by visiting the CDFI Fund's Award Database. This database provides information about CDFIs that have received financial awards or recognition from the U.S. Department of the Treasury.

In terms of requirements to work with CDFIs to get a business loan, it varies across different institutions. However, typical requirements may include a business plan, financial projections, personal and business credit history, and collateral. Some CDFIs may also require that the business operates in a specific geographic area or serves a particular community. It's recommended to directly contact a CDFI for their specific lending criteria and application process.

How to get a startup business loan with bad credit.

Navigating the world of business financing with poor credit can seem daunting, but it's far from impossible. Let's dive into the steps to get your startup funded, even if your credit score isn't quite up to par.

1. Evaluate your needs - The first step to obtaining a startup business loan is to evaluate your business needs. Understand how much money you need and what you will use it for. This clarity will help you determine the type of loan appropriate for your business.

2. Research your options - Research various loan options available for startups. Each type of loan has its own eligibility criteria and terms, including minimum credit score requirements. Compare those requirements to your current credit score to see if you may qualify.

3. Prepare your business plan - Lenders generally require a comprehensive business plan. This should include an overview of your business, details about your products or services, market analysis, organizational structure, and financial projections.

4. Gather required documentation - Gather all required documents such as financial statements, tax returns, and legal documents. The specific documents required will vary by lender, so make sure to check with them directly.

5. Apply for the loan - Once you have all the necessary documents and a complete business plan, apply for the loan. This process varies depending on the lender. It could be online or in-person.

Alternate forms of financing

In addition to a small business loan, there are alternate forms of financing that can be explored if you have a lower credit score.

Crowdfunding

Crowdfunding platforms like Kickstarter or Indiegogo allow you to raise capital through small contributions from a large number of people. This form of financing is often used by startups looking to launch new products or services, and it also offers an opportunity to validate your business idea in the market.

Venture capital

Venture capitalists invest in startups with high growth potential in exchange for equity in the company. These investments are high-risk but can provide substantial funds for your business, with the bonus of gaining experienced partners who can offer strategic advice.

Grants

Business grants are sums of money awarded by government departments, foundations, trusts, and corporations to help businesses get started or grow. The great advantage of a grant is that it doesn't need to be repaid. On the downside, competition can be intense, and the application process can be time-consuming.

Business credit cards

You will need a credit score of at least 650 to qualify for a business credit card, but if you meet that minimum requirement, a business credit card is a great way to bolster your credit even further while covering smaller, short-term expenses.

Personal loan

In some circumstances, you may qualify for a personal loan with a poor credit score. While this may not be the most ideal option, it could provide you with the funds you need to get your business off the ground. Just make sure to carefully consider the terms and interest rates before making a decision.

*Disclaimer:. The information provided is accurate at the time of the initial publishing of the page (December 2024). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.