Most business owners applying for traditional bank loans face tough odds. Only 13.6% of small-business loan applications are approved at large banks. But there is another path: SBA loans, backed by the U.S. Small Business Administration, have approval rates of 55%, more than 4 times those of conventional financing.
Whether buying equipment, expanding operations, or purchasing property, understanding how SBA loans work and how they differ from bank loans can be the difference between getting declined and getting funded.
What Is an SBA Loan?
SBA 7(a) loans are financings backed by the Small Business Administration to give small businesses access to capital at better terms and lower rates than most alternatives.
The SBA does not lend directly. Instead, it guarantees up to 90% of the loan, reducing the lender’s risk. That guarantee then allows those lenders to approve businesses that they might otherwise turn away.
In fiscal year 2024 alone, the SBA approved 62,893 loans totaling $31.1 billion, helping thousands of businesses access capital.
So, what do these loans look like?
- Maximum loan amount: $5 million
- Maximum term: 25 years
- Current interest rates: 9.5%–12.5% (based on the Prime Rate of 7.00% as of November 2025)
- Average loan size: $443,097 in FY 2024
Rates are tied to the Prime Rate and are well below most non-bank options.
While 7a loans extend to $5M, they also work for startups, with roughly 29% of units approved in 2024 for $50,000 or less.
Current SBA Lending Landscape
Understanding the current state of SBA lending illustrates its role in US business financing.
2024 Lending Activity
- Number of financings: 62,893 SBA 7(a) loans approved in fiscal year 2024
- Total funding: $31.1 billion
- Average loan amount: $443,097
- Approval rate: 55% of SBA loan applicants receive full or partial approval
Loan Dollar Size Distribution (by total loan dollars)
- $2 million to $5 million: 24%
- $500,000 to $2 million: 41%
- $150,000 to $500,000: 24%
- $50,000 to $150,000: 8%
- $50,000 or less: 3%
SBA loans serve businesses of all sizes and offer dramatically better approval odds than conventional financing.
Choosing Between Bank and SBA 7(a) Loans
Traditional Bank Loans Work Best For:
- Established businesses with 5+ years of operating history
- Excellent credit scores (720+)
- Substantial collateral and assets
- Strong, consistent cash flow and minimal existing debt
- Stringent selection process
Note: Only 13.6% of small business applications are accepted.
SBA Loans Work Best For:
- Businesses needing more flexible qualification requirements and new businesses
- Good (not perfect) credit (650+ FICO)
- Less collateral than traditional lenders require
- Longer repayment terms and lower monthly payments
- Those wanting to maximize approval odds (4x better than traditional banks)
SBA Loans vs Traditional Bank Loans
But how do they compare to bank loans? Let’s examine six key elements.
Risk
SBA loans are backed by the U.S. government, which guarantees 75% to 90% of the principal. If a borrower defaults, the SBA covers most of the loss. Banks carry 100% of the risk on traditional loans, so they approve only the strongest borrowers. Approval odds are 4x better with an SBA loan.
Qualification
SBA programs are built for small businesses that need flexibility. The SBA approved more than 22,000 startups or young companies that were less than 2 years old in FY 2024. Most borrowers with a FICO score of 650+, a solid cash flow, and a clear business plan are eligible. Banks expect near-perfect credit (700+), at least two years of operating history, strong collateral, and consistent profits.
Rates and Cost
SBA 7(a) loans range from 9.5% to 12.5%, depending on term and amount, and include modest fees. Banks may advertise lower rates, but they generally reserve those for top-tier clients with strong balance sheets and assets.
Timeline
SBA funding takes 4 to 8 weeks from application to disbursement. Banks might move faster, 2 to 6 weeks, but reject far more applicants.
Collateral
SBA loans require lenders to take available collateral, but will not deny funding solely for shortfalls if cash flow is strong. Banks generally demand full collateral coverage before approval.
Flexibility
SBA funds can be used for working capital, equipment, real estate, acquisitions, or debt refinancing. Bank loans are often restricted to narrow purposes.
SBA loans combine government backing, flexible terms, and competitive rates, making them a strong option for growing businesses that might not qualify through traditional banks.
SBA Loan Eligibility Requirements
The SBA’s mission is to help viable small businesses that cannot access traditional financing at competitive rates. But what are their criteria?
Core Requirements
Location and Operation
Businesses must operate in the United States and meet SBA size regulations and eligibility standards, and be compliant with the full terms, conditions, and eligibility requirements.
Ownership
Applicants must be US citizens and hold at least 51% of the company ownership.
Collateral
Borrowers must provide collateral when available. While collateral strengthens applications, the SBA will not decline loans solely because collateral does not fully cover the loan amount.
Personal Guarantees
All owners holding 20% or more equity must personally guarantee the loan.
Credit Score
FICO scores generally need to be 650 or higher. Some lenders consider scores above 610 on a case-by-case basis, particularly if other aspects of the application are strong.
Required Documentation
Applicants typically need to provide:
- Personal and business tax returns (typically 3 years)
- Personal financial statements for all guarantors
- Business financial statements
- Business financial projections and repayment strategy
- Business plan outlining use of funds
Considerations for Startups
The SBA considers applications from new businesses based on the guarantors’ cash on hand and liquid assets. In fiscal year 2024, over 22,000 loans were made to companies with less than 2 years of operating history.
How Businesses Can Use an SBA Loan
The SBA’s approved use of proceeds is intentionally broad and includes:
- Working capital to manage cash flow or operations
- Owner-occupied commercial real estate purchase or improvement
- Equipment, machinery, or inventory acquisition
- Business purchases or partner buyouts
- Refinancing high-interest debt to improve cash flow
- Multi-purpose combinations of the above
Versatility and access are why SBA 7(a) loans remain the most used small-business financing tool in the U.S.
How SBA Loan Repayment Works
Most SBA 7(a) term loans follow a straightforward structure:
- Fixed payments for fixed-rate loans, making budgeting predictable
- Monthly payments covering both principal and interest
- Terms up to 10 years maximum for equipment and working capital
- Terms up to 25 years for real estate
These extended terms translate into lower monthly payments than traditional financing, which typically caps terms between 5 and 10 years, regardless of the loan purpose.
Frequently Asked Questions
How long does SBA loan approval take?
The typical timeline is 4 to 8 weeks from application completion to funding. Smaller financings may take 2 to 4 weeks.
Can startups get SBA loans?
Yes. In fiscal year 2024, over 22,000 loans were made to businesses with less than 2 years of operating history.
What credit score is needed?
Most lenders require a FICO score of 650 or higher, though some consider scores above 610 on a case-by-case basis.
Is collateral required?
Collateral is preferred when available, but the SBA will not decline loans solely due to insufficient collateral if businesses demonstrate strong repayment ability.
Can existing debt be refinanced?
Yes. Many businesses use SBA loans to refinance high-interest debt, improving cash flow through lower rates and longer terms.
Next Steps: Get Your Business Funded
With approval rates 4x higher than traditional bank loans, SBA financing offers one of the best paths to the capital businesses need to grow. BorrowPartner specializes in helping companies evaluate all available financing options and navigate the SBA loan process. Our expertise ensures our clients select the right loan program, submit complete applications, and access competitive rates from our network of trusted lenders.
Ready to explore your options?
Complete the short-form online SBA application, or contact BorrowPartner with questions.
BorrowPartner provides businesses with simple, flexible, and affordable access to capital, including SBA loans, specialty finance, asset-based lending, invoice factoring, and working capital solutions, all customized around your business needs.
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