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SBA Loans: What They Are and How to Get One


What could be more useful than capital when someone is ready to start a business or take their business to the next level? With access to necessary cash, you can purchase or upgrade equipment, build or renovate facilities and retail spaces, and invest in advertising, trade shows, and other important marketing activities.

Unfortunately, small businesses often have difficulty getting access to the bank loans they need to get this capital. In large part, this is because banks are required to make sure down payments, profits, and ability to repay meet regulatory standards. This situation can be frustrating, especially when that next big job, seasonal spike in demand, or new piece of equipment will put you over the hump financially.

So how do you get a small business loan? This is where the U.S. Small Business Administration (SBA) comes in. The SBA is a great resource for aspiring and current business owners. The organization offers help with several loan programs designed for business owners who may have trouble qualifying for a traditional bank loan. The agency’s main role is as guarantor—a bank makes the loan, but the SBA guarantees payback of most of it should the business fail. This guarantee makes it possible for banks to make riskier loans.

The core SBA loan program is the 7(a) Loan Program. The SBA will guarantee loans up to $5 million, with no minimum amount. 7(a) loans can be used for all business purposes, including working capital, real estate, equipment, and inventory:

  • Basic 7(a) Loan Program – Provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.
  • Certified Development Company (CDC) 504 Loan Program – Offers very small loans to start-up, newly established, or growing small business concerns. The SBA makes funds available to nonprofit, community-based lenders, who, in turn, make loans to eligible borrowers in amounts up to $35,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.
  • Microloan Program – The Microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.

The SBA also has special programs under 7(a). One is the CAPLines program, often used by the construction industry, seasonal service businesses, and manufacturers. CAPLines provides credit for seasonal build-up of inventory and materials or funds assignable contracts, which serve as collateral. This type of loan may “revolve,” or renew. Another special program is the Export Loan Program, which helps businesses expand export activities.

In addition to these programs, the SBA also provides financial assistance for veterans and members of the military community who want to establish or expand small businesses.

So how do you get an SBA loan? Remember, the SBA doesn’t make direct loans (it simply guarantees them), so the first step is to ask your banker if they work with the SBA. If not, you may need to approach another lender. To find one, go to the page for your state’s district office on the SBA website.

SBA loan applications are structured to meet SBA requirements, so that the loan is eligible for an SBA guarantee. This guarantee represents the portion of the loan that the SBA will repay to the lender if you default on your loan payments.

On the SBA website, you can find the Loan Application Checklist. This will help you prepare your package for the bank. Along with the application, items required include:

  • Last three years of business and personal tax returns.
  • Last three years of business financial statements.
  • Overview and history of the business.
  • Financial projections.
  • Personal financial statement and background.
  • Contracts or project information relevant to a line of credit loan.

Getting a small business loan isn’t always easy. The SBA has programs that can help. And remember, the SBA is not the only way to get a small business loan. State and local economic-development agencies – and numerous nonprofit organizations—provide low-interest loans to small business owners who may not qualify for traditional commercial loans.

If you need access to capital to help your business grow and prosper, you should take advantage of every resource and opportunity at your disposal. Then make sure you invest those funds wisely!


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.