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Home Business Loans SBA Loan Options For Your Startup
Launching a startup business is exciting, but it can also be stressful if you need external money to keep the momentum going. While the SBA offers several small business loans for established companies, there are also some options available to new ventures. Explore the most common SBA loans for startups, so you know how to get working capital for your business when it’s needed most.
While there’s no specific SBA startup loan, there are two financing options available to newer businesses: the SBA microloan and the SBA Community Advantage Program. Each one has its own loan terms and eligibility requirements.
An SBA microloan allows businesses to borrow up to $50,000. The average loan size, however, is much smaller at $13,000. The maximum loan term is six years. The funds can be used as general working capital or for purchases like supplies, inventory, equipment, furniture, or fixtures.
Eligibility requirements: Even when choosing to use an SBA loan to start a business, you’ll still need to apply directly through a lender. Lenders typically require collateral and a personal guarantee in order to get approved for a microloan. Because this type of SBA financing is secured, however, the eligibility requirements are often less strict compared to other business financing opportunities. You could still potentially qualify even with a limited credit history or business background, making it a great option for startups.
Interest rates: Usually between 8% and 13%
Historically underserved communities may be eligible for the Community Advantage Program for their SBA new business loan. It’s specifically designed to help new entrepreneurs obtain working capital. You can borrow up to $350,000 over the course of 10 years through community-based lenders. As of January 2023, the program is available through September 30, 2024.
Eligibility requirements: Eligible businesses must be part of an underserved market. There are several ways to qualify for this designation, such as operating in a rural area or Opportunity Zone, or being a veteran-owned company. Alternatively, new businesses that are less than two years old are also eligible to apply.
Interest rates: Prime rate + 4.5% to Prime rate +6.5%
The following two options are not SBA loans for startup businesses, but can be utilized once your business reaches two years-old. Each program has its own eligibility requirements.
SBA 7(a) loan: SBA 7(a) loan funds can be used for a number of purposes, including working capital, furniture and supplies, or even debt consolidation. The maximum loan amount is $5 million, and any loan amount over $25,000 requires collateral. The repayment period is usually 10 years. The SBA guarantees anywhere between 75% and 85% of the loan amount, depending on how much you borrow. In order to apply, you must have owner equity and engage in for-profit operations within the U.S. or its territories.
SBA 504 loan: The SBA 504 loan is designed to help small businesses make major investments. Funds can be used for long-term assets such as real estate (including updates), land, equipment, machinery, or improvements to land, parking lots, and utilities. You can’t use the funds for working capital or inventory. If approved, you could borrow up to $5 million over a period of 10 or 20 years.
Explore Lendio to find the right SBA loan option for your startup, so you can start making the business moves you need to succeed.
Yes, but new businesses are eligible only for certain types of SBA loans. Eligible companies can apply for an SBA microloan of up to $50,000 or a Community Advantage loan of up to $350,000. These options do not have a minimum time in business requirement like other SBA loans. While you can’t borrow as much, these smaller loans could help you reach your next level of business until you’re eligible to apply for more funding with a 7(a) or 504 loan.
Each SBA loan comes with its own eligibility criteria. On top of that, each lender also has its own eligibility requirements. That being said, the SBA microloan is designed to give credit access to newer businesses at a smaller level of financing. Another option to consider is an SBA Express loan. This type of loan is available through certain lenders and expedites the application process, so you know sooner whether or not you’ll be approved.
The SBA outlines several disqualifiers for its loan programs. Ineligible businesses include:
Applying is free and won’t impact your credit.
Lauren Ward is a personal finance and tech writer with a passion to help consumers make smart financial decisions. Her work has appeared in a variety of publications, including Time and MSN. When she's not writing, she loves gardening and playing board games with her family.
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