How to Secure Financing through a Government Guarantor

Small Business Administration Loans

Advertising & Editorial Disclosure
Last Updated: 12/21/2021
1 Expert Contribution
Written By     |  

If you're thinking about starting or growing your own business, an SBA loan could be the perfect way to get the money you need. This guide will help you determine whether or not the SBA is the right partner to help you get the financing you need.

How Do SBA Loans Work?

The SBA isn't a lender itself; instead, the agency acts as a bridge between businesses and the financing options that are available. The agency's vetted network helps narrow down the pool of lenders to those that are likely to be supportive of small businesses.

To apply for an SBA loan, businesses must show that they're eligible for the program (this includes gathering the necessary documentation, which is detailed in a checklist on the SBA website). Once the SBA has given its approval, the business owner can go directly to an SBA-approved lender to start the process.

Here are a few advantages of the SBA loan program:

  • SBA loans require smaller down payments and have longer repayment periods.
  • Up to 85 percent financing is available.
  • The SBA guarantees lenders that their loans will be repaid, which takes away the risk they'd face by loaning to small businesses directly.
  • Once approved by the SBA, businesses are more likely to get the funding they seek.
  • The SBA sets guidelines for lenders to participate.

Aside from the SBA vetting process, borrowing from an SBA partner works like any other loan. If the balance isn't repaid as scheduled, the lender is responsible for collecting the balance due. As with any other loan, businesses can negotiate a repayment schedule if they find themselves unable to make the designated monthly payments. If a borrower can't pay, the SBA takes over since they guarantee the loan.

One major difference is that once a business has defaulted on an SBA loan, it then will be unable to get a later loan from the SBA. So it's important, if going through the program, that a business owner is certain that he or she can make payments.

Types of SBA Loans

There are seven types of loans available through the SBA, each having its own benefits and requirements. Here's a side-by-side comparison to help you choose the right one for your business.

Loan Type

Basic 7(a) Loans

This loan program connects small businesses with private lenders for general-purpose loans. Loans cannot be used to reimburse a business owner for previous expenses or for purchasing an asset for the purposes of reaping rewards from its increase in value.

The lender sets the amount, but the SBA sets a maximum loan amount at $5 million for 7(a) loans. According to the SBA, the average 7(a) loan amount in fiscal year 2018 was $425,500.

• Operate for profit • Utilize own resources before relying on loan dollars • Clearly demonstrate a need for the funds • Have reasonable invested equity • Not be late on existing government debts • Meet all lender requirements

Certified Development Company (CDC) 504 Loans

A CDC is a nonprofit set up to provide businesses with funding for major purchases, such as buildings and land. The funds can't be used for inventory or working capital.

Maximum of $5 million if the funds are used for job creation and public policy. Maximum of $5.5 million if the funds are used for manufacturing.

• Operate for profit • Have a net worth of less than $15 million and an income of less than $5 million after taxes for the past two years • Be an eligible business type • Meet the SBA's Good Character requirements, which is determined through a "statement of personal history" from the principals of each firm applying for this type of loan.


This loan is available in small amounts for the purchase of inventory, supplies, and other day-to-day business necessities. Microloans are generally geared toward small businesses that don't have large capital needs.

Up to $50,000; the average is $13,000

Funds must be used for: • Working capital • Inventory or supplies • Furniture or fixtures • Machinery or equipment The borrower must meet the lender's terms for repayment, which varies from one institution to the next, but the maximum repayment term allowed by the SBA is six years.

Disaster Loans

Designed for businesses located in an area that has been declared a disaster area. There are several types of disaster loans, including one designed for businesses with military reservists who have been called to active duty. Disaster loans may be given to cover physical damage or economic loss caused by a disaster.

Up to $2 million

• Only uninsured/uncompensated expenses qualify • Must have complied with the terms of any previous SBA loans

Export Assistance Loans

The SBA provides this assistance to help small businesses compete in a global marketplace.

Up to $5 million. A simpler loan program is available that offers financing of up to $500,000

Contact your local Export Assistance Center to see if your business qualifies.

Special Purpose Loans

These loans are designed to meet unique needs of businesses, including capital loans, rural business loans, and community advantage loans. Loans geared specifically toward women- and minority-owned businesses are available. Those are discussed below.

Capital loans: Up to $5 million Rural business loans: Amounts to be determined as pilot program extends CDC to rural areas. Community advantage loans: Up to $250,000

Capital loans: Seasonal working capital or funding for the cost of a specific project. Rural business loans: Businesses in towns with a population of less than 50,000. Community advantage loans: For-profit small businesses in underserved markets.

SBA Incentives for Loans to Women and Minority Businesses

The SBA offers incentives to banks that offer loans to businesses owned by women or minorities. Some minority-owned businesses are considered socially and economically disadvantaged, qualifying them for the SBA's 8a Business Development Program, which offers mentorship and other types of business support. Although the loans come directly from the financial institution, the SBA does support small minority- and women-owned businesses in other ways.

Female business owners have access to the SBA's network of nearly 100 Women's Business Centers, which are geared toward providing the support businesses need to get started and grow. Through these centers, female entrepreneurs can get long-term training and counseling. This assistance can be especially beneficial to women who are socially or economically disadvantaged. These centers can direct women business owners to a nearby financial institution that provides loans to women-owned businesses through the SBA program.

How to Qualify for an SBA Loan

Since the SBA doesn't directly lend money, its lenders have their own unique eligibility requirements. In general, the eligibility requirements are similar whether you're getting a loan through the SBA program or not, but the SBA advises small businesses on what they'll need to have in place before trying to get financing. Here are a few of the most common things your business will need to do before seeking an SBA loan:

  • Raise your personal and business credit scores by following best practices, such as paying off your high-interest debt, paying your balance in full every month (or at least making the minimums across all of your accounts), and being judicious about how many accounts you open and close on a regular basis.
  • Clean up any false information on your personal and business credit reports.
  • Put your effort into building a consistent, long-lasting business.
  • Focus on logging several years of solid tax returns that you can take to a lender as proof that your business is viable.
  • Find other resources for starting and growing your business. The SBA's loan program is geared to supporting your business rather than taking it to the next level.
  • Invest your own personal funds into the business before seeking SBA funding.
  • Exhaust other financial resources open to you first, since the SBA will research to make sure a business doesn't have other funding options available before issuing a loan.
  • Be aware of the SBA's size standards and ensure your business qualifies as "small" under its requirements.
  • Ensure your business is the right type of business to qualify for an SBA loan.
  • Create a thorough business plan that addresses any questions the SBA might have. The agency provides business plan creation templates here.
  • Have a demonstrated history of paying all personal and business bills in a timely manner.
  • Demonstrate that you are someone who has the business expertise needed to successfully run a business. Education is not a requirement but can be helpful.
  • Pay off any federal debts. The SBA's loan program automatically declines those who have outstanding financial obligations.
  • Check the approved usage list for the applicable loan type. Make sure you have the funds earmarked to go toward an approved expense.
  • Know your business's current debts and assets and determine if you need to take measures to reduce those debts before approaching a lender.
  • Make sure you can produce all of the appropriate business paperwork if asked, including your business license and articles of incorporation.
  • Determine the value of personal property that could be used as collateral. If you decide to put something up as collateral, get an appraisal on that item to show its worth.
  • Visit an SBA District Office. They will review your documentation and advise you on what else you'll need to qualify.
tip icon

After more than 20 years working for other people, pharmacist Sheila Tucker wanted to open her own business. But as any small business owner knows, an entrepreneur needs at least a little money to get started. Instead of kicking off her search for funding at a bank or credit union, Tucker went straight to the Small Business Administration (SBA), which helps business owners find the financing they need.

Working with counselors at an SBA Small Business Development Center, Tucker was able to analyze her business's demographics and determine exactly how much money she needed to get her business off the ground. Tucker and her business partner used their own personal funds at first, but sought additional financing to stock shelves with great products.

Using $200,000 provided by SBA-backed loans, Tucker and her partner were able to get their new business started. Today, Tucker's business has grown to a second location, with plans to open a third, fourth, and fifth site in the coming years.

Tucker's advice to those considering starting a new business? "Go for it," she says. "It can be rewarding." In addition to being gratifying for Tucker and her co-founder, the pharmacies are also essential to the neighborhoods where they're located. Residents often make too much money to qualify for Medicaid but can't afford expensive general insurance policies. Tucker estimates her pharmacies fill 100 prescriptions a day, but projects that number will grow to 350 once they begin accepting more insurance plans.

SBA Loan Application Checklist

Once you've determined you're eligible for an SBA loan, you'll need to make sure you have everything you need. This checklist can help.

Locate and complete the appropriate application

Below are the forms that correspond to the different loan types:

Find the appropriate lender

This depends on the type of loan you're seeking. Below is the link to the lists that are provided by SBA.

Download and complete the following forms:

Prepare your financial statements

Your statements need to be up-to-date within 180 days of your application. This gives you lender the reassurance they need that you'll repay any amount they loan. These financial statements include:

  • Business Profit and Loss Statement — A profit and loss statement details the revenue, costs, and expenses your business incurs over a period of time. You'll not only need current statements but you'll also need to attach statements for the past three years.
  • Financial Projections — The lender will need to see financial projections for the next year, as well as an explanation of how you'll reach the projections you've set.
  • Bank Statements — As part of your loan application, you may also be required to attach one year of business and personal bank statements.
  • Income Tax Returns — You'll need the previous three years' tax returns, both for your business and personal filings.

Include this additional information:

  • Ownership and affiliation disclosures — SBA lenders expect full disclosure when it comes to any subsidiaries or affiliates in which you have a controlling interest.
  • Business license documentation — Before applying for an SBA loan, you'll need a business license and that paperwork may need to be submitted at the time of application.
  • Business overview and history — Write an impressive overview of your business structure and its history, including any employees who contribute to your day-to-day operations. If you've applied for loans in the past, disclose this in writing as part of your business's history.
  • Resumes — In addition to your business overview, you should provide resumes for each of the major parties involved in your business.
  • Building lease — If you're leasing office space, get a copy of the lease and include it with any documentation you provide.

Expert Q&A

The SBA's primary goal is to help small businesses get the resources necessary to become successful. Marianne Markowitz, SBA Regional Administrator, oversees the agency's financial assistance contracting activities. In this interview with, she gives her expert take on SBA loans.

Who are SBA loans meant for?

Marianne Markowitz:

SBA loans are meant for small businesses and typically fall under two categories: capital for starting/growing small businesses (via micro, 7(a), 504 and exporting loans) and low-interest disaster loans. The most popular are the 7(a) loans, which can be used for just about anything relating to a small business. Microloans are for those up to $50,000 and the 504 loans are for the purchase of or refinancing of fixed assets, such as equipment or real estate. The low-interest disaster loans are meant to help spur economic recovery following natural disasters such as hurricanes [and] severe storms.

When ready, small business owners can find SBA lenders in their area with the agency's new online matchmaking service, LINC.

Are there any restrictions on the types of businesses that qualify for an SBA loan?

Marianne Markowitz:

The eligibility requirements are based on specific aspects of the business and its principals, as well as on what the business does to receive its income, the character of its ownership, and where the business operates. There are some universally applicable requirements, and, for businesses to be eligible for assistance, they must:

  • Operate for profit
  • Be small, as defined by SBA
  • Be engaged in, or propose to do business in, the United States or its [territories]
  • Have reasonable invested equity
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Also, it's ideal to have a solid credit score and business plan in place and be prepared to supply income tax returns, financial and bank statements, collateral and various legal documents, such as leases, business licenses, franchise agreements, etc.

Does the SBA control what small businesses can use their loans for?

Marianne Markowitz:

For 7(a) loans, the loan proceeds may be used to establish a new business or to assist in the acquisition, operation, or expansion of an existing business.

On the other hand, 504 loans are provided to support job creation, small manufacturing, and public policy, such as rural development, energy reduction, and business district revitalization.

What's the typical repayment schedule?

Marianne Markowitz:

The SBA's loan programs are generally intended to encourage longer-term small-business financing and repayment terms vary according to a variety of factors. Actual loan maturities are based on the loan amount, ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate, up to 10 years for equipment (depending on the useful life of the equipment), and generally up to seven years for working capital, including microloans and 7(a).

What's the typical interest rate?

Marianne Markowitz:

Interest rates vary depending on the type of loan, intermediary lender, and costs to the intermediary from the U.S. Treasury. The actual interest rate for a 7(a) loan guaranteed by the SBA is negotiated between the applicant and lender and subject to the SBA maximums. Both fixed and variable interest rate structures are available. Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Microloan rates generally are between 8 and 13 percent.

What happens if you're struggling and fall behind on payments?

Marianne Markowitz:

Again, when a business applies for an SBA-guaranteed loan, it actually applies for a loan through a bank or authorized SBA lender, structured according to SBA requirements, so the lending institution addresses this with the borrower.


There are several online resources available to help businesses interested in learning more about SBA loans. Those include:

SBA Loan Programs
This is an overview of the different loan programs available through the SBA.

This is the SBA's new matchmaking service, which pairs businesses with lenders that have been agency approved.

SBA Blog
Regularly updated information and advice specific to small business financing.

Small Business Development Centers
Located throughout the US, these facilities provide consulting and affordable training services to small business owners.

Women's Business Centers
These facilities provide consulting and affordable training services to women who own small businesses.

SBA Loan Application Checklist
This is the SBA's list of everything it recommends having in place before starting the application process.

Disaster Center Offices
This map helps business owners in a disaster area pinpoint local disaster centers where they can find assistance.

SBA Business Plan Tool
This nifty tool will help entrepreneurs write up a business plan that can be used in seeking funding, engaging business partners, or demonstrating validity to a potential client.

About the Author


Stephanie Faris is a freelance writer whose work has appeared on the Intuit Small Business Blog, Ecommerce Insiders, and many other business sites. She is also a fiction author, including 30 Days of No Gossip, 25 Roses, and the upcoming Piper Morgan series (all from Simon & Schuster).