SBA Loans 101: Loan Types and Their Pros and Cons

May 24, 2023

SBA Loans 101

If you’ve been considering a loan to help finance your business, you’ve no doubt heard references to the SBA and SBA Loans. If you’re still early in the process, you’ll want to make sure you understand the pros and cons around how SBA loans work, so that you can make an educated decision about whether this type of loan is a good fit for your business.

In this post, we’ll walk through 10 important considerations to help you broaden your understanding.

First, what is an SBA loan?

The Small Business Administration (SBA) is a government agency supporting small businesses through loans and guarantees. SBA loans are made by commercial banks and other lenders but are partially guaranteed by the SBA, making it easier for small businesses to obtain financing approvals by lowering the risk for banks and lenders. In addition to its loan program, the SBA also provides a wealth of educational resources designed to help small businesses flourish.

Types of SBA Loans and Their Pros & Cons 

There are a few different types of SBA loans, each with its own set of advantages and disadvantages. The different loan types apply to different needs, offer different repayment terms and funding amounts. Below are the most common SBA loan types, along with a quick run-down of the pros and cons:

7(a) Loan Program

The 7(a) loan program is the SBA’s flagship loan offering and can be used for a wide range of purposes, including working capital, equipment purchases, real estate acquisition, and business expansion. 7(a) loans are typically available in amounts up to $5 million and have a repayment term of up to 10 years.

7(a) Loans 



  • Can obtain a loan with no or low collateral.
  • Wide range of uses: The 7(a) loan can be used for a variety of business purposes.
  • Available in variable or fixed interest rates.
  • Long approval time: Can take 2 to 3 months.
  • Limited availability: Not all businesses are eligible for a 7(a) loan.
  • Restrictions on use: The 7(a) loan can only be used for certain purposes, such as working capital, equipment purchases, and real estate acquisition.


504 Loan Program

The 504 loan program is designed for businesses that want to purchase real estate or equipment. It provides long-term, fixed-rate financing at below-market interest rates. Loans are available in amounts up to $5 million with repayment terms of up to 20 years.

504 Loans 



  • Low interest rates: The current interest rate for 504 loans is around 3% of the debt.
  • Fixed interest rates: Your interest rate will not change over the life of the loan.
  • Long repayment terms: Loans are available in terms of up to 20 years.
  • Limited availability: Not all businesses are eligible for a 504 loan.
  • Restrictions on use: The 504 loan can only be used for certain purposes, such as investing in rental real estate, working capital, and debt repayment.


Microloan Program

Microloans provide small businesses with loans of up to $50,000 for working capital, inventory, equipment, or other business expenses. The loans are made through nonprofit community-based organizations and may require collateral.




  • Funding for businesses that might not qualify for a standard small business loan, like startups.
  • Low fees.
  • Competitive interest rates.
  • Long repayment terms: up to seven years.
  • Smaller loan amounts, $50,000 or less.
  • Restrictions on use: Can’t be used to pay off existing debt or purchase real estate.


Disaster Relief Loans

The SBA offers disaster relief loans to businesses that have been affected by a natural disaster. These loans offer low interest rates and relaxed eligibility requirements. 

Disaster Relief Loans 



  • Can take care of losses not covered by insurance.
  • Relaxed eligibility requirements: You don’t have to meet the same eligibility requirements as you do for other SBA loans.

  • Limited availability: Not all businesses are eligible for an SBA disaster relief loan; only for declared disasters.
  • Restrictions on use: The loan can only be used for certain purposes, such as working capital, equipment purchases, and real estate acquisition.


How to Choose? 10 Key Points to Consider:

If you’re thinking about applying for an SBA loan, be sure to carefully weigh the pros and cons of each product. You should also think through the following 10 key considerations as you weigh each loan type:

  1. Approval process: The SBA’s loan approval process can be lengthy and meticulous, generally ranging from 30 to 90 days.
  2. Liability: Business owners are personally responsible for repaying SBA loans. This means that if you default on your loan, the SBA can come after your personal assets to satisfy the debt.
  3. Interest rates: Interest rates on SBA loans are generally lower than those for traditional bank loans. However, they are typically higher than rates for government-backed loans such as the 504 program.
  4. Fees: There are a number of fees associated with SBA loans, including an application fee, guarantee fee, and closing costs. These fees can add up quickly, so it’s important to factor them into your decision.
  5. Repayment terms: The repayment terms for SBA loans vary depending on the product. Some loans, such as the 7(a) program, have flexible repayment terms of up to 10 years. Others, like the 504 program, have fixed repayment terms of 20 years.
  6. Collateral: Most SBA loans require collateral, which means that if you default on your loan, the lender can seize your assets to repay the debt.
  7. Credit score: You’ll need a strong credit score to qualify for an SBA loan. A score of 680 or higher is generally considered good, while a score of 700 or higher is excellent.
  8. Time in business: The SBA typically requires businesses to be in operation for at least two years before they are eligible for a loan.
  9. Size of business: The SBA has different eligibility requirements for businesses of different sizes. Generally, businesses with fewer than 500 employees are eligible for SBA loans.
  10. Use of funds: The SBA has strict guidelines on how loan proceeds can be used. For example, the 504 program can only be used for certain types of equipment or real estate purchases.

LendThrive helps businesses take the next step!

If you’re in the market for a business loan, LendThrive offers several options and an easy online application process. We provide fast loan approvals and flexible repayment terms.

LendThrive has helped hundreds of businesses reach the next level by providing the funding they need to grow and succeed.

We’d like to do the same for you.

To learn more about LendThrive’s fixed rate business loans and how they can benefit your business, visit our website or give us a call today. Don’t wait to secure the funding you need to expand your business!

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