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Best SBA Loans 2023: Pros, Cons, & How to Apply

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$5,000 – $5.5 million
Varies depending on type of SBA Loan
6 – 25 years
About 60 to 90 days
  • Low interest rates
  • Longer repayment terms
  • Flexible use of funds
  • Lengthy approval process
  • High credit standards
  • Collateral requirements

Best SBA Loans 2023: Pros, Cons, & How to Apply

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What is an SBA loan?

An SBA loan is a type of financing that is offered through the Small Business Administration, a government backed agency. The SBA’s mission is to “aid, counsel, assist, and protect, insofar as is possible, the interests of small business concerns.” Through partner lenders, the SBA works to help small businesses get the funding they need. SBA loans can come with larger amounts with lower interest rates and longer repayment terms, but they aren’t incredibly easy to qualify for. 

The SBA backs a large portion of the loan, thus reducing the risk for the lending partner. The percentage backed can vary depending on the type of SBA loan and amount. For example, SBA 7(a) loans have a guarantee of 85% for loans up to $150,000. SBA loans are available up to $5,000,000 with repayment terms of up to 25 years. 

Another reason that SBA loans tend to be more attractive for businesses that can qualify is that the SBA caps interest rates. Currently, the SBA caps interest rates at around 11.25% for fixed-rate loans and around 8% for variable-rate loans. The SBA interest rate caps can be enforced, and lenders will happily comply because they know that the federal government backs a large portion of the loan. 

SBA lender highlight: Kapitus

SBA loans are designed to help small business owners get the funding they need with an increased chance of approval. However, they can be difficult to obtain. The first step is to find an SBA approved lender that can offer SBA loans. Without leaving the comfort of your home or office, you can connect with SBA lenders.

In addition to a long list of lending products, Kapitus can offer SBA loans for small businesses including startups and business owners with bad credit. To qualify for an SBA loan, you will need to meet the requirements though, which can be strict. That’s why working with a lender such as Kapitus can put you one step ahead. In the event your plans are shifted, Kapitus offers a long list of lending products that may have less strict requirements. Additionally, if you need fast funding, you may need to pursue another option. SBA loans (even through Kapitus) can take as little as 3 weeks or as long as 3 months to receive approval, although approval and funding times can vary. SBA loans are partially backed by the government’s Small Business Administration which is why they are in high demand, but also why they can have strict requirements. 

The process of obtaining an SBA loan can be confusing, and you may not know where to start. The good news is that Kapitus offers real help, but you may have to call in to get the answers you are looking for. They also offer support via email. While they are not accredited with the Better Business Bureau, there are plenty of online reviews to reference. 

To help guide you in the right direction, here are some of the different SBA loans available and who they can be best suited for.

  • SBA loans for startups: SBA 7(a) microloans are best for startups that want a SBA loan. SBA 7(a) microloans may offer a smaller amount of funding, but can come with lower rates and more flexibility. Additionally, they can have less strict requirements. Startups can struggle to qualify for financing since they are not as established as most lenders prefer. The Small Business Administration is designed to support the growth of small businesses who may be struggling to qualify and or afford traditional means of financing. Startups are not excluded from their mission. Startups looking for an SBA loan should consider an SBA 7(a) loan. 
  • SBA loans for bad credit: Getting an SBA loan for bad credit can be challenging. If you have bad personal or business credit, or both, an SBA 7(a) loan may be your best option for SBA loans. As we explained earlier, SBA loans are partially backed by the SBA, but the funds still come from a lender that is SBA approved. While you’ll need to meet the requirements of the SBA and the lender, working with a lender with less strict requirements can help you qualify. Kapitus can work with businesses that have fair credit. Minimum credit score requirements and other requirements can vary depending on the type of loan.

How do SBA loans work?

SBA loans work just like other conventional business loans work. To obtain an SBA loan, you must work directly with the SBA or an SBA-approved lending institution. To qualify for an SBA loan, you should have a good credit history, a strong annual business revenue, and several years of time in business. 

Additionally, you should be prepared to have a down payment of 20% or more and be willing to sign a personal guarantee. Anyone in the company who holds a 20% or more ownership stake in the business needs to be willing to sign a personal guarantee. For anyone who signs a personal guarantee, the SBA and/or lender reserves the right to seize personal property and assets in the event that you should happen to default on the loan.

Once approved by the SBA and the SBA-approved lender, you will receive the funds you were approved for. The amount borrowed can then be paid back over time with monthly installments for the duration of the loan term. The monthly payment amount, and the number of monthly payments required to pay off the loan plus interest, are agreed upon during the loan application process. 

Although SBA loans are extremely popular, they are often much harder to qualify for than conventional business loans. The minimum requirements for qualification are much higher. Additionally, the loan application process requires an incredible amount of paperwork and documentation, and funding can sometimes take up to two months or more from when you first apply. 

Are SBA loans hard to get?

Overall, if you have a good credit score and your business has strong annual revenue and a few years of successful business operations, then no, it should not be that hard to get an SBA loan. If you meet all of the minimum requirements of qualification, the biggest thing you need to obtain an SBA loan is time and patience. Applying for and qualifying for an SBA loan can require a lot of paperwork, documentation, and time for processing. Some SBA loans can take up to 2 months or more to be funded when you start the application process. 

The main reasons that some small businesses may struggle to obtain an SBA loan include the fact that they are a startup, they have no established business credit score, they have inconsistent cash flow, or they have a business owner who has a bad personal credit history. Some SBA loan applications may get rejected simply because the business documentation required is incomplete or disorganized. 

How do you qualify for an SBA loan?

To qualify for an SBA loan, your business needs to meet all of the standard criteria mandated by the SBA, along with meeting the minimum financial requirements. When it comes to the standard criteria, a business needs to meet the following requirements at a minimum.

  • Be a small business as defined by the SBA.
  • Must be a business operating in the United States.
  • The business owner must have personal equity in the business in time and money.
  • Must demonstrate a need for financing and submit a business plan detailing how you intend to use the funds. 

If a business fulfills all the criteria above, it can be considered for an SBA loan. To qualify for an SBA loan, a business must meet the following minimum financial requirements.

  • A personal credit score of 680 or higher is required.
  • An established business credit history.
  • An annual revenue demonstrating your business’s ability to make loan payments.
  • A minimum operating history of between 6 months and 2 years, depending on the loan amount.

Do you have to pay back an SBA loan?

Yes. There can be some severe consequences if you do not pay back an SBA loan. It’s important to note that even if you are not required to put up collateral to secure an SBA loan, you and anyone else in your company who has a 20% ownership interest in the business needs to sign a personal guarantee with the SBA and the SBA-approved lender. That means if for any reason you should default on the SBA loan, anyone who was required to sign a personal guarantee is in danger of having personal assets like homes and vehicles seized. 

Having personal and commercial assets potentially seized is not the only potential consequence of defaulting on an SBA loan. Defaulting on an SBA loan can have a tremendous negative effect on your business and personal credit scores. Loan defaults can typically remain on your credit reports for up to 7 years or more. Having a loan default on your credit report can make it extremely difficult to obtain any type of credit in the future. 

What are the types of SBA Loans?

Although the SBA 7(a) and 504 loan programs are the most popular SBA loan programs, there are nine total loan programs to choose from. Here is a quick breakdown of those nine loan programs available through the Small Business Administration. 

  1. SBA 7(a) loans: Loans of up to $5,000,000 for small businesses to expand, purchase equipment, and provide working capital.
  2. SBA express loans: Loans of up to $500,000 for small businesses who need fast funding to expand, purchase equipment or real estate, and to cover operating expenses. 
  3. SBA 504 loans: Loans of up to $5,500,000 for small businesses to purchase long-term fixed assets like property, machinery, and equipment.
  4. SBA microloans: Loans of up to $50,000 for small businesses needing working capital or to purchase inventory, equipment, and supplies. 
  5. SBA disaster loans: Loans of up to $2,000,000 for small businesses to rebuild after a declared national emergency disaster like a hurricane, flood, tornado, or another disaster resulting from natural causes.
  6. SBA community advantage loans: Loans of up to $350,000 for small businesses to cover normal business costs.
  7. SBA export working capital loans: Loans of up to $5,000,000 to provide working capital to small businesses that specialize in exports.
  8. SBA export express loans: Loans of up to $500,000 for small businesses specializing in exports that need expedited funding.
  9. SBA international trade loans: Loans of up to $5,000,000 for small businesses to modernize and expand export sales to be more competitive globally. 

What are the pros and cons of SBA loans?

SBA loans are extremely popular among small businesses for many reasons. However, SBA loans do also contain their fair share of disadvantages. Here is a quick breakdown of the pros and cons of SBA loans.


  • Lower interest rates: The Small Business Administration caps interest rates on their loans at a much lower threshold than banks and lenders who offer conventional business loans.
  • Longer terms: Loans through the SBA can come with much longer terms than conventional business loans. Typically, loans for working capital and equipment purchases can be spread out over a period of up to 10 years, and real estate loans can come with terms of up to 25 years. 
  • Larger loan amounts: The SBA 7(a) loan program can offer loans of up to $5,000,000 for small businesses that qualify, and the SBA 504 loan program can offer loans of up to $5,500,000 for small businesses looking to purchase commercial real estate. 


  • Lengthy application and funding process: The application and funding process through the SBA and SBA-approved lending institutions has been known to require quite a bit of documentation and time. Sometimes, it can take up to two months or longer to be approved for and to receive the funds from an SBA loan. 
  • Personal guarantee required: You and anyone who possesses at least a 20% ownership stake in the business may be required to sign a personal guarantee. A personal guarantee allows the SBA or the SBA-approved lender to come after personal assets in the event of a loan default. 

How do you apply for an SBA Loan?

To apply for an SBA loan, you’ll need to locate an SBA-approved lender that serves your area. The next step is to reach out to them and determine which type of SBA loan is best and what documents you should prepare. Before you apply for any business loan, you should review the health of your business finances, and mySMBscore can help you do just that and more. 

The SMBscore was developed to create an industry-specific, tailor-made risk assessment that can be used to determine the financial stability of small and medium-sized businesses (SMBs). It allows business owners to review their finances through a similar lens that a lender will. At mySMBscore you can view insights that lenders look at to approve your financing. Our platform can help you determine areas of improvement so that you can be as prepared as possible before applying for a loan. We can even help connect you to lenders that you have the best chance of qualifying for. Our goal is simple - to help businesses prosper. 

Considering an SBA loan? Check your SMBscore before applying!

What Types of Companies Use SBA Loans?

  • Cleaning Businesses
  • Daycare Centers
  • Car Wash Businesses
  • Assisted Living Facilities
  • Chiropractors
  • Trucking Companies
  • Laundromat Businesses
  • Law Firms
  • Car Dealerships
  • Corporations
  • Self Storage Facilities
  • Gas Stations
  • Insurance Agencies
  • Dentists
  • Restaurants
  • Franchises
  • And More..

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