Using Small Business Administration (SBA) Loans to Raise Capital for Your Business

  • First Bank
  • 11/10/2022
  • Business
  • Article

What is the Small Business Administration (SBA) loan program? 

The SBA loan program is a government-sponsored program created to encourage, assist, and protect small businesses. With few exceptions, the SBA does not loan directly to businesses. Rather, it guarantees loans provided by banks and other financial organizations, and establishes guidelines for the loans. SBA guarantees help minimize the risk assumed by the lenders. In most cases, SBA loans are not granted to businesses that may otherwise be qualified for financing at reasonable terms.

SBA loan programs are funded by the government, and may change as new legislation is passed to address changing economic needs. Currently, there are several types of SBA loans available, including the 7(a) Loan Program, the CDC/504 Loan Program, the Microloan Program, and the Disaster Assistance Program. The 7(a) Loan Program is the most commonly used of all the SBA programs. Please visit with any questions about available programs. 

General 7(a) loans

These loans are available from SBA-approved financial institutions and carry an SBA repayment guarantee to protect the lender against default. Except where noted below, the program provides a guarantee of 85% on loans up to $150,000 and 75% on loans above that amount. Loans are limited to a maximum of $5 million, unless otherwise indicated.

Proceeds from 7(a) loans can be used to start a new business or to help with the acquisition, operation, or expansion of an existing business. Eligible expenses include purchase of land, buildings, or an existing business, as well as equipment, furniture, supplies, and fixtures. It also includes both short- and long-term working capital.

SBA Express
The SBA Express Loan Program is designed for certain types of borrowers and has a streamlined, expedited loan application process. The loan can be structured as a term loan or revolving line of credit. SBA Express loans have a 36-hour turnaround time for responses to loan applications. The maximum loan amount is $350,000 and the SBA provides a 50% guarantee for these loans.

Special types of 7(a) loans

The CAPLines Loan Program establishes lines of credit that are geared towards helping small businesses meet their short-term and cyclical needs (e.g., seasonal lines of credit; builders' lines of credit). The maximum loan amount of $5 million helps small businesses obtain larger contracts and create more job opportunities.

Export Loan Programs 
Export Loan Programs are designed to encourage and assist small businesses in exporting their products and/or services overseas. 

  • Export Express: The simplest of the export loan programs, these are loans with a streamlined application process. They help small businesses develop or expand their export markets. The maximum loan amount is $500,000. The guarantee amounts are 90% for loans of $350,000 or less and 75% for loans of more than $350,000. These loans can be used for the business reasons stated above as well as standby letters of credit.
  • Export Working Capital Program (EWCP): Loans of up to $5 million geared towards small businesses that are able to generate export sales, but need additional working capital to support these sales. They can also support standby letters of credit. The SBA offers a 90% guarantee on these loans.
  • International Trade Loan Program: Programs for business owners who plan to start or continue exporting or that have been adversely affected by competition from imports. The SBA offers a 90% guarantee on loans of up to $5 million.

Community Advantage Loans 
In an effort to increase the number of institutions that make 7(a) loans, the Community Advantage Loan Program targets community-based, mission-focused financial institutions that were previously not able to make SBA loans. The maximum loan amount is $250,000, and loan guarantees are as high as 85%. 

Business and Industry Guaranteed Loan Program 
The Business and Industry Guaranteed Loan Program provides special financing loans to businesses located in rural areas. Administered by the U.S. Department of Agriculture and promoted by the SBA, this loan programs offers an 80% guarantee on loans of up to $5 million; a 70% guarantee on loans of more than $5 million to $10 million; and a 60% guarantee on loans of more than $10 million to $25 million.

What other types of SBA loans are available?

The following is a brief description of various other SBA loan programs (non 7(a) loans) that may be available to certain businesses. Some of these programs are direct loans from the SBA, rather than SBA-guaranteed loans.

CDC/504 Loan Program 
The 504 Loan program provides small businesses with long-term, fixed-rate financing for fixed asset projects, such as: purchasing land and improvements; construction of new or modernization of existing facilities; and purchasing long-term machinery/equipment. These loans are provided through Certified Development Companies--community-based nonprofit organizations that are regulated by the SBA and work with participating lenders to provide the funding. With these loans, the lending organization typically provides 50% of the projected costs, the SBA provides 40%, and the borrower contributes 10%. In some cases the borrower may be asked to contribute up to 20%.

In most cases, the maximum loan amount is $5 million, and in general, the business must create or retain one job for every $65,000 guaranteed by the SBA. (For small manufacturers, the job requirement applies to every $100,000.) The job requirement may be waived if the business meets a community development or public policy goal. 

Microloan Program 
The Microloan program provides small, short-term loans (the maximum loan amount is $50,000) to small businesses and certain non-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Loans are provided by non-profit community-based organizations that have experience in lending, management, and technical assistance. Loans cannot be used to repay existing debt. The SBA requires lenders to provide business training and technical assistance to borrowers. This means that borrowers may be required to undergo such training as a condition of the loan.

Disaster Assistance 
Four types of SBA loans are available to business and home owners in officially declared disaster areas: 

  • Business Physical Disaster Loans: Loans of up to $2 million to help businesses and nonprofit organizations within the disaster area repair and replace real property, machinery, equipment, fixtures, and leasehold improvements.
  • Economic Injury Loans: Loans of up to $2 million that help small businesses, small agricultural cooperatives, and certain nonprofit organizations that suffer substantial economic distress because of a disaster. Loan proceeds can be used to meet financial obligations and working capital needs that could have been met if a disaster had not occurred. 
  • Home and Personal Property Loans: Homeowners, renters, and personal property owners who are victims of a disaster may borrow up to $40,000 from the SBA to repair or replace clothing, furniture, cars, appliances, and other belongings damaged or destroyed in a disaster. In addition, loans of up to $200,000 may be granted to restore a primary residence to its pre-event state. 
  • Military Reservists Economic Injury Disaster Loans: The MREIDL Program provides loans of up to $2 million to small businesses that are unable to meet ordinary and necessary operating expenses due to an essential employee being called up to active duty in their role as a military reservist. The program's filing period begins on the date the essential employee receives notice of activation and ends one year after the employee's discharge or release from active duty. 

Loan Terms

Terms vary for the different types of loans. Factors that help determine loan maturities, fees, interest rates, and qualifications include loan type, size of business, and purpose of the loan proceeds. For more information, visit the Small Business administration web site at 

How do you get an SBA loan?

Apply for a regular bank loan 
In most cases, you are not eligible for SBA assistance unless you have been turned down for at least one bank loan. So, before you even apply for an SBA-guaranteed loan, you must try to obtain a loan directly from a lending institution. 

Find a participating lender 
SBA-guaranteed loans are originated by SBA participating lenders. Schedule an appointment to find out more about SBA Loans through First Bank, an SBA Preferred Lender.

Fill out the loan application 
The paperwork required to apply for an SBA loan has dramatically decreased. In many cases, a simple two-page application is all you'll need to fill out. However, your application and supporting documentation must prove the following to the SBA and to the lender: 

  • That the business will be able to stay current on its debts, even with the addition of the new loan 
  • That there is already a reasonable amount of equity invested in the business or collateral for the loan 
  • That your existing track record is strong or that your financial projections are realistic 
  • That your management team has the expertise to competently manage the operations of your business 

Provide documentation to support your loan request 
Generally, you should submit a business plan with your loan application. This plan should be supported by the following documentation: 

  • Projected profit and loss statements 
  • Cash flow projections 
  • Schedule of current debt 
  • Personal and business tax returns for the last three years
  • Market analysis and marketing strategy
  • Description of the business and the advantages of your product or service
  • Information on your management team, including resumes and personal financial statements
  • Cash requirements and a description of how you plan to use the loan funds 
  • Collateral, if required 

Contact First Bank today to learn more about SBA Loans to raise capital for your business.