Video · Brian Kim
How to Get an SBA Loan For Your Small Business (Tips & Advice)
An honest look at SBA loans — eligibility, timelines, and what makes the difference between approval and denial.
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Published on YouTube March 24, 2025 · 13:15 · Text on this page updated · About 15 min read
Key points from the video
- The SBA does not lend money. It guarantees part of a loan made by a bank, credit union or online lender (up to 85%), which makes the lender more willing to say yes.
- The three common programs: 7(a) for general business use (up to $5 million, usually 5 to 10 years, up to 25 for real estate), 504 for real estate and large equipment (10 to 25 years), and microloans (up to $50,000, not for real estate or paying other debts).
- Pros: competitive rates, a wide range of loan sizes and long repayment terms. Cons: a personal guarantee, possible collateral and a slow approval process.
- To qualify, the business must be for-profit, in the U.S., small by SBA standards, in an eligible industry and able to repay. Brian puts the usual credit floor around 650 (it varies by lender) and says some loans need a 10% to 30% down payment.
- His tips: check your credit reports for errors, shop more than one lender, ask about SBA Express for $500,000 or less if you need speed, and read the terms for guarantee fees and prepayment penalties.
Summarized from Brian's own words in the video.
What's changed since this video
Video published March 24, 2025. Checked against current sources on October 13, 2026. These updates are from the ClearValue Lending Team, not Brian.
- Owner citizenship (7(a) and 504) New since the video
In the video: Not covered. The video lists U.S. location, for-profit status, size and industry.
Now: Since March 1, 2026, 100% of a business's direct and indirect owners must be U.S. citizens or U.S. nationals whose main home is in the U.S. Lawful permanent residents (green card holders) no longer qualify for 7(a) or 504 loans.
Source: SBA Procedural Notice 5000-876626 (effective March 1, 2026) · as of
- Credit score screening Changed
In the video: Lenders generally want a credit score of at least about 650; it varies by lender.
Now: On March 1, 2026 the SBA stopped screening 7(a) Small loans with the FICO SBSS business score. Lenders now use their own credit analysis, so the score you need is set by each lender. Our SBA guide lists 680+ as the owner score most SBA lenders look for.
Sources: SBA Procedural Notice 5000-876777 (effective March 1, 2026) ; SBA Procedural Notice 5000-875701 (January 16, 2026; replaced by 5000-876777) · as of
- SBA Microloan maximum term Changed
In the video: Up to six years.
Now: Up to seven years, per the SBA's microloan page. The maximum amount is still $50,000 and the average microloan is about $13,000.
Source: SBA.gov — Microloans · as of
- Variable 7(a) rates Changed
In the video: A variable rate is the prime rate plus a margin.
Now: Still true, with more choices. Prime was 7.50% when the video was published and is 7.00% as of Nov 9, 2026. The SBA caps the margin at 3.0 to 6.5 points depending on loan size, so today's maximum 7(a) variable rate is 10.00% to 13.50%. Since March 1, 2026 lenders may also peg to SOFR or the 5- or 10-year Treasury rate. See today's rates.
Sources: SBA.gov — 7(a) loans ; Federal Reserve bank prime loan rate (FRED DPRIME); SBA Procedural Notice 5000-875051 (effective March 1, 2026) · as of
- 7(a) maximum and SBA guarantee Changed
In the video: 7(a) loans go up to $5 million; the SBA guarantees up to 85%.
Now: Still $5 million per 7(a) loan, with an 85% guarantee on loans of $150,000 or less and 75% on larger loans. New since July 4, 2026: a borrower can combine up to $5 million of 7(a) with up to $5 million of 504, for $10 million in total.
Sources: SBA.gov — 7(a) loans ; SBA news release 26-52 (May 18, 2026) · as of
- SBA Express limit Still current
In the video: SBA Express is for requests of $500,000 or less.
Now: Still current: $500,000 maximum, with a 50% SBA guarantee.
Source: SBA.gov — Types of 7(a) loans · as of
- Guarantee fee New since the video
In the video: Read the terms and watch for guarantee fees.
Now: For 7(a) loans approved from October 1, 2026 to September 30, 2027, the upfront guarantee fee is 2% to 3.75% of the guaranteed part of the loan, and 0% on loans of $700,000 or less to manufacturers, some food-supply businesses and rural businesses. Details in the fees section of the guide below.
Source: SBA Information Notice 5000-881797 (FY 2027 7(a) fees) · as of
Reader guide · ClearValue Lending Team
SBA loans in 2026: the complete plain-English guide
Brian's video covers the basics of SBA loans in 13 minutes. This guide walks through every point he makes, in the same order, and adds what has changed since he published it in March 2025. Each update names its source and the date we checked it. Rates come from the same feeds as our rates page, so they update on their own. Typical terms match our SBA loans guide.
How an SBA loan works
Brian covers this in the video · watch from 0:00
The Small Business Administration (SBA) is a federal agency. For its main loan programs it does not lend money. A bank, credit union or other approved lender makes the loan. The SBA promises to cover part of the lender's loss if the loan is not repaid. That promise is the guarantee.
Brian's example is a $100,000 loan from a bank. The SBA guarantees $85,000 of it. If the business defaults, the bank can recover that part from the SBA. Less risk for the bank means it can say yes to some businesses it would otherwise turn down.
The guarantee protects the lender, not you. You still owe 100% of the loan. Every owner with 20% or more of the business must also sign a personal guarantee. That means your personal assets can be at risk if the business cannot pay.
- 7(a) loans of $150,000 or less: the SBA guarantees up to 85%.
- 7(a) loans above $150,000: up to 75%.
- SBA Express loans: 50%.
The SBA programs compared
Brian covers this in the video · watch from 2:02
Brian names three programs: 7(a), 504 and microloans. SBA Express and 7(a) Small are versions of the 7(a) program with their own limits. The table puts them side by side.
| Program | Maximum | Best for | Repayment term | Rate |
|---|---|---|---|---|
| Standard 7(a) | $5,000,000 | Working capital, equipment, buying a business, real estate, refinancing | Up to 10 years; up to 25 for real estate | Fixed or variable, capped by the SBA |
| 7(a) Small | $350,000 | Smaller general-purpose loans | Same as 7(a) | Fixed or variable, capped by the SBA |
| SBA Express | $500,000 | Faster, smaller loans and lines of credit | Up to 10 years for revolving lines | Same SBA caps as 7(a); 50% guarantee |
| 504 | $5 million SBA part ($5.5 million for small manufacturers and energy projects); the project can be larger | Owner-occupied real estate and long-life equipment | 10, 20 or 25 years | Fixed, tied to the 10-year Treasury |
| Microloan | $50,000 | Startups, inventory, supplies, small equipment | Up to 7 years | Generally 8% to 13% |
7(a) is the most common program. The money can go to daily operations, equipment, buying a business, real estate or refinancing debt. Brian says terms usually run 5 to 10 years, longer for real estate. That still matches the SBA's rules.
504 loans finance real estate and large equipment. A bank lends up to 50% of the project, a Certified Development Company (CDC) lends up to 40% with an SBA-backed debenture, and you put in at least 10%. Brian says the average 504 loan is about $1.1 million. That is his figure from the video; the SBA page we checked does not publish an average.
Microloans go up to $50,000 through nonprofit intermediary lenders. The average is about $13,000. They cannot be used to buy real estate or pay off existing debt. As Brian says, the rates are usually higher than on 7(a) or 504 loans.
Brian also gives an average 7(a) loan size. The captions lose one digit of that number, so we do not repeat it here.
Current SBA rates
A fixed rate stays the same for the life of the loan. A variable rate moves with a benchmark, most often the prime rate, plus a margin. Brian explains both. The SBA sets the highest margin a lender may charge on a variable 7(a) loan. Here is what those caps mean with prime at 7.00% (as of Nov 9, 2026).
| Loan size | Highest margin over prime | Highest rate today |
|---|---|---|
| $50,000 or less | +6.5 points | 13.50% |
| $50,001–$250,000 | +6.0 points | 13.00% |
| $250,001–$350,000 | +4.5 points | 11.50% |
| Over $350,000 | +3.0 points | 10.00% |
Prime was 7.50% when Brian published the video. It is 7.00% now.
Since March 1, 2026, lenders may also tie a variable 7(a) rate to SOFR, the 5-year Treasury rate or the 10-year Treasury rate instead of prime. For reference, SOFR was 3.88% on Nov 9, 2026 and the 10-year Treasury yield was 4.88% on Nov 9, 2026. Ask any lender which benchmark it uses and how often your rate can change.
504 loans have a fixed rate on the SBA part, set as a small increment above 10-year Treasury rates. Microloan rates generally run 8% to 13%.
Fees: the guarantee fee and prepayment penalty
Brian covers this in the video · watch from 10:49
Brian's fourth tip is to read the terms and watch for guarantee fees and prepayment penalties. Here is what those are now.
The upfront guarantee fee is charged on the guaranteed part of a 7(a) loan. The lender pays it to the SBA and can pass it on to you. The tier depends on the full loan amount. For loans approved from October 1, 2026 through September 30, 2027:
| Loan amount | Fee on the guaranteed part |
|---|---|
| $150,000 or less | 2% |
| $150,001 to $700,000 | 3% |
| $700,001 to $5,000,000 | 3.5% on the first $1,000,000 guaranteed, plus 3.75% above that |
| Any amount, 12 months or shorter | 0.25% |
| $700,000 or less to a manufacturer, eligible food-supply business or rural business | 0% |
Example: a $500,000 loan has a 75% guarantee, so $375,000 is guaranteed. At 3%, the fee is $11,250. On Brian's $100,000 example, $85,000 is guaranteed and the fee at 2% is $1,700. Ask whether the fee is paid at closing or added to the loan; if it is added, you pay interest on it too.
There is also a 0.55% annual service fee on the guaranteed balance. The lender pays it and may not pass it on to you.
The prepayment fee applies only to loans of 15 years or longer. If you pay down more than 25% of the loan ahead of schedule in the first three years, the fee is 5% of the prepaid amount in year one, 3% in year two and 1% in year three. After that there is no SBA prepayment fee. Ask the lender about any fees of its own as well, such as packaging or closing costs.
Pros and cons, updated
Brian covers this in the video · watch from 4:28
Brian's list still holds. Here it is with the 2026 context added.
- Pro: lower rates. SBA caps limit what lenders can charge. Today the ceiling on a variable 7(a) loan is 10.00% to 13.50%, depending on size.
- Pro: easier than a plain bank loan. The guarantee lowers the lender's risk. That is still the core of the program.
- Pro: wide range of sizes. From a few thousand dollars on a microloan to $10 million when 7(a) and 504 are combined (to reach $10M, the 7(a) loan comes first and the 504 loan follows).
- Pro: long terms. Up to 10 years for working capital and up to 25 for real estate, which keeps monthly payments lower.
- Con: personal guarantee. Required from every owner of 20% or more.
- Con: collateral. Often required on larger loans. See the credit and collateral section below.
- Con: time. Expect weeks, not days. Our SBA guide lists 30 – 90 days (45–60 with a Preferred Lender) for a typical 7(a).
- Con (new in 2026): stricter ownership rule. Businesses with any owner who is not a U.S. citizen or U.S. national no longer qualify for 7(a) or 504.
Who qualifies: the eight basics plus the 2026 change
Brian covers this in the video · watch from 7:44
Brian lists eight eligibility rules. All eight still apply.
- For-profit. The business must be registered and run for profit. Nonprofits are not eligible.
- In the U.S. The business must be located and operate in the U.S. or its territories.
- Small by SBA standards. The limit depends on your industry and is set by revenue or number of employees. Check with the SBA size standards tool.
- Owner investment. You must have put your own time or money into the business.
- Ability to repay. Lenders look at cash flow, revenue, credit history and, for new businesses, projections.
- No reasonable credit elsewhere. The SBA still requires that you cannot get the same credit on reasonable terms without the guarantee.
- Approved use. The money must go to a sound business purpose.
- Eligible industry. Lending businesses, passive real estate holding companies, pyramid sales plans, businesses with more than one-third of revenue from gambling, and businesses mainly in political or lobbying work are among those excluded (13 CFR 120.110 (ineligible businesses)).
New since the video: ownership and citizenship. For 7(a) and 504 loans, every direct and indirect owner must now be a U.S. citizen or U.S. national whose main home is in the U.S. Green card holders no longer qualify. This took effect on March 1, 2026 and is built into the SBA's updated rulebook (SOP 50 10 8.1) from October 1, 2026.
Credit score, cash flow, collateral and down payment
Brian covers this in the video · watch from 7:44
Credit score. Brian says most lenders want at least about 650, and that it varies by lender. The SBA itself does not set a minimum personal score. Since March 1, 2026 the SBA no longer screens 7(a) Small loans with the FICO SBSS business score. Each lender must use the same credit analysis it uses for its own similar loans. Our SBA guide lists 680+ as typical.
Cash flow. For 7(a) Small loans the SBA now sets a floor: your operating cash flow must cover all business debt payments, including the new loan, at least 1.10 times. Lenders also review your two most recent months of business bank statements.
Collateral. Brian says collateral is more common on loans over $25,000. The SBA's current rule is different. On 7(a) loans of $50,000 or less, the SBA does not require collateral. From $50,001 to $500,000, lenders follow their own collateral policies, but they cannot decline a loan only because collateral is short. Above that, the SBA expects the loan to be secured by the assets it pays for and other available fixed assets, up to the loan amount.
Down payment. Brian says some SBA loans need 10% to 30% down. On a 504 project you put in at least 10%. For example, on a $1,000,000 building, the bank lends up to $500,000, the CDC up to $400,000 and you bring at least $100,000. On a 7(a), the required equity depends on the deal and the lender.
Documents checklist
Each lender sets its own list. These are the items an SBA lender will usually ask for. A complete file is the easiest way to shorten the wait.
- SBA Form 1919, the borrower information form, for the business and each owner.
- SBA Form 413, a personal financial statement, for owners.
- Business and personal federal tax returns (your lender will tell you how many years).
- A current profit-and-loss statement and balance sheet.
- Your two most recent months of business bank statements.
- A list of current business debts, with balances and payments.
- A business plan and financial projections, especially for a newer business.
- A clear use-of-funds statement: how much you need and what it pays for.
- Ownership records and business licenses. Be ready to show each owner's citizenship status.
- For real estate or equipment: the purchase contract or vendor quote.
The timeline, step by step
Brian covers this in the video · watch from 5:50
Brian's estimates from application to funding: about 2 to 4 weeks for a 7(a), 2 to 4 months for a 504 and 2 to 7 weeks for a microloan. Our SBA guide is more cautious for a typical 7(a): 30 – 90 days (45–60 with a Preferred Lender). Here is how the time usually splits.
- Check your file (a day or two). Pull your credit reports and fix errors. Run the no-credit-pull funding readiness check to see where your file is weak.
- Pick a program. Working capital or a business purchase usually points to 7(a); a building or long-life equipment to 504; a small need to a microloan or SBA Express.
- Find lenders. Start with your bank or credit union, or use the SBA's Lender Match. The SBA says it sends a summary of interested lenders two business days after you submit.
- Apply and send documents. The lender reviews your file and asks follow-up questions. This is usually the longest step.
- SBA review. SBA Express lenders decide on their own, under authority the SBA delegates to them. When the SBA reviews a loan, its stated turnaround is 2 to 10 business days for a 7(a) Small loan and 5 to 10 business days for a standard 7(a).
- Closing. You sign the loan documents and any personal guarantees. Real estate loans add appraisals and title work.
- Funding. Money is disbursed, sometimes in stages for construction or equipment.
Common reasons for a no, and how to fix them
A decline usually has a reason you can act on. Ask the lender for it. These are the ones tied directly to SBA rules.
- Cash flow too thin. If cash flow does not cover all debt payments with room to spare (1.10 times for 7(a) Small loans), borrow less, extend the term, or pay down other debt first.
- Errors or late payments on credit reports. Brian says fixing one error raised his score about 100 points in days. You can check each bureau's report free every week at AnnualCreditReport.com and dispute mistakes with the bureau and the company that reported them.
- An owner is not a U.S. citizen or U.S. national. Since March 1, 2026 this rules out 7(a) and 504. Look at conventional bank loans or other products instead.
- Ineligible business type or size. Check the exclusion list and the size standards tool before you apply.
- Credit available elsewhere. If a lender can make you a regular loan on reasonable terms, it may not use the SBA program. That is not a bad outcome. Compare the offer.
- Not enough owner money in the deal. Build savings for the down payment, or look at a 504 structure, where the owner's minimum share is 10% in a standard project.
- Incomplete file. Missing tax returns or statements stall a file. Use the checklist above.
- Wrong program for the use. A microloan cannot refinance debt or buy real estate. Match the program to the purpose.
- Wrong lender. Brian's advice still applies: lenders differ by industry and appetite. One no is not the last word.
If you don't qualify, or can't wait
An SBA loan is often the cheapest option, but not always the right one. These usually fund faster and cost more. Ranges are from our product guides.
| Option | Typical cost | Typical time to fund |
|---|---|---|
| Term loan | 15 – 60% APR (alternative); 7 – 15% APR (bank) | 2 – 7 business days (alternative); 2 – 6 weeks (bank) |
| Business line of credit | 15 – 60% APR (non-bank); 7 – 25% APR (bank lines) | 1 – 7 business days for non-bank lines; 2 – 6 weeks for bank lines |
| Equipment financing | 7 – 25% APR (depends on credit, equipment type, and term) | 2 – 10 business days |
If the problem is timing, consider a short-term option now and an SBA loan later to refinance it. SBA 7(a) loans can be used to refinance business debt. If the problem is ownership or eligibility, a conventional bank loan or equipment financing is the more realistic path.
What's new for SBA borrowers in 2026
Every item below is from an SBA notice or release. Dates are when each change took effect.
- March 1, 2026: ownership rule. 7(a) and 504 borrowers must be 100% owned by U.S. citizens or U.S. nationals living in the U.S. (SBA Procedural Notice 5000-876626).
- March 1, 2026: SBSS score retired. The SBA stopped screening 7(a) Small loans with the FICO SBSS score. Lenders use their own credit analysis, with a 1.10x cash-flow floor (SBA Procedural Notice 5000-876777).
- March 1, 2026: new rate benchmarks. Variable 7(a) loans can be tied to SOFR or the 5- or 10-year Treasury rate as well as prime (SBA Procedural Notice 5000-875051).
- July 4, 2026: $10 million combined. Borrowers can pair up to $5 million of 7(a) with up to $5 million of 504 (SBA news release 26-52 (May 18, 2026); to reach $10M, the 7(a) loan comes first and the 504 loan follows).
- October 1, 2026: updated rulebook. SOP 50 10 8.1 replaces 8.0 for new applications. The SBA says it adds new flexibility for SBA Express and for refinancing debt held at the same bank (SBA Information Notice 5000-880695).
- October 1, 2026: fiscal year 2027 fees. Upfront fees of 2% to 3.75% of the guaranteed part, with 0% for qualifying manufacturers, food-supply and rural businesses up to $700,000 (SBA Information Notice 5000-881797).
- Rates. Prime is 7.00% as of Nov 9, 2026, down from 7.50% when the video was published (FRED).
Where to get an SBA loan
Brian covers this in the video · watch from 12:27
You apply with a lender, not with the SBA. Brian lists three places to start: a bank or credit union you already use, online lenders, and the SBA's own Lender Match tool. He says online lenders tend to move faster and can be easier to qualify with. Whichever you choose, compare at least two offers on rate, fees, term and collateral.
Lender Match is the SBA's own matching tool. You answer a few questions, and the SBA sends you a list of interested lenders two business days later. It is not an application and does not guarantee a match or a loan.
In the video Brian says ClearValue Lending offers SBA loans. That is not how it works today. ClearValue Lending is an education and comparison platform, not a lender or broker. If you send a financing request, it goes to the funding partners whose requirements fit your business. More than one may contact you. Each partner makes its own decision and sets its own terms.
Next steps
Educational information, not financial, legal or tax advice. ClearValue Lending is not a lender. Funding partners make all credit decisions and set their own terms.
Questions viewers ask
Does the SBA lend the money itself?
No. As Brian explains, the SBA guarantees part of a loan made by a bank, credit union or other approved lender: 85% of a 7(a) loan of $150,000 or less and 75% above that. You apply with the lender and repay the lender.
How long does an SBA loan take?
In the video Brian puts a 7(a) loan at about 2 to 4 weeks from application to funding and a 504 at about 2 to 4 months. Timing depends on the lender and how complete your file is. Our SBA guide lists 30 – 90 days (45–60 with a Preferred Lender) for a typical 7(a).
What credit score do I need for an SBA loan?
The SBA does not publish a minimum personal score. Brian says lenders generally want about 650 or higher, and it varies by lender. Since March 1, 2026 the SBA no longer screens 7(a) Small loans with the FICO SBSS score, so each lender sets its own bar. Our SBA guide lists 680+ as typical.
Can a green card holder get an SBA 7(a) or 504 loan?
Not since March 1, 2026. Under SBA Procedural Notice 5000-876626, 100% of the business's direct and indirect owners must be U.S. citizens or U.S. nationals whose main home is in the U.S. This rule covers the 7(a) and 504 programs.
What is the difference between a 7(a) and a 504 loan?
A 7(a) loan is general-purpose: working capital, equipment, buying a business, real estate or refinancing, up to $5 million. A 504 loan is for owner-occupied real estate and long-life equipment, with a fixed rate on the SBA part and terms of 10, 20 or 25 years. In a 504, a bank lends up to 50%, a Certified Development Company up to 40%, and you put in at least 10%.
How much can I borrow with 7(a) and 504 together?
Since July 4, 2026, a qualified borrower who takes a 7(a) loan first can have up to $5 million in 7(a) and up to $5 million in 504 financing, or $10 million in total, according to the SBA's May 18, 2026 announcement.
What is the SBA guarantee fee for 2026–27?
For 7(a) loans approved from October 1, 2026 through September 30, 2027, the upfront fee is 2% of the guaranteed part on loans of $150,000 or less, 3% from $150,001 to $700,000, and 3.5% to 3.75% above that. Loans of $700,000 or less to manufacturers, eligible food-supply businesses and rural businesses pay 0%. Source: SBA Information Notice 5000-881797.
Is there a prepayment penalty on an SBA loan?
Only on loans of 15 years or longer, and only if you prepay more than 25% of the loan in the first three years. The fee is 5% of the prepaid amount in year one, 3% in year two and 1% in year three. Ask your lender about any fees of its own.
Do I need collateral for an SBA loan?
Not always. The SBA does not require collateral on 7(a) loans of $50,000 or less. From $50,001 to $500,000 lenders follow their own policies but cannot decline a loan only for lack of collateral. Larger loans are expected to be secured with available assets.
Does ClearValue Lending make SBA loans?
No. ClearValue Lending is an education and comparison platform, not a lender. When you send a request, it goes to the funding partners whose requirements fit your business, and they decide whether to make an offer.
Full transcript
From YouTube's auto-generated English captions, cleaned for punctuation and paragraphs. Brian's words are unchanged except for clear caption errors; text in [brackets] marks an editor's insertion or audio the captions did not catch.
Read the full transcript (2,178 words)
Editor's note: In the video Brian describes ClearValue Lending as offering SBA loans and shows an approval-probability tool. ClearValue Lending is an education and comparison platform. It does not lend, approve applications or set rates. A request goes to the funding partners whose requirements it fits, and they make every credit decision. Today's self-check is the no-credit-pull funding readiness check. It does not predict approval.
Understanding SBA loans watch from 0:00
In today's video, I will teach you how to get an SBA loan. So, we're going to be covering what are SBA loans, what are the pros and cons of SBA loans, the SBA loan eligibility requirements. I'm going to give you some advice on SBA loans as well, and where do you get an SBA loan? Okay, so let's start with this. What is an SBA loan? Okay, so here's what you need to know. The SBA is the Small Business Administration, which is a government agency that focuses on helping small businesses. So, it's very important to understand that the SBA does not lend money. So, here's how it works.
Okay. So, let's just say that you try to get a business loan from Chase Bank. Okay? Now, why would Chase Bank reject your loan request? Well, essentially they will reject you if they believe that you won't pay them back because if Chase Bank lends you money and you don't pay them back, then Chase Bank loses money on you, right? So, here's where the SBA comes in. The SBA will give Chase Bank a guarantee. So, for example, if Chase Bank gives you a small business loan of, let's just say $100,000, the SBA will give a $85,000 guarantee to Chase Bank. So, this is, you know, of course, great for Chase Bank because it protects them from major losses if you can't pay back your loan.
So, if Chase Bank gets a guarantee from the government, from the SBA, then it's less risky for Chase Bank to lend you money. So therefore, Chase will be more willing to lend money to small businesses. So the SBA will guarantee a percentage of the loan up to 85%. But you know, honestly, it really doesn't matter to you because that's between the SBA and the lender. But what's important to understand is that the SBA does not give an SBA loan. The SBA simply gives a guarantee to the lender.
Types of SBA loan programs watch from 2:02
Now, I want to show you the most common types of SBA loans. They're going to be the SBA 7(a) loan, the SBA 504 loan, and the SBA microloan. Okay, so the SBA 7(a) loan is the most popular option. So this money can be used for a variety of purposes. Daily operations, buying equipment, startup expenses, acquisition, etc. So SBA 7(a) loans are up to $5 million. So that's as of today. So that number may change in the future, but the average SBA 7(a) loan size is $443,97 [figure unclear in the captions]. The repayment terms 5 to 10 years. There are some exceptions for, you know, for example, for real estate, which could be 25 years.
So the interest rate can be fixed or variable. So if it's a fixed rate, then the interest rate doesn't change for the life of the loan. If it's a variable rate, then the interest rate will be pegged to a benchmark such as the prime rate plus an additional margin. Okay. Now, let's cover SBA 504 loans. So, these loans are used to purchase real estate or big equipment. So, the maximum funding amount can be greater than $5 million. It depends on the purpose of the loan. So, the average SBA 504 loan size is $1.1 million. Repayment terms 10 to 25 years. Okay. So for these the interest rate it can be fixed or blended.
So if it's a fixed rate then the interest rate won't change for the life of the loan. If it's a blended rate then a portion of your loan will be a fixed rate and the other portion will be a variable rate. Now SBA microloans offer up to $50,000. So this money is generally used for a startup cost, inventory supplies, and smaller equipment. So microloans cannot be used to purchase real estates or pay other debts. The average SBA microloan is $13,000 and the repayment term it could be up to six years. So microloans usually have a fixed interest rate. So the rates won't change over the life of the loan. However, interest rates on microloans are typically higher than SBA 7(a) and 504 loans. Okay.
Pros and cons of SBA loans watch from 4:28
Now, what are the pros and cons of SBA loans? We're going to start with the pros. So, SBA loans offer competitive interest rates. So, this is in comparison to other types of financing options. SBA loans may be easier to qualify for compared to other bank loans because you have to remember SBA loans are partially guaranteed by the governments and this reduces the lender's risk. Another pro of SBA loans is the size the size of the loan. So you can get a loan for millions of dollars or for a few thousands. So there's a lot of flexibility in terms of the sizing. And another pro is that the SBA loan gives you longer repayment terms.
So it's up to six years for microloans and 10 to 25 years on the SBA 7(a) and 504s. Okay. Now let's cover the major cons of an SBA loan. So a personal guarantee is required. So, the SBA requires a personal guarantee from business owners, meaning personal assets may be at risk if you don't repay the loan and collateral may be required. And also, I mean, this is another big one. It's a longer approval process. So, I want to show you how long it typically takes, which is important if you need the money relatively soon.
Loan approval and tools watch from 5:50
Okay, so here you can see the type of SBA loan and the typical time it takes to get approval and the time it takes to get funded after approval. So the SBA 7(a) loan, it will take about 2 to four weeks from application to funding. The SBA 504 will take about two months to four months. Microloans will take about two to seven weeks. Okay, so I just want to say this. You know it would be terrible if you apply for an SBA loan and you wait for all this time just to find out that your loan request is rejected. So just it would be a big waste of time for you.
So many business owners, they may not have the luxury of that cushion of time. So I want to tell you this to help save time and frustration. I created a tool to show your probability of getting approved or rejected for an SBA loan. Okay. So, just in case you didn't know, I own a lending company, ClearValue Lending, and we help small businesses get small business loans, and that includes SBA loans. So, if you come to my website, you can use my tool to see your probability of approval based on just four criteria. Your loan amounts, how much that you're requesting, your monthly gross sales, how long that you've been in business for, and your credit score.
And then you'll see your odds of approval right here. And as you can see, I made it very simple. You don't need to give your personal information. You don't have to give your email. You don't need to register or sign up for anything. I'm just trying to be helpful. So, as you can see, we calculate your odds of approval. This is our proprietary calculator that we built in-house. All the information is out there to calculate this. We just needed to piece it together, which we did. So, please come check it out. I'll leave a link for you down below.
Eligibility and requirements watch from 7:44
Now, I want to tell you about the eligibility requirements to get an SBA loan. So, the first thing is that you must be a for-profit business. So, your business must be officially registered and operate as a for-profit entity. Nonprofits are generally not eligible. You must operate in the US. So, your business must be located and operating in the US or its territories. Number three is that you must meet the SBA's definition of a small business. So this is based on industry, revenue, number of employees, etc. The SBA has a tool to see if you qualify to see if you meet the definition of a small business.
So number four is owner equity investment. So the business owner must have invested their own time or money into the business. So basically they want to see that you have skin in the game. Number five is demonstrate ability to repay. So the business must show the ability to repay the loan. So this is based off financial projections, revenue, credit history, etc. Number six is that you must exhaust other financing options first. So the SBA wants to see that you attempted to get financing somewhere else because you have to remember the SBA loans are meant for businesses that cannot get a loan elsewhere under reasonable terms.
Okay. Number seven is that you must use your loan funds for approved purposes. So money that you get from an SBA loan must be used for legitimate business purposes. And number eight is that you must be in an eligible industry because some industries are disqualified. So for for example, pyramid schemes don't qualify, gambling operations, lobbying firms, etc. Certain industries, they just don't qualify. Okay. Now, let's look at the financial and credit requirements. So, the first thing is that they're going to look at your credit score. This is going to be so important. Credit score requirements, they're going to be varying by the lender, but generally, and you need a minimum of 650.
So, the second thing is that they're going to review your cash flow or your projected cash flow of your business. The third thing is that collateral will sometimes be required. So, this is going to be more common for loans that are over $25,000. And the fourth thing is that business owners with 20% or more ownership must personally guarantee the loan. And the fifth thing is that some SBA loans will require a down payment of 10% to 30%. So, what is an SBA loan down payment? So, this is money that you have to give upfront when you get the loan. So you can think of this as like a security deposit.
So this reduces the lender's risk and shows that you're serious. So if you're approved for a $100,000 loan with a 10% down payment, then you must contribute $10,000 before receiving the remaining $90,000 of your loan.
Tips for securing a loan watch from 10:49
Now, I want to give you some advice on SBA loans. I'll give you four of them. So, the first thing is that if you have a low credit score, I mean, that's really going to hurt your chances. So, I'm telling you, you should do what I did. Check your credit reports to see if there's any errors on your reports. So, you can do this completely free. So, when I corrected an error on my credit report, my credit score jumped up by 100 point, literally 100 points within a matter of days. So, no joke. My second piece of advice is that you should shop around for lenders.
So, I'm telling you, not every lender is the same. So, some lenders may be more open to giving an SBA loan for restaurants and another for landscaping companies. So, if one institution rejects you, then you can always try another. Okay. My third piece of advice is that there is something called an SBA Express loan. So, if you need to speed up the process, then you can request an SBA Express loan. But this is only if you're requesting $500,000 or less. So, it's a there's pros and cons, but the pro is that it's a faster approval process. However, the con is that it's going to have a higher interest rate compared to a standard SBA loan.
And my fourth piece of advice, I this along with any other, you know, loan is that you need to read the terms and conditions. I'm telling you, watch out for any guarantee fees, prepayment penalties, etc. Just be aware of them, understand them, please. Now, let me tell you, where do you get an SBA loan?
Finding an SBA lender watch from 12:27
So, you can get SBA loans from a bank, credit union, or online lenders. So, a lot of people like to start with a bank or credit union where they already do business because a relationship is already established. However, online lenders offer faster approvals and the qualifications are actually easier. So, one other option that you have is to go to the SBA's website and use their Lender Match tool to help you find a lender. So, you just click that button right there to locate a lender. But again, just so you know, we at ClearValue Lending offer SBA loans and we'd be very happy to help you out. So, leave a link for you down below. I hope that this has been helpful. Please subscribe. Thank you for the support and wish you a very nice day. Take care.
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