Government-backed
capital, explained.
SBA loans carry the lowest rates and longest terms in small business lending, because the Small Business Administration guarantees part of the loan for the lender. They are also the slowest and the most documented. Here is what the two main programs do, and what it actually takes to qualify.
7(a) and 504 do different jobs.
Choosing between them is mostly a question of what you are buying. One is flexible, one is for fixed assets.
SBA 7(a) — the flexible one
The SBA's primary and most widely used program. Up to $5 million, and the proceeds can go to more or less any legitimate business purpose.
- Working capital, short and long term
- Acquiring, refinancing or improving real estate and buildings
- Machinery, equipment, furniture, fixtures and supplies
- Refinancing eligible existing business debt
- Changes of ownership — buying a partner out, or buying a business
SBA 504 — the fixed-asset one
Long-term, fixed-rate financing for major fixed assets, delivered through a Certified Development Company alongside a bank. Up to $5.5 million on the SBA portion.
- Buying, building or renovating buildings and land
- Long-term machinery and equipment — 10+ year useful life
- Qualifying debt refinancing tied to those assets
Not available for: working capital, inventory, non-qualified debt repayment, or speculation and investment in rental real estate.
The 50 / 40 / 10 split.
A 504 is not one loan. It is three pieces stacked, which is why the down payment is so much lower than a conventional commercial mortgage.
Senior lender
A bank or credit union provides half, secured by a first lien on the asset.
CDC / SBA
A Certified Development Company funds this through an SBA-backed debenture, at a long-term fixed rate.
You
Your injection. Ten percent is the standard case — see the exceptions beside this.
When it rises
15% if your business is under two years old, or the property is special purpose. 20% if both apply.
Terms run 10, 20 or 25 years, matched to the useful life of what you are financing. A special-purpose property means one with a limited resale market — a bowling alley or a winery, rather than a warehouse.
What you need to qualify.
Every SBA loan starts from the same base test. Lenders then layer their own credit standards on top, which are usually stricter than the SBA's floor.
An operating business, for profit
Non-profits, passive holding companies and speculative ventures do not qualify.
Based and trading in the US
The business must be located and operating in the United States or its territories.
Small, by SBA definition
SBA size standards vary by industry, set by revenue or employee count. Many companies that feel mid-sized still qualify.
Not an ineligible business type
Lending, gambling, speculation and a defined list of other activities are excluded.
The credit elsewhere test
You must be unable to obtain the credit on reasonable terms from non-government sources. The SBA is designed to fill a gap, not to compete with your bank.
Creditworthy, able to repay
Demonstrated repayment ability, sound character, qualified management and a workable plan. This is where most applications are actually decided.
What you will be asked for
SBA lending is document-heavy. Expect to produce most of the following, and expect the process to take weeks rather than days:
- Business and personal tax returns, usually three years
- Year-to-date P&L and balance sheet
- Business bank statements
- Personal financial statement for every 20%+ owner
- Debt schedule listing every existing obligation
- Use of proceeds — precisely where the money goes
- Business licences, entity documents, leases
- Personal guarantee from principal owners
SBA 7(a) cannot be used to pay off merchant cash advances.
This catches a lot of business owners out, so it is worth being blunt about. Under the SBA's current lending rules — SOP 50 10 8, effective 1 June 2025 — merchant cash advances and factoring agreements are not eligible for refinancing with 7(a) proceeds.
The restriction applies across every 7(a) variant: Standard 7(a), 7(a) Small, SBA Express, Export Express and International Trade. There is no workaround inside the programme. The SBA's reasoning is that MCA structures do not sit well alongside the long-term, prudent financing the programme exists to provide.
So what can you actually do?
- Consolidate outside the SBA. A conventional consolidation or a reverse consolidation can clear positions. Terms vary widely — this is worth reviewing carefully with someone before signing.
- Use home equity. If you own property, a HELOC is often materially cheaper than an MCA and can be used to clear positions.
- Negotiate directly. Funders will often restructure a position rather than watch it default.
- Use the SBA for what it can do. A 7(a) for eligible purposes — equipment, property, eligible debt — frees up cash flow that can then service the advances down.
Common questions.
Not sure which route fits?
SBA is the cheapest money available to most small businesses, and the slowest to arrive. Tell us what you are funding and by when, and we will tell you honestly whether it is the right instrument.
Note: TMF Team is not the SBA and does not make credit decisions. Programme rules, limits and eligibility are set by the U.S. Small Business Administration and can change — figures on this page reflect SBA guidance current at the time of writing. Nothing here is a commitment to lend or a guarantee of approval.