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SBA Loans 101: Frequently Asked Questions

Everything you need to know about SBA loans and how your business can qualify.

SBA loans are low down payment, long-term small business loans that are partially guaranteed by the federal government. Because of their favorable and flexible terms, SBA loans tend to be more accessible and attractive to small business owners looking for funding, rather than conventional bank loans. In fiscal year 2025 alone, small businesses received more than $370 billion in 7(a) loans and $7.8 billion in 504 loans, respectively.¹ To explain the nature of SBA loans and how they can help business owners grow and expand, East West Bank provides answers to the most commonly asked questions about SBA loans.

1. Why apply for an SBA loan?

One of the big advantages of SBA loans is that they offer lower down payments and longer loan terms compared to conventional loans. As a result, SBA loans are more accessible to small business owners who want to grow their businesses and have access to much-needed capital.

The down payment for an SBA loan can be as little as 10 percent, compared to 35 percent on conventional loans. The loan repayment is stretched over a longer period of time (up to 25 years for real estate and up to 10 years for other purposes), which keeps the monthly payments low and allows business owners to keep more working capital in their business.

Additionally, all SBA loans are fully amortized, and no balloon payments (large lump sums that are significantly higher than all the payments made before) are required at the end of the loan term. And, with a fully amortized loan you never have to refinance, which saves borrowers time and money, and eliminates the hassle of having to apply for a new loan.

2. What can SBA loans be used for?

SBA loans can support a wide range of small business financing needs, including commercial real estate purchases and refinancing, equipment purchases, existing debt refinancing, tenant improvements, business acquisitions, partner buyouts, construction, inventory purchases, working capital and more. SBA loans can also provide financing for businesses that often find it difficult to obtain conventional financing, such as restaurants, auto repair shops, self-storage facilities, gas stations, car washes and assisted living facilities.

(Photo credit): Gettyimages.com/krisanapong detraphiphat

3. What is the most common type of SBA loan?

By far, the most popular type of SBA loan is the SBA 7(a) program, which allows for the widest variety of loan uses and offers the most flexible underwriting guidelines. The SBA 7(a) program accounts for more than 84,000¹ small business loans each year and is the SBA’s flagship loan product. It provides loans to qualified small and medium-sized businesses in amounts of up to $5 million. It can be applied to a wide range of business purposes, such as commercial real estate purchases and refinancing, buying a business, renovations, purchasing new or used equipment, expanding a business and refinancing existing debt.

4. How do you qualify for an SBA loan?

• What are the main eligibility requirements?

To be considered for an SBA loan, a business must be for-profit, must operate and be physically located in the U.S. or its territories, and must meet the SBA size standards. A vast majority of businesses in the United States are eligible to apply for SBA loans. To qualify, the business and its affiliates must either meet the industry-based size standard (based on receipts or number of employees per NAICS) or qualify under the alternative size standard by having a tangible net worth of $20 million or less and an average net income (after federal income taxes) of $6.5 million or less over the past two fiscal years.”² A business should have sufficient historical cash flow to show it can pay back the loan, have a sound business purpose, and its owners must be U.S. citizens or permanent residents who have a strong borrowing history (credit score).

• What paperwork and financial statements do you need?

The exact paperwork depends on the type of SBA loan program you are applying for and the lender with whom you are working. Every loan application, however, has the same requirements: a borrower has to provide a lender with detailed business information, a loan request, a copy of their last three years’ federal tax returns (both business and personal), along with their most recent business financial statements. The goal is to get an understanding of what the business is, how a borrower intends to use the funds, and to ensure that the business can pay back the loan. Borrowers must also complete the lender’s SBA loan application forms, which include a personal financial statement.

• When it comes to business plans, what should they include? Do all businesses need to submit a business plan?

Formal business plans are typically not required to apply for an SBA loan. They are only necessary for start-up or expansion loans. The lender will notify a borrower if a business plan is necessary.

(Photo credit): Gettyimages.com/Weekend Images Inc.

5. How much down payment is required?

The exact amount of down payment depends on the type of SBA loan you are looking to secure and the financial institution with whom you are working. For SBA 7(a) loans, a down payment can be as little as 10 percent. In some cases, the SBA may require the borrower to provide a slightly higher down payment or some additional collateral.

6. Is collateral required for an SBA loan? If a business has no collateral, can they still qualify?

The SBA will require that a borrower pledge available collateral to help secure the loan. However, business owners with limited collateral may still be eligible to apply for an SBA loan.

7. How do you apply for an SBA loan?

To apply for an SBA loan, you should work with a lender that is experienced in making SBA loans and has a qualified staff of SBA lending professionals. Make sure the lender you choose has an SBA Preferred Lender (PLP) designation. This designation certifies that a lender has a proven track record of successfully processing SBA-guaranteed loans and has the authority to approve SBA loans unilaterally, which accelerates the process. If you are applying for an SBA loan through a bank, you should contact an SBA business development officer or relationship manager. They will explain the process, provide all the necessary loan application forms, and help answer any questions. After gathering all the paperwork and completing the application forms, you then submit your loan application to your lender so that they can underwrite, approve and close your SBA loan.

8. How long does it take to get an SBA loan?

The approval process for an SBA loan depends on the type of the loan you are applying for and the type of lender you are using. The turnaround time for an SBA 7 loan can be as little as 45 days if you use an experienced PLP lender. However, the process can take much longer if you work with a lender that doesn’t have a preferred lender designation.

Unlike non-preferred lenders, who have to send loan paperwork to the SBA for review and approval, preferred lenders have the full authority to make the final credit decision on their own, which enables faster approvals and expedites the overall process. Once a preferred lender receives a borrower’s final information and loan application forms, typically they can make a preliminary credit decision within a few business days. The entire process (from loan application to funding) typically takes about 45-60 days.

9. Can SBA loans be used to refinance existing debt?

Yes. SBA loans are an excellent option for refinancing existing business debt. Quite a few online and traditional lenders provide short-term business loans that feature high interest rates. SBA loans can help by increasing the loan term and lowering the interest rate of the existing loan, which can significantly reduce borrowers’ monthly payments and help improve business cash flow.

10. Can you take out multiple SBA loans? If yes, what are the eligibility requirements?

Yes. Borrowers can have multiple SBA loans over the course of the lifetime of a business, if that business meets the SBA’s and the lender’s eligibility requirements for every loan. However, the combined amount of those loans must not exceed SBA program borrowing limits, which varies based on the type of SBA loan. For example, the borrowing limit for SBA 7(a) loans is $5 million.

(Photo credit): Gettyimages.com/skynesher

11. Can an SBA loan be combined with other types of loans?

Yes. SBA loans can be combined with conventional loans or other types of non-SBA loans to assist business owners and help amplify business growth.

12. What is the biggest misconception about SBA loans?

The most-common misconception about SBA loans is that obtaining an SBA loan is a lengthy process because of the amount of documentation required and the time required to review an SBA loan request. If you are working with a preferred lender that has a seasoned staff with experience in the SBA industry and understand the process, you should be able to secure an SBA loan in a fast and efficient manner.

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