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Small Business Administration (SBA) loans are one of the most popular small business funding options. Here are the top pros and cons of SBA loans so you can make the decision that’s best for you and your business.


One of the most critical choices for the success of your business is funding. Learn more about how a Small Business Administration (SBA) loan might be the best fit for you.

PRO: SBA Loans Have Low Rates

SBA loans, which are backed by the Small Business Administration, are actually financed through individual banks. The SBA guarantees between 50 and 90 percent of the loan in the event that you can’t pay it and the loan goes into default. This makes banks and other lenders eager to work with you and to give you “favorable” (read: low) rates for paying them back. Thanks to this relationship between the SBA and lenders, entrepreneurs are able to obtain financing to buy or expand their small businesses with affordable repayment terms and low-interest rates.

PRO: SBA Loans Offer Flexibility

Just as your business offering differs from the one down the street or across the internet, your financial needs and structure are different, too. That’s why flexibility is critical. Small business loans can accommodate many needs, whether you’re looking to purchase real estate or expand your current location and you need capital for construction costs. Here’s a rundown of these SBA loan offerings:

  1. SBA 7(A): The most popular version of SBA loans. Maybe it’s popular because you can borrow up to $5 million or maybe it’s because of its low-interest rate and long repayment terms (up to 10 years).
  2. SBA Express: If you need cash quick, this might be a great choice for you. SBA loans generally take a long time to work through, but SBA Express speeds up the process. While the maximum SBA Express loan amount is $350,000, smaller than some of the other offerings, you gain access to funds in less time.
  3. SBA 504: These loans are provided in conjunction with Certified Development Companies (CDC). These loans are only for backing fixed assets such as new building facilities which are at least 51 percent owner-occupied.
  4. CAPLines Program: This type of SBA loan is great if you need short-term working capital to boost your business’s bottom line. SBA CAPLines cover different credit programs and are offered with the aforementioned SBA 504 or SBA 7(A) loans.
  5. Export Loan: As the name suggests, these loans are available if you’re engaging in international transactions such as exports overseas.
  6. Microloan Program: If you’re a freelance, home-based small business owner, this could be an option for you. You can generally use the money to do most anything for your business, with the exception of purchasing real estate or paying existing debts.
  7. Disaster Loan: While hopefully you never need to use this type of loan, it is available in the event of a natural disaster. You can even receive up to $2 million in financing with very low rates as long as you can prove your business has suffered in a declared disaster zone.

PRO #3: SBA Loans Allow You to Combine Financing

SBA loans can be combined with other funding options, such as Rollovers for Business Start-ups (ROBS), a debt-free financing method for using your eligible retirement funds to put a down payment on your SBA loan without tax penalties. You could also use a portfolio loan for a down payment, and some lenders will accept a Home Equity Line of Credit (HELOC).


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While favorable repayment terms, low-interest rates, a myriad of loan types, and lots of flexibility make SBA loans seem highly attractive, it’s important to understand some of the drawbacks of SBA loans as well.

CON #1: SBA Loans Don’t Come Easy

SBA loans are not easy to obtain – you will put in a lot of work. Be ready to roll up your sleeves and prove your worth to your lender through a lengthy process that encompasses providing a solid business plan and a large down payment.

Your lender will also look for the five “C”s of qualifying for an SBA Loan:

  1. Credit. A high credit score — both current and historical.
  2. Character. Solid business and personal character.
  3. Capacity. The capacity to earn money and pay back your loan.
  4. Capital. Capital to put down, the amount of which is usually a percentage of the loan.
  5. Collateral. Some sort of collateral, often in the form of real estate.

If you can put this all together into a package for your lender, you will have dodged con #1 of small business loans: They’re difficult to obtain.

CON #2: You May Get Denied

Approximately 90 percent of SBA loans are not accepted. You can’t win them all in life – and possibly getting turned down for an SBA loan will remind you of this fact. Now that you’re aware of this, however, you can do everything in your power to be one of the 10 percent who are approved.

It helps to find an SBA loan consulting service or company you trust who will help you through the process. You should also ensure all of your five C’s are in order, and your paperwork is flawless. Remember, not every business succeeds – but putting your all into it can help yours be one of the ones that does!

CON #3: Repayment is Personal

While it’s not likely to happen to you, be aware that most SBA lenders require you to sign a personal guarantee to be approved for the loan. For example, if you own 20 percent or more equity in your business, but can’t pay back the loan according to your original terms (also known as an amortization schedule), you’ll need to pay from your personal accounts or assets. Personal assets include anything from your savings accounts to your real estate.

SBA loans are not an one-size-fits-all businesses solution. Now that you know the top pros and cons of SBA loans you have a better idea of your options and what might be best for your business. While SBA loans are hard work, the rewards can help you achieve your small business dreams.

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