Question 1

SBA 7(a) vs SBA 504 — what's the difference?

Accepted Answer

SBA 7(a) is the flagship general-purpose SBA program: working capital, equipment, real estate, refinance, or acquisition. One lender, one closing, up to $5M. SBA 504 is specifically for owner-occupied commercial real estate and major equipment, structured as two loans (a conventional first mortgage at about 50% and a CDC-funded SBA debenture at about 40%, borrower covering 10%). 504 typically has lower long-term rates for real estate but a more complex process and a narrower purpose. For anything other than real estate, 7(a) is usually the right comparison.

Question 2

Why does the SBA charge a guarantee fee?

Accepted Answer

The SBA guarantees a portion of the loan (typically 75% of loans over $150K) — if the borrower defaults, the SBA pays the lender that fraction back. The guarantee fee is the premium the SBA charges for that guarantee. The lender either pays it to the SBA directly and passes it to you, or collects it at closing. The schedule is tiered (2.00% / 3.05% / 3.75% on the guaranteed portion across the $1M / $2M / $5M brackets as of FY2026) and is updated by SBA Notice periodically. Short-term loans (≤12 months) use a 0.25% flat fee instead.

Question 3

What's Prime plus spread, and how does it affect my rate?

Accepted Answer

SBA 7(a) variable rates are quoted as `Prime + X`, where Prime is the Wall Street Journal Prime Rate (8.5% in early 2026) and X is the lender's spread — capped by SBA at 3.0% for loans over $350K with a term of 7+ years, slightly higher caps for smaller or shorter loans. When the Fed changes rates, Prime usually moves the next business day, and your 7(a) rate moves with it at the next adjustment period (typically monthly or quarterly, set at closing). Fixed-rate 7(a) loans exist but are usually priced higher to compensate the lender for rate risk.

Question 4

How long does SBA 7(a) approval take?

Accepted Answer

End-to-end, expect 45–90 days for most 7(a) loans, longer for real estate. Lenders with Preferred Lender Program (PLP) authority can approve directly, shortening the timeline by 2–4 weeks versus sending the file to SBA for review. Compiling the application package — three years of tax returns, financials, a detailed use-of-funds plan, personal financial statement for every 20%+ owner, business plan for acquisitions — is typically the rate-limiting step, not the SBA itself. Start gathering documents before you engage a lender.

Question 5

Who's eligible for an SBA 7(a) loan?

Accepted Answer

You must be a for-profit US business operating in the US, meet SBA size standards (most manufacturers under 500 employees; most service businesses under $7.5M–$41.5M revenue depending on NAICS), have invested equity, have exhausted reasonable non-government sources of financing, and demonstrate repayment ability. Owner credit scores below roughly 650 are tough; below 600 are almost always a no. Some industries are ineligible — lending, speculative investment, certain passive real estate holding, gambling, adult entertainment. Check SBA SOP 50 10 7.1 for the full list.

Question 6

What collateral does an SBA 7(a) loan require?

Accepted Answer

SBA requires lenders to take all available business collateral. If business collateral doesn't fully secure the loan, the lender must take liens on personal assets of any 20%+ owner — most commonly a second lien on personal real estate with available equity. Loans under $50K have no collateral requirement; loans from $50K to $500K require business assets but no personal real estate lien is mandated. All loans over $25K require a personal guarantee from every 20%+ owner regardless of collateral.

Question 7

Are there prepayment penalties on SBA 7(a) loans?

Accepted Answer

Loans with terms of 15 or more years carry a prepayment penalty in the first three years if you prepay more than 25% of the loan balance in any 12-month period: 5% of the prepayment in year 1, 3% in year 2, 1% in year 3, zero thereafter. Loans under 15-year terms generally have no SBA-imposed prepayment penalty, though your lender may add their own — read the note carefully before signing.

Question 8

How much does it cost to apply for an SBA 7(a) loan?

Accepted Answer

There is no SBA application fee. Lender fees vary: many SBA lenders charge packaging fees of $2,500–$7,500, appraisals for real-estate-secured loans run $2,000–$5,000, environmental reports (Phase I) run $2,000–$4,000, and closing costs (title, legal, recording) add another $1,000–$5,000 depending on state. Factor roughly $5,000–$15,000 in out-of-pocket pre-closing cost for a typical sub-$1M loan, more for real-estate-backed deals. Our calculator lets you set the packaging and closing line items directly.

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