An SBA 7(a) loan is usually the cheapest long-term business loan you can get, with capped rates and terms up to 10 years for working capital and 25 years for real estate. A private term loan costs more but can fund in days with less paperwork. Choose SBA when you can wait 30 to 90 days and meet the requirements. Choose private when speed, credit, or time in business rules SBA out.
Key takeaways
- SBA 7(a): up to $5 million; rate capped at prime + 3% on loans over $350,000; 30 to 90 days to fund.
- Private term loans: commonly $25,000 to $2 million; higher rates; 1 to 14 days to fund; lighter documentation.
- SBA requires a personal guarantee from every owner of 20% or more and charges a guarantee fee on larger loans.
- A common path: private loan now, refinance into SBA once the business qualifies.
Side-by-Side Comparison
| SBA 7(a) | Private term loan | |
|---|---|---|
| Loan size | Up to $5 million | About $25,000 to $2 million |
| Rate | Prime plus a capped spread (max prime + 3% over $350,000) | Set by lender; often low double digits and higher for weaker files |
| Term | Up to 10 years (working capital, equipment); up to 25 years (real estate) | 1 to 5 years typical |
| Payments | Monthly | Monthly, weekly or daily |
| Fees | SBA guarantee fee on larger loans, plus lender fees | Origination fee, often 2% to 5% |
| Time to fund | 30 to 90 days (SBA Express can be faster) | 1 to 14 days |
| Documentation | Tax returns, financial statements, debt schedule, business plan, SBA forms | Bank statements, application, sometimes tax returns |
| Time in business | Usually 2+ years (startups possible with strong equity and experience) | Often 6 to 12 months |
When SBA 7(a) Is the Better Choice
- You are buying a business, a building or major equipment and want a long amortization.
- You have 2+ years of tax returns showing the cash flow to repay.
- You can wait 4 to 12 weeks.
- You want to refinance expensive short-term debt into a lower monthly payment.
When a Private Term Loan Is the Better Choice
- You need funds for a time-sensitive opportunity, contract or inventory buy.
- Your business is under 2 years old or your tax returns understate current revenue.
- Credit issues or a recent loss make SBA approval unlikely.
- You want a short-term loan you’ll pay off quickly.
Cost Example
A $250,000 loan. SBA 7(a) at 10.5% over 10 years: about $3,370 per month. A private 3-year term loan at 15%: about $8,670 per month. The SBA loan’s total interest is higher because it runs longer, but the monthly payment is less than half, which is what protects cash flow. Test both with our loan calculator.
SBA 7(a) Requirements to Know
- For-profit U.S. business that meets SBA size standards.
- Ability to repay from cash flow, usually shown through a debt service coverage test.
- Personal guarantees from every owner of 20% or more.
- Collateral when available, including personal real estate on larger loans.
- An equity injection on startups and business acquisitions.
SBA rules change. Your lender will confirm current eligibility, ownership and fee requirements.
The Two-Step Strategy
Many owners take a private term loan to seize an opportunity now, build 12 to 24 months of clean financials and on-time payments, then refinance into SBA. If you go this route, avoid prepayment penalties on the private loan.
Frequently Asked Questions
What is the maximum SBA 7(a) interest rate?
The SBA caps variable rates at prime plus a spread that depends on loan size. For loans over $350,000 the cap is prime + 3%. Smaller loans allow larger spreads.
How long does an SBA 7(a) loan take?
Most take 30 to 90 days from application to funding. SBA Express loans can move faster but have lower maximum amounts.
Can a new business get an SBA loan?
It is possible, but startups need strong owner experience, a solid business plan, collateral and an equity injection. Most private lenders want at least 6 to 12 months of revenue.
Can I refinance a private business loan into an SBA loan?
Yes. Refinancing higher-cost business debt into SBA 7(a) is common once the business meets SBA requirements, as long as the refinance improves cash flow.
Have a deal in mind? Want to know if you qualify for SBA or need a faster option? Tell us about the deal and we will match it with the lenders that fit.