Updated October 2026
Borrowing can help a small business buy equipment, hire, open a new location or smooth out cash flow. But the loan landscape changed significantly in 2025 and 2026, especially for SBA loans, and the wrong kind of financing can sink a business. This guide explains the main loan types, the latest SBA rules, what lenders look for, and how to qualify.
The main types of small business loans
Table of Contents
| Loan type | Best for | Typical terms |
|---|---|---|
| SBA 7(a) loan | Working capital, equipment, buying a business, refinancing | Up to 10 years (25 for real estate) |
| SBA 504 loan | Real estate and major equipment | 10, 20 or 25 years, fixed rates |
| SBA microloan | Startups and small needs | Up to $50,000 |
| Bank term loan | Established, profitable businesses | Often 3 to 5 years |
| Business line of credit | Cash flow gaps and short-term needs | Revolving; interest only on what you use |
| Equipment financing | Vehicles and machinery | Equipment serves as collateral |
| Invoice financing | Businesses waiting on customer payments | Advances against unpaid invoices |
| Online term loans | Fast funding | Higher rates, shorter terms |
| Merchant cash advance (MCA) | Last resort | Very expensive; see warning below |
SBA loans in 2026: what changed
SBA loans are partly guaranteed by the federal government, which lets lenders offer longer terms and capped rates. Several important changes now apply:
- Ownership rule: since March 1, 2026, SBA 7(a), 504, microloan and surety bond programs require businesses to be 100% owned by US citizens or US nationals, with limited exceptions, ending eligibility for many businesses owned partly by green card holders.
- Smaller "small loans": the maximum for a 7(a) small loan, which has lighter paperwork, dropped from $500,000 to $350,000 in 2025.
- Stricter underwriting: SBA’s lending rules (SOP 50 10 8, effective June 1, 2025) lowered the loan size at which lenders must take available collateral from $500,000 to $50,000, and tightened rules on the owner’s cash injection.
- Higher combined limit: since July 4, 2026, borrowers can combine up to $5 million in 7(a) financing with up to $5 million in 504 financing, for $10 million in total SBA-backed loans.
SBA loan programs at a glance
| Program | Maximum | Key features |
|---|---|---|
| 7(a) | $5 million | Most flexible SBA loan; variable or fixed rates |
| 7(a) small loan | $350,000 | Faster, lighter documentation |
| 504 | Up to $5 million or more for some projects | Typically 50% bank, 40% Certified Development Company, 10% borrower |
| Microloan | $50,000 (average about $13,000) | Made through nonprofit lenders; rates commonly about 8% to 13% |
SBA 7(a) maximum interest rates
SBA caps the spread a lender can charge above the prime rate. For variable-rate 7(a) loans:
| Loan amount | Maximum variable rate |
|---|---|
| $50,000 or less | Prime + 6.5% |
| $50,001 to $250,000 | Prime + 6.0% |
| $250,001 to $350,000 | Prime + 5.0% |
| Over $350,000 | Prime + 3.0% |
Fixed-rate caps are higher. Because rates are tied to the prime rate, your rate rises or falls with it on variable loans. Check the current prime rate when comparing offers; it was 6.75% in early 2026.
What lenders look for
Lenders often describe their review in terms of the "five Cs":
- Character: your credit history and track record.
- Capacity: cash flow to repay the loan.
- Capital: how much of your own money you’ve invested.
- Collateral: assets that secure the loan.
- Conditions: the purpose of the loan and the economic environment.
Typical expectations include good personal credit, at least two years in business for many bank loans, consistent revenue, and clear financial statements. Startups often find SBA microloans, equipment financing or community lenders more accessible.
Documents you’ll usually need
- Business and personal tax returns (often two to three years).
- Profit and loss statements and balance sheets.
- Bank statements.
- A business plan, especially for startups and acquisitions.
- Debt schedule listing existing loans.
- Business licenses and formation documents.
- Personal financial statements for owners.
- A clear explanation of how you’ll use the money.
How to qualify and apply: step by step
- Decide what you need the money for and how much. Borrow for things that will generate returns.
- Check your credit, personal and business, and fix errors.
- Organize your financials, ideally with accounting software and a bookkeeper. See taxes and bookkeeping.
- Compare loan types and lenders, including banks, credit unions, CDFIs and SBA lenders. SBA’s Lender Match tool connects borrowers with participating lenders.
- Prepare a short loan proposal: purpose, amount, repayment plan and supporting numbers.
- Apply with two or three lenders to compare offers.
- Compare the full cost: rate, fees, term, collateral and prepayment penalties.
Where to find small business lenders
| Lender type | Strengths | Watch for |
|---|---|---|
| Large banks | Full range of loans and SBA lending | Stricter requirements for young businesses |
| Community banks and credit unions | Local knowledge, flexible decisions | Smaller loan sizes in some cases |
| CDFIs (community development financial institutions) | Mission-driven lending to underserved owners and areas | Limited funds; may require training |
| SBA microloan intermediaries | Small loans plus business support | Lower maximum amounts |
| Online lenders | Fast decisions and funding | Higher rates and shorter terms |
| Equipment finance companies | Financing tied to specific equipment | Total cost over the term |
Personal guarantees and collateral
Most small business loans require a personal guarantee, meaning the owners are personally responsible for repayment if the business can’t pay. SBA loans generally require personal guarantees from owners of 20% or more. Lenders may also take business assets and, under current SBA rules, sometimes personal real estate as collateral. Understand exactly what you’re pledging before you sign, and talk to an accountant or attorney for large loans.
Compare the true cost of borrowing
Interest rate isn’t the whole story. When comparing offers, look at:
- Annual percentage rate (APR), which includes fees.
- Origination and guarantee fees, which may be financed into the loan.
- Term length: longer terms lower payments but raise total interest.
- Payment frequency: daily or weekly payments strain cash flow.
- Prepayment penalties.
- Variable vs fixed rates.
Our break-even calculator helps you test whether the investment will earn enough to cover the payments.
A warning about merchant cash advances
Merchant cash advances (MCAs) give quick cash in exchange for a share of future sales. They’re often marketed aggressively, but their effective annual cost can exceed 50% and sometimes reach triple digits. Many owners later refinance MCAs into SBA or bank loans to escape the daily or weekly payments. Treat MCAs as a last resort, and read every term carefully.
Alternatives to borrowing
- Grants, which are limited but don’t need repaying. Search Grants.gov and your state’s economic development agency for programs that fit your industry and location.
- Customer prepayments, deposits and memberships.
- Vendor terms, such as paying suppliers in 30 or 60 days.
- Equipment leasing.
- Investors, if you’re willing to share ownership.
- Cutting costs and improving cash flow first. See how to finance business growth.
Example: choosing the right loan
A bakery wants a new oven and needs extra working capital for the holiday season. Equipment financing covers the oven, using the oven as collateral, while a small business line of credit covers seasonal inventory and is repaid in January. Using two matched products is cheaper and safer than one large term loan for everything.
This example is illustrative.
Frequently asked questions
How hard is it to get an SBA loan in 2026? Stricter underwriting, collateral and ownership rules have made SBA loans harder to get for some borrowers, so preparation matters more than ever.
Can a startup get a business loan? It’s harder without revenue, but microloans, equipment financing and community lenders are common options for startups.
What credit score do I need? It varies by lender and loan type; stronger scores open more options and lower rates.
How long does an SBA loan take? Simple SBA loans can close in a few weeks, while larger 7(a) and 504 loans, especially for real estate or business purchases, often take a couple of months or more.
Can green card holders still get SBA loans? Under the rules effective March 1, 2026, businesses must generally be 100% owned by US citizens or nationals. Owners affected by the change should ask lenders about conventional, CDFI or other non-SBA options.
Next steps
Read SBA loans and the Small Business Administration, how to finance business growth and the break-even calculator.
Loan rules and rates change; confirm current SBA requirements with the SBA and your lender. This guide is general information, not financial advice.
Sources
- US Small Business Administration, Loans
- Beancount, SBA loans complete guide (January 2026)
- Beancount, The 2026 SBA 7(a) rule changes (August 2026)
- Beancount, SBA loan program updates
Last reviewed October 20, 2026. Startup costs are estimates; check local prices, licensing and tax rules before you commit money.
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