The US Small Business Administration (SBA) is a cabinet level federal agency dedicated to small businesses.The SBA offers advice, capital, and counsel for small businesses through its network of experts and lenders. In general, SBA loans help eligible small businesses access funds of up to $5 million. Funds can be used to purchase inventory or real estate, supply the business with working capital, and cover other operating costs.  The SBA also guarantees small business administration (SBA) loans, provides funds for disaster assistance, and offers both surety bonds and SBA grants.

What is an SBA loan?

The US Small Business Administration (SBA) is a cabinet level federal agency dedicated to small businesses. SBA loans are small-business loans offered by banks and online lenders and partly guaranteed by the government. Small Business Administration (SBA) loans vary in size and eligibility requirements.

What does an SBA loan do? 

The SBA only offers loans directly to businesses when they apply for disaster assistance. The most common form of SBA loan is a guarantee given to banks or other financial institutions. In essence, the SBA promises the lender that it will pay back a portion of your debt if you don’t. Standard SBA loans guarantee up to 85% of the loan amount, which gives lenders more security around their funds. This incentivizes banks or other financial institutions to offer credit to businesses who might not otherwise qualify. 

How hard is it to get an SBA loan?  

The SBA’s standard loan package is the 7(a) loan guarantee, an initiative valued by Congress at $2.9 billion in 2024. In a 7(a) loan, the SBA will guarantee a loan of up to $5 million for an eligible business. 

Like all loans, the terms and conditions given to 7(a) loans stipulate the loan terms and the types of businesses that are eligible. Interest rates for SBA loans range from prime plus 3% to prime plus 6.5%, depending on the loan amount. As of 2024, eligible businesses should:

• Be active and operating for profit 
• Be located in the USA
• Be small according to the SBA size standards
• Be creditworthy (SBA 7(a)  loans generally require a 650+ credit score) and able to reasonably demonstrate how it will repay
• Not be able to access similar credit from a private lender

SBA loan terms also indicate businesses that are not eligible. Non-eligible businesses for SBA loans include:

• Lenders or lender-owned businesses (banks, financiers, factors, and some pawn shops)
• Pyramid sale plans
• Political or lobbying organizations
• Life insurance companies
• Foreign businesses
• Passive businesses such as landlords or developers 
• Non-profits
• Gambling institutions or businesses deriving more than 30% of gross revenue from gambling
• Businesses engaged in illegal activities
• Businesses with an officer, director, owner, or employee convicted or indicted of a felony, financial misconduct, or fraud

SBA 7(a) loans range from $500,001 to $5 million, and are facilitated through partnerships with banks, financial institutions, or other lenders. 

For businesses looking for smaller funding options, the SBA offers microloans for up to $50,000 (the average microloan is $13,000). While SBA microloans can’t be used to purchase real estate, they can be used to cover costs like machinery, equipment, or working capital. The SBA also offers a 504 loan, which is long-term, fixed-rate financing used to purchase assets like land or buildings. 

Are SBA loans personally guaranteed?

Yes, SBA loans are personally guaranteed. The SBA makes it possible for small businesses to access capital not otherwise available to new business owners. However, it doesn’t mean applicants don’t need to secure the loan. Owners with at least a 20% stake in the business must personally guarantee the SBA loan. This means that the individual who owns part of the business and takes on the loan is personally responsible for repayment. 

Financial institutions will require applicants to put up some of their own personal collateral for their SBA loan, including but not limited to:

• Business assets
• Inventory
• Cash
• Personal assets like a lien on a home

They are also required to provide documents to prove creditworthiness. These documents will be similar to creditworthiness assessments used by banks or credit cards, such as a FICO score.

Applicants will also need a business plan, business overview, or financial projections to support the amount of the loan and its repayment. 

Alternative capital options to SBA loans for ecommerce businesses

SBA loans may not be the best option for every business; facilitated through the SBA’s partners, they’re still subject to the personal guarantees and credit requirements typical of traditional loans. Alternative lenders, lines of credit, angel investors, revenue-backed financing, venture capital, and Clearco’s Invoice Funding for ecommerce can all meet business financing needs. Each of these options will have different requirements. However, just like SBA loans, these funds can be used to cover costs from inventory to sales.

In every case, ecommerce businesses should consider multiple capital options or consult with different experts in order to determine the best option for growth. An infusion of capital can help take a business to the next stage of growth, which makes it one of the most important choices ecommerce business owners will make.