Handbook / Starting out on your own

SBA loans for startups: microloans, 7(a) loans and how to apply

Borrowing to start a business can make sense when the money pays for something that generates income, such as equipment or inventory. SBA-backed loans are a common option, but many new owners misunderstand how they work. This guide explains the programs most relevant to startups and how to prepare. Loan figures here come from SBA pages checked in November 2026; check them again before applying.

How SBA lending works

For most programs, the SBA does not lend money itself. It sets program rules and backs loans made by banks, credit unions and other lenders, which reduces the lender's risk. You apply through the lender, and the lender makes the decision.

Microloans

The SBA microloan program is often the best fit for very small startups. According to the SBA:

• loans are up to $50,000
• the average microloan is about $13,000
• loans are made through intermediary lenders, which are nonprofit, community-based organizations with lending experience that also provide management and technical assistance
• the maximum repayment term is seven years
• interest rates vary by lender and generally fall between 8% and 13%

Microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery and equipment. They cannot be used to pay existing debts or buy real estate.

To be eligible, the SBA says a business must not be an ineligible type, must be an operating business run for profit, must be located in the US, and must be small under SBA size standards. Intermediaries may have their own requirements, and many ask for training or a business plan.

7(a) loans

The 7(a) program is the SBA's main loan program for a wide range of needs. The maximum 7(a) loan amount is $5 million. The SBA says key eligibility factors are what the business does to earn its income, its credit history and where it operates. Your lender helps you decide which 7(a) type fits.

New businesses can be harder to approve for larger loans because they have no track record. Lenders often look closely at the owner's experience, personal credit and any money the owner is putting in.

What lenders look at

• The purpose of the loan and how it will help the business earn money
• Your business plan and realistic projections
• Cash flow: how the business will make repayments
• Personal credit history
• Your own investment in the business
• Experience in the industry
• Collateral, depending on the lender and loan

How to prepare

1. Know your number. List exactly what you need and why. Borrowing more than you need adds cost.
2. Write a short plan. A one-page business plan with startup costs and a simple monthly cash-flow forecast helps.
3. Check your credit. Fix errors before applying.
4. Gather documents: identification, tax returns, bank statements, any business registrations and licenses.
5. Find a lender. The SBA website lists microlenders and offers Lender Match to connect you with SBA lenders.
6. Ask questions: rate, fees, term, collateral, personal guarantee and prepayment rules.

Costs of borrowing

Monthly repayments start soon after you receive the money, often before the business is profitable. Build repayments into your cash-flow forecast, and test what happens if revenue arrives later than you expect. Many lenders also ask for a personal guarantee, which means you are responsible if the business cannot pay.

Alternatives

Before borrowing, consider:

• starting smaller with the minimum equipment
• pre-selling or taking deposits
• savings and customer revenue
• renting or buying used equipment
• local programs or grants where you qualify; see small business grants

The guide to startup costs helps you separate essential spending from nice-to-haves.

Free help

SBA resource partners, such as Small Business Development Centers and SCORE mentors, can review your plan and help you prepare an application at little or no cost.

Questions to ask a lender

• What is the interest rate, and is it fixed or variable?
• What fees apply?
• What is the repayment term?
• Is collateral or a personal guarantee required?
• Are there penalties for repaying early?
• What training or support is included?

Get the answers in writing and compare offers.

SBA loans come through lenders; microloans up to $50,000 suit small startups, 7(a) loans cover larger needs; prepare a clear plan and cash-flow forecast, and borrow only what the business can repay.