You may be asking what is an SBA loan. In short, it is a loan under a U.S. Small Business Administration program, such as the flagship 7(a), where an SBA guaranty is designed to encourage lenders to lend.
This explainer sits within the wider topic of small business funding, and it covers general background only.
| Item | Value |
|---|---|
| 7(a) loans approved in FY2021 | 51,856 loans |
| Total value of 7(a) loans approved in FY2021 | $36.5 billion |
| Average approved 7(a) loan in FY2021 | $704,581 |
| Base guaranty rate, loans of $150,000 or less | 85% |
| Maximum guaranty on a 7(a) loan | $3.75 million (75% of $5 million) |
These figures come from the Congressional Research Service reports updated February 16, 2022 and February 25, 2021. Figures can change, so check the source before you rely on them.
How the SBA 7(a) program works
The Congressional Research Service (CRS) calls the 7(a) loan guaranty program the SBA’s flagship loan program, in its report updated February 16, 2022. The label points to a legal provision, Section 7(a) of the Small Business Act of 1953, rather than to a loan size or a loan type. Keeping that in mind helps separate the 7(a) program from the other SBA programs mentioned below.
A guaranty is the SBA’s backing of a loan. The CRS says these programs are designed to encourage lenders to provide loans to small businesses “that might not otherwise obtain financing on reasonable terms and conditions.” In other words, the stated aim is to widen access to credit, not to replace ordinary lending.
The backing is stated as a guaranty rate. The February 2022 CRS report gives a base rate of 85% for loans of $150,000 or less and 75% for larger loans, up to a maximum guaranty of $3.75 million, which is 75% of $5 million. For FY2021 that rate was temporarily raised to 90%.
The same report also refers to the 504/CDC and Microloan programs, and its Appendix A describes SBAExpress and Community Advantage, which are part of 7(a). To see how ordinary term lending compares, the explainer on how do small business loans work gives general background.
What an SBA loan is not
Because the name sounds official, it is easy to assume an SBA loan is something it is not. The points below follow how the CRS describes the program, and terms vary by provider and country.
- Not a grant. It is a loan, and the February 2022 CRS report has sections on loan terms, interest rate, collateral and fees.
- Not a promise of approval. The guaranty is designed to encourage lenders to lend; it does not on its own decide whether a given business qualifies. The same report sets out borrower and lender eligibility standards and an application process.
- Not full cover. Rates such as 85% and 75% describe a share of a loan, not the whole amount (CRS, February 2022).
- Not one single product. The SBA administers several programs, and 7(a) is only the flagship.
- Not the pandemic PPP. The CARES Act created the Paycheck Protection Program (PPP), while 7(a) takes its name from the 1953 Act.
Revolving credit is a different structure again, and the page titled business line of credit explained covers how it differs.
How big is the 7(a) program?
The CRS publishes yearly totals for the program. In its report updated February 16, 2022, it states that in FY2021 the SBA approved 51,856 7(a) loans totaling $36.5 billion (CRS, 2022).
- FY2021: 51,856 loans, $36.5 billion in total, and an average approved amount of $704,581 (CRS, February 2022).
- FY2020: 42,302 loans, nearly $22.6 billion in total, and an average approved amount of $533,075 (CRS, February 2021).
Both the number of loans and the total were higher in FY2021 than in FY2020. An average blends loans of very different sizes, so it does not describe what a typical business would borrow.
Temporary pandemic-era changes and why dates matter
The CRS reports that Congress changed several settings for a limited time. The February 2022 report describes these as running through the end of FY2021:
- The 7(a) guaranty rate rose to 90%, up from 85% and 75%.
- The SBAExpress loan limit rose from $350,000 to $1 million, then reset at $500,000 on October 1, 2021.
- The SBAExpress guaranty rate for loans of $350,000 or less rose from 50% to 75%.
- SBA fees on 7(a) and 504/CDC loans were waived for the remainder of FY2021.
The same report notes that the CARES Act created the Paycheck Protection Program and appropriated $17 billion for six-month payment relief for existing 7(a), 504/CDC or Microloan borrowers (CRS, 2022). A later law appropriated $3.5 billion to resume monthly payment relief, capped at $9,000 per month per borrower.
Because these were temporary, the settings above describe the CRS’s February 2022 account, not later rules. Anything after that report needs a newer source from the SBA itself.
Costs, risks and open questions
An SBA-backed loan is still borrowed money that has to be repaid. The CRS report lists SBA guaranty and servicing fees and separate lender packaging, servicing and other fees (CRS, February 2022). It also has a section on collateral, so security for a loan is part of the picture.
This site does not publish current rates or fee schedules, because they vary by provider and country and change over time. Any figure should be checked with the SBA and the lender involved.
The CRS also examines issues with the program itself. It names oversight of 7(a) lenders and the program’s lack of outcome-based performance measures, and it reports statistics on loan volume, loss rates, use of proceeds, borrower satisfaction and borrower demographics (CRS, 2022). Reading those concerns alongside the program’s stated aim gives a more balanced picture than the name alone.
Frequently asked questions
What is an SBA loan in one sentence?
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It is a loan made under a U.S. Small Business Administration program, most prominently the 7(a) program, in which an SBA guaranty is designed to encourage lenders to lend to small businesses, as the CRS described it in February 2022.
Why is it called 7(a)?
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The CRS says the name derives from Section 7(a) of the Small Business Act of 1953, which authorizes the SBA to provide business loans and loan guaranties.
Are the figures here up to date?
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They come from CRS reports updated in February 2022 and February 2021. Program limits, rates and fees can change, so check the SBA before relying on any number.
Does this site arrange SBA loans?
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No. This is an independent educational site. It is not affiliated with the SBA or any lender, and it does not provide, arrange or broker loans or take applications.
This article is for general information and education only and is not financial, investment, tax or legal advice.
