What Can I Use an SBA Loan For?

Both new entrepreneurs and established small businesses often need capital to grow or maintain their business. This capital can come from many different sources, but one of the lowest cost and most useful ways of financing is via a Small Business Administration (SBA) guaranteed loan or line of credit.

Backed by the SBA, these loans are issued by a financial institution like Fifth Third Bank. They offer borrowers flexible repayment terms—such as the ability to borrow for up to 25 years, depending on the purpose of the loan—as well as fixed and variable interest rate options, which may make the monthly payments lower than a conventional loan.

Before you go through the process of applying for an SBA loan, it can help to think about exactly how much money you need and plan for how you’re going to use the funds—and how you’re going to repay the loan. Keep in mind that depending on the terms of the loan, business owners with more than a 20% stake in the business will need to personally guarantee the loan, meaning that they’ll be responsible for payments if the company can no longer pay.

What is a Small Business Loan Used For?

While SBA loans have flexible, favorable terms, they also come with some restrictions on what you can use them for. Those restrictions vary depending on the type of SBA loan you use. Here’s a breakdown of the various loan types:

SBA 7(a) Loans. With a loan limit of up to $5 million, these are the most common type of SBA loan. You can use SBA 7(a) loans for:

• Owner-occupied commercial real estate purchase and expansion
• Owner-occupied commercial real estate construction
• Short- and long-term working capital
• Equipment purchase
• Business acquisition financing
• Existing debt refinancing

SBA Express. These loans and lines of credit have a loan limit of up to $500,000. You can use them for:

• Owner-occupied commercial real estate purchase and expansion
• Owner-occupied commercial real estate construction
• Short- and long-term working capital
• Equipment purchase
• Business acquisition financing
• Existing debt refinancing

SBA 504 Loans. This program entails direct lending participation between lenders and the SBA, with banks generally providing 50% of the project cost, the SBA providing 40%, and the borrower providing a 10% down payment. The minimum SBA loan amount is $50,000 and the maximum is $5 million. You can use these loans for:

• Owner-occupied commercial real estate purchase, expansion, or refinance
• Owner-occupied commercial real estate construction
• Long-term equipment purchase

SBA Loan Requirements

Your business must meet several conditions to qualify for an SBA loan, including the following:

• The business must be for-profit.
• The business must operate in the United States.
• The business generally has less than $15 million in tangible net worth and a two-year average net income less than $5 million after federal income tax.

What You Can’t Do With an SBA Loan

You can only use SBA loans for "sound business expenses." That means you cannot use an SBA loan for personal expenses, such as personal credit card bills, your home mortgage, or student loans.

SBA Loan Benefits

SBA loans provide flexible terms, relatively low interest rates, lower down payments, and longer repayment terms.

How Do I Get an SBA Loan?

Once you’re ready, you can apply for an SBA loan through an SBA preferred lender, such as Fifth Third Bank. The documents you’ll need include:

• Personal financial statement
• Three years of personal income tax returns
• Three years of business tax returns
• Business certificate or license
• Business lease

Once you’ve gathered the necessary documentation, a Fifth Third banker can help you with the application process.