What is the SBA?

Small Business Administration (SBA) Overview: The U.S. Small Business Administration (SBA), established in 1953, empowers small businesses and franchises with guaranteed loans, technical assistance, and disaster recovery support. Through programs like the flagship 7(a) loan, the SBA strengthens the nation’s economy by enabling business growth and community resilience. Whether you’re launching an international trade venture or expanding a franchise, SBA loans offer flexible financing solutions. Per the SBA SOP 50 10 8 (effective June 1, 2025), LoanBox connects you with SBA-approved lenders, ensuring your application leverages the SBA’s benefits for success. Explore how SBA loans work, their programs, terms, rates, fees, and key advantages below.

About the SBA: The SBA’s mission is to “maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters.” By guaranteeing portions of loans (50%–90%), the SBA encourages lenders to finance small businesses that might not qualify for conventional loans, covering industries from retail to international trade.

What are SBA loans?

The term “SBA Loan” is a bit of a misnomer in that the SBA does not actually provide the loan. SBA loans has played a critical role in advisor acquisition lending for 29 years. When properly navigated, for most advisors, the SBA loan is the easiest to qualify for and to get the most amount of lending dollars from. Most SBA loans advisors use for acquisitions are done without a down payment, without your house as collateral, and on a ten year term.

What are the key benefits of an SBA loan?

• 100% bank financed expansion acquisitions
• Qualify for up to 50% more lending dollars than many conventional loans
• Competitive interest rates
• Ten year terms, no balloon payments
• No pre-pay penalty
• Most advisors don’t need a cash down payment
• Ability for startups and W2 advisors to qualify
• More forgiving on credit issues like previous BKs and credit score
• Can have multiple acquisitions to reach the $5M lending limit
• Minimal ongoing covenant requirements compared to most conventional loans

What are SBA loan key limitations?

• No earn-out structures allowed
• Seller can’t continue as an officer or “key employee” longer than 12 months after the sale
• Time restrictions for refinancing seller notes (2 years) and bank notes used for acquisitions (1 year)
• Refinancing one SBA loan with another SBA loan is difficult and not common
• $5 million total lending limit (excluding real estate)

What is the average SBA loan amount to Advisors?

These are the average loan sizes funded to Wealth Advisors from all SBA lenders combined compared to AdvisorLoans average SBA loan sizes.

National Average SBA Loan Amount Funded to Advisors compared to average AdviosorLoans SBA loan amount for same year:

• 2017: $583K (AdvisorLoans $779K)
• 2018: $523K (AdvisorLoans $766K)
• 2019: $675K (AdvisorLoans $968K)
• 2020: $836K (AdvisorLoans $1.23M)
• 2021: $779K (AdvisorLoans $1.1M)
• 2022: $430K (AdvisorLoans $1M)
• 2023: $496K (AdvisorLoans $700K)
• 2024: $403K (AdvisorLoans $944K)

How common are are loan defaults for Advisors?

While conventional loan defaults are impossible to track, SBA loans can be tracked and SBA loans have a much larger sample size. All time there have been 353 loan defaults for advisors with 341 of these for loans under $150,000 and 349 were for original loan amounts to $350,000. Only 4 loans to advisors over $350,000 have defaulted.

In the 10 year period ending 2024 the charge-off ratio for SBA loans to Portfolio management and Investment Advice Industry advisor borrowers is 0.60, just over half of one percent.

What are the typical terms and rates?

SBA 7(a) loans are 10 year term loans with lenders offering rates typically from 2% to 3% plus WSP (Wall Street Prime) rate, which is currently at 7.5% (10/1/2024).

What are the typical SBA fees?

The SBA assesses a guaranty fee to loans provided through the SBA 7(a) program. It is essentially the equivalent to a conventional loan’s origination fee. The guaranty fee goes to the SBA and is not kept by the lender. The SBA has a rate schedule whereby the fee escalates with the size of the loan. While the fee is calculated based on the guaranteed portion of the loan, it breaks out to a converted 2% to 2.7% of the total loan amount. This fee is rolled into the loan and is not paid out-of-pocket by the advisor.

What are typical associated third party fees?

This varies based on the number of guarantors, loan type, if collateral is required, and what kind of collateral it is. SBA lenders will typically require a deposit before they start spending money on third party expenses. Here are the most common third party fees that can be associated with a SBA loan depending on the deal:

• Seller business valuation
• Buyer business valuation
• Bank’s lawyer fees (to review purchase agreement and exhibits as well as the loan package)
• Tax transcript search
• Lien searches
• Property appraisals and title work
• Escrow fee

Is there a pre-payment penalty?

There is not a pre-payment penalty with a typical SBA 7(a) loan. You can pay it off early or pay it down in extra chunks if you like. The loans will re-amortize and your payments will drop accordingly when pre-payments are made. If commercial real estate is being included in the loan, then it is possible to have a term that is 15 years or longer. For loans with terms over 15 years, there is a 5/3/1 pre-payment penalty.

Can W-2 advisors get SBA backed loans?

Typically, yes. The most common way is through an SBA loan which will require a 10% equity injection (down payment) of which the seller may seller finance 50% of the 10% equity injection on a 10 year standby note. See Equity Injection FAQ.

Are business valuations required for SBA loans?

For change of ownership loans over $250K a seller business valuation is required. For 100% financed loans a business valuation on the buyer’s practice is also almost always required. In both cases, the SBA lender will order the valuation from a SBA certified valuation firm that is on the lender’s approved valuator vendor list. For SBA loans, the loan amount for the purchase can’t exceed the valuation amount. Any difference over the valuation amount would have to be paid in cash from borrower or added as a seller note.