The Nitty-Gritty of SBA Lending

SBA loans are a cornerstone of small business financing in the United States, but they often give rise to misconceptions about how they work, who they serve, and what sets them apart from traditional bank loans. Understanding the structure, benefits, and trade-offs of SBA lending can help business owners make smarter decisions about growth and capital. 

What Is an SBA Loan? 

At its core, an SBA loan is a government-backed business loan, not a direct government cash grant. The U.S. Small Business Administration (SBA) guarantees a portion of the loan, reducing the bank’s risk and encouraging lending to businesses that might otherwise struggle to secure traditional financing. 

The most common SBA product is the 7(a) loan. It provides financing for a wide range of purposes, including working capital, business acquisitions, debt refinancing, equipment purchases, and owner-occupied commercial real estate. 

How SBA Loans Work 

SBA lenders make the loan, and the SBA partially guarantees it. This partnership expands access to capital for many small businesses that might not otherwise qualify. 

A few key points: 

• Loan size: SBA 7(a) loans can go up to $5 million. 
• Uses: These loans can support business growth, refinance existing debt, or purchase real estate and equipment. 
• Eligibility: Businesses must be for-profit, operational, located in the U.S., and unable to secure financing on reasonable terms from conventional sources. 

SBA loans offer features that many small businesses find attractive: 

• Longer amortization periods, often up to 25 years 
• Lower equity requirements compared with conventional loans 
• A government guarantee that encourages lender participation 

Want a clearer picture of the SBA loan process? Our SBA Loan Roadmap breaks down approval, documentation, and funding. 

Talk With an SBA Banker

Not sure SBA financing is the right fit yet? Get started here. 

The Role of SBA Preferred Lenders 

Not all SBA lenders operate the same way. Banks like Locality Bank, which have earned SBA Preferred Lender status, can make credit decisions and close loans without prior SBA review, streamlining and accelerating the process. 

According to SBA materials and industry sources, Preferred Lenders handle underwriting, closing, servicing, and liquidation with delegated authority, shortening approval timelines and reducing back-and-forth. 

Locality Bank earned its SBA Preferred Lender designation in early 2024, joining a select group of lenders nationwide with this capability. 

This status not only helps businesses move more quickly through the lending process, but it also reflects an institutional commitment to SBA lending expertise and strong borrower outcomes. 

To keep things moving, we also partner with Parlay Finance to use AI to organize financial information early. This reduces back-and-forth for borrowers and streamlines the process for our bankers. 

Collateral and Guarantees 

The SBA guarantee reduces risk for the lender, but it doesn’t eliminate lender due diligence. Collateral may be required when available and appropriate, and most SBA loans involve a personal guarantee from owners with a significant ownership stake. 

Collateral rules vary by loan size and type, but the primary focus remains on the borrower’s ability to repay the loan. Lenders balance collateral with cash flow when evaluating applications. 

How do collateral and personal guarantees really work in SBA loans? Read our overview.

Expect a Thoughtful Process (Not a Quick Fix) 

Unlike some modern alternative financing options, SBA loans are not designed for instant or minimally documented approvals. Because they involve federal guarantees and compliance with SBA standards, they typically require: 

• Detailed financial documentation 
• Cash-flow analysis 
• Business and owner credit review 
• Appraisals and third-party reports, where applicable 

This process can take longer than conventional lending, but the trade-off is often better loan structures, including longer terms and more reasonable monthly payments, which can support sustainable growth. 

Where SBA Lending Can Be Most Valuable 

SBA loans tend to make the most sense when business owners are focused on long-term stability and strategic growth, such as: 

• Purchasing or renovating an owner-occupied property 
• Acquiring another business 
• Refinancing existing, high-cost debt (see our guide) 
• Investing in major equipment 

They may not be the best fit for short-term cash needs or businesses that can secure financing through simpler, faster channels. 

What This Means for You as a Business Owner 

SBA lending isn’t just about access to capital; it’s about access to the proper structure for your long-term business plans. It’s a partnership across three layers: the borrower, the lender, and the SBA guarantee, and that structure exists to help businesses scale with disciplined decision-making rather than short-term fixes. 

Locality Bank’s role is to help business owners navigate this process with clarity and confidence. Whether the goal is acquiring real estate, refinancing debt, or investing in growth, an SBA loan remains a powerful option when paired with thoughtful strategy and expert support. 

Ready to Take the Next Step? 

If SBA financing aligns with your long-term goals, we can help you figure out the next step. 

Want to talk it through first? Contact our SBA team, and we’ll help you map out the best path forward. 

Ready to begin? Start the application here. 

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Disclaimer: The information provided in this content is for general educational purposes only and does not constitute professional advice. Locality Bank makes no warranty, express or implied, nor assumes any legal liability or any responsibility for the accuracy, correctness, completeness, or any actions taken based on the information provided. Loan programs, terms, and requirements are subject to change. Deposit accounts are subject to account opening requirements. Always consult a qualified professional for specific guidance related to your situation.