Personal Business

How to Apply for an SBA Loan

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SBA loans, which are partially guaranteed by the Small Business Administration, can be an excellent way to get the funding you need for your business. They often come with low-interest rates and favorable repayment terms.

That said, the application and approval process can take several weeks or even months. Knowing how to apply for an SBA loan before you get started can help you ensure everything is in place to submit your application and potentially save some time. 

Here are four steps to help you through the process, along with other key things to understand before you get started.

Step 1: Find a Lender

The Small Business Administration doesn’t originate loans. Rather, it provides a partial guarantee on loans offered by approved lenders.

In other words, you can’t get an SBA loan from just any bank or credit union. If you already have a relationship with a financial institution, check to see if it offers SBA loans. Being an existing customer could make the process go more smoothly.

Otherwise, use the federal agency’s Lender Match tool to search for national and local lenders that can offer you an SBA loan. There are more than 800 lenders that participate in the Lender Match program. 

You’ll start by describing your company’s needs. This takes as little as five minutes. Then, the SBA will provide your information to lenders in its database. Within two days, you’ll receive an email with a list of contact details of lenders that are interested in working with you.

As you compare different lenders, it’s important to consider a number of factors. Remember, SBA loans are offered by individual financial institutions, which means that interest rates, repayment terms, and fees can vary from lender to lender.

Take your time to shop around and compare these terms. You may also want to look into each lender’s track record of customer service to get an understanding of what your experience will look like.

Once you’ve decided on a lender, you can proceed to the next step.

Step 2: Choose Your Loan Type

There are several different types of SBA loan programs available, each with its own purposes and terms. If you haven’t already done your research and know which loan is best for you, take a minute to compare the options. Here are some of the top choices:

  • SBA 7(a) Loans: You can borrow up to $5 million, which is to be repaid over five to 10 years (25 years if used for real estate purposes). 
  • SBA 7(a) Small Loans: This option comes with many of the same terms as SBA 7(a) Loans. The primary exception is that this loan program maxes out at $350,000.
  • SBA Express Loans: You can get a term loan or a line of credit of up to $350,000. If it’s a term loan, repayment options mirror the 7(a) Loan program. If it’s a line of credit, you’ll get up to seven years. The primary benefit of the SBA Express Loan program is a quicker application and approval process.
  • 504 Loans: Provided through Certified Development Companies (CDCs), these loans are primarily used for fixed assets, such as commercial real estate or heavy equipment. Loans can be as high as $5 million, and repayment terms extend from 5-25 years. There’s also a 504 Debt Refinancing Program.
  • Microloans: These small loans are designed for newer businesses with small financing needs. The loan program maxes out at $50,000, but the average loan is just $13,000. The Microloan program is offered through nonprofit intermediary lenders.

You can use the SBA loan programs chart to learn more about each one, along with some of the other loan options available.

Step 3: Collect Your Documents and Fill Out the Forms

The documents you’ll need to complete an SBA Loan application will depend on the type of loan program you’re applying for. That said, each program typically requires a lot of documentation, and it can take time to gather it all together.

Here’s just an example of what you’ll need to provide if you’re applying for an SBA 7(a) Loan, according to the federal agency:

  • SBA Loan application (SBA Form 1919)
  • Personal background and financial statement (SBA Form 912 and SBA Form 413)
  • Business financial statements, including current and previous profit and loss statements and a one-year projection
  • A list of ownership and affiliations 
  • The original business license or certificate of doing business
  • Your application history for other business loans
  • Personal and business income tax returns for the last three years
  • Personal resumes for each principal
  • A brief business history and overview of the needs of your business and how an SBA loan will help
  • Copy of your business lease or a note from your landlord giving terms of a proposed lease

Additionally, if you’re planning to use an SBA loan to acquire an existing business, you’ll need to provide the following for the business you plan to purchase:

  • A current balance sheet with your profit and loss statement
  • Three years of tax returns
  • Proposed bill of sale with the terms of sale
  • Asking price with a schedule of inventory, furniture and fixtures, and machinery and equipment

You can get more information about what you need — for this program or a different one — directly from your lender of choice or the SBA.

Step 4: Apply for Your Loan

Once you’ve put together everything you need, it’s time to submit your loan application to the lender, which will start the initial underwriting process to determine your eligibility and the terms of the loan.

Throughout this process, the lender may request additional information or documentation to get all of the details it needs to make a decision. 

If they decide to continue with your application, you’ll receive a loan proposal or letter of intent from the lender outlining the terms of the loan. If you accept, the lender will begin a more formal underwriting process, at which point the SBA gets involved.

For most SBA Loans, it can take between 60 and 90 days to get approved and receive your loan funds. SBA Express Loans take less time, but can still take several weeks, depending on the lender. That said, funding times can vary by lender and loan program.

If you’ve been approved by both the lender and the SBA, you’ll receive a commitment letter. If you accept, the lender will move on to the closing process, which can take a few weeks. As soon as everything has been completed, you’ll receive the loan funds.

What Is Required to Qualify for an SBA Loan?

The vast majority of small businesses are eligible for an SBA loan, according to the Small Business Administration. However, there are four overarching requirements businesses must meet to be eligible. More specifically, your business must:

  • Operate for profit
  • Be engaged in, or propose to do business in, the U.S. or one of its territories
  • Have reasonable owner equity to invest
  • Use alternative financial resources, including personal assets, before seeking financial assistance

On top of that, individual lenders will have their own eligibility requirements, which will include looking at your personal and business credit, collateral, how long you’ve been in business, your revenues and expenses, your industry, and many other factors. 

To build business credit, you can look into Credit Strong’s business credit builder loan in order to start increasing your business credit score!

In terms of credit scores, you typically need a FICO score of 640 or higher and a FICO Small Business Score Service score of 155 or higher. That said, individual lenders may have higher minimums, and the better your credit, the higher your chances will be of getting approved.

Businesses that are strictly prohibited from the SBA loan program include:

  • Real estate investment firms
  • Firms involved with certain speculative activities
  • Dealers of rare coins and stamps
  • Firms involved in lending activities
  • Pyramid sales plans
  • Firms involved in illegal activities
  • Any business whose principal activity is gambling
  • Charitable, religious, or other nonprofit organizations

If you’re unsure about eligibility requirements, contact a lender directly to get more details so you can determine your odds of success in getting approved.

Can I Get an SBA Loan Without a Business?

SBA loans are only available for small businesses, which means you need to have one in order to receive funding. 

What’s more, most SBA loans are accessible only to small businesses that have been operating for at least a few years and have established revenues. 

SBA Microloans are geared toward startups and other new small businesses, but even those can be difficult to get approved for if you don’t have a strong financial track record.

If you’re considering applying for an SBA Loan to get a business off the ground that you haven’t started yet, you may need to look elsewhere to get financing. Options may include personal loans, business credit cards, and online business loans.

Can You Apply Online for an SBA Loan?

Yes, you can apply online for an SBA loan. However, the application process will vary from lender to lender. Some established banks and credit unions with brick-and-mortar branches may prefer in-person applications. 

However, there are many online lenders that don’t have the infrastructure to allow for in-person applications, so you can complete the whole process, including uploading your documentation, digitally.

If being able to apply online is an important factor for you, take that into consideration as you compare different lenders. However, if you want a human touch with this long, arduous process, you may prioritize local lenders that you can visit and apply with in person.

The Bottom Line

SBA loans can provide relatively inexpensive financing to help you manage your working capital, expand your business, acquire another business, purchase necessary equipment or real estate, and more.

But applying for an SBA loan can take time, and it’s important to not take the process lightly. Before you get started, make sure you walk through each of these steps carefully. Also, take a look at the eligibility criteria and determine where you stand.

That includes knowing your financial situation, personal and business credit scores, collateral options, and more.

It’s also important to know your timeline. Because SBA loans can take up to a few months to close, you may also want to consider other loan options if you need funding faster. 

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