How to Obtain an SBA Loan: Steps for Small Businesses

Financely
6 min readApr 3, 2024
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Obtaining an SBA loan can be a significant step in growing your small business. The Small Business Administration (SBA) offers several loan programs designed to cater to the various needs of small business owners, such as working capital, expansion, and equipment purchases.

By understanding the different types of SBA loans available and their respective qualification criteria, you can better prepare yourself for the application process.

One of the most common SBA loan programs is the 7(a) loan, which offers up to $5 million for various business purposes. There are other loan types, such as SBA Express loans, which have a quicker approval process and a maximum limit of $500,000.

When contemplating an SBA loan, take time to research the various loan options, find an SBA-approved lender, and gather the necessary documentation for a successful application.

Navigating the loan application process can be complex, especially for first-time borrowers. It is crucial to have a thorough understanding of the requirements, qualifications, and steps to follow in order to increase your chances of approval.

Preparing a strong application, showcasing your business plan, and understanding the different terms and conditions will set your business on the path to success through the financial support provided by an SBA loan.

Key Takeaways

  • SBA loans offer a variety of funding options for small businesses.
  • Carefully research loan types and find an SBA-approved lender to guide you.
  • Thoroughly understand the application process and requirements for a successful outcome.

Understanding SBA Loans

As we explore the world of SBA loans, it’s essential to have a clear understanding of the various types available, their eligibility requirements, and the terms and conditions. In this section, we’ll break down these elements to give you a better grasp on how to obtain an SBA loan for your small business.

Types of SBA Loans

There are several types of SBA loans, with the most common being the 7(a) loan, 504 loan, and microloan.

  • 7(a) loan: The SBA 7(a) loan is the most popular program available, offering up to $5 million in funding for working capital, expansion, and equipment purchases.
  • 504 loan: The SBA CDC/504 loan is designed to finance the purchase of long-term, fixed assets such as real estate and equipment, providing small businesses with a lower-cost option to secure large, capital-intensive investments.
  • Microloan: As the name suggests, SBA microloans are smaller loans (up to $50,000) aimed at helping new or growing small businesses with limited financing requirements.

Eligibility Requirements

To be eligible for SBA loans, you must:

  1. Operate as a for-profit business
  2. Meet the SBA’s size standards
  3. Demonstrate a need for financial assistance
  4. Have a sound business plan
  5. Maintain a sufficient credit score

Keep in mind that additional requirements may vary depending on the specific type of SBA loan you’re applying for.

Loan Terms and Conditions

SBA loan terms and conditions, such as interest rates, fees, and repayment schedules, can vary depending on the loan type and the SBA-approved lender you work with. Here’s an overview of some general terms to expect:

  • Interest rates: SBA loans typically offer competitive rates, often lower than traditional financing options. Rates can either be fixed or variable, depending on the loan type and lender.
  • Fees: There are various fees associated with SBA loans, including origination fees, closing costs, and a guarantee fee. Be sure to ask your lender for a breakdown of all fees before signing the loan agreement.
  • Repayment terms: Repayment schedules vary based on the loan type, size, and usage. Terms can range anywhere from 5 to 25 years, with the lengthiest terms reserved for real estate and significant capital investments.

Applying for an SBA Loan

Choosing a Lender

When applying for an SBA loan, it’s crucial to find the right lender to work with. The U.S. Small Business Administration has a Lender Match tool that helps you connect with SBA-approved lenders.

You have several options, including banks, credit unions, online lenders, and other financial institutions. It’s a good idea to consider multiple lenders to compare loan terms and ensure you get the best fit for your business needs.

Preparing Application Documents

Applying for an SBA loan requires careful preparation and submission of various financial documents. Here’s a list of essential documentation to gather:

  1. Business financial statements — You’ll need to provide balance sheets, income statements, and cash flow statements to give the lender a clear picture of your business’s financial health.
  2. Personal financial statement — This document outlines your personal finances to help assess your overall creditworthiness.
  3. Business tax returns — You should submit the most recent federal business tax returns to confirm your business’s tax obligations.
  4. Statement of personal history — This form informs lenders about your background, including any criminal history.
  5. Resumes — Providing resumes for you and other key members of your business can help showcase your experience and qualifications.
  6. Business lease — If you rent a physical location for your business, you’ll need to provide a copy of your current lease agreement.

Organizing these documents before starting the application process will help streamline the submission and review process.

The Approval Process

Once you have chosen an SBA lender and prepared your application documents, you can submit the materials to the lender for review. The approval process involves the following steps:

  1. Lender review: The lender will assess your application and financial documents to determine your eligibility and creditworthiness.
  2. Underwriting: If your application is initially approved, it will move through the underwriting process, during which the lender will further evaluate your financials, work history, and business plan.
  3. Loan terms negotiation: If underwriting is successful, you’ll receive a loan offer, and you’ll have the opportunity to negotiate the terms, such as interest rates and repayment schedules, to reach an agreement that works best for your business.
  4. Officially registered: After finalizing the loan terms, you’ll need to sign the necessary agreement documents to register your loan with the U.S. Small Business Administration.

Frequently Asked Questions

What are the eligibility requirements for an SBA loan?

To be eligible for an SBA loan, your business must be for-profit, operate and be physically located in the U.S. or its territories, and meet the SBA size standards. Additionally, your business should have a tangible net worth of $15 million or less.

What documentation is needed to apply for an SBA loan?

When applying for an SBA loan, you’ll need to provide various documents, including but not limited to:

  • Personal background and financial statements
  • Business financial statements
  • Income tax returns
  • Resume
  • Business overview and history
  • Business licenses and registrations
  • Your business lease

Can startups qualify for SBA loans, and if so, how?

Yes, startups can qualify for SBA loans. To increase your chances, ensure you have a solid business plan, strong personal credit, and relevant industry experience. Meeting specific requirements and providing documentation, such as projected financial statements, will be necessary.

What are the typical terms and conditions of an SBA loan?

The terms and conditions of an SBA loan depend on the loan type. Some common elements include:

  • Loan amounts ranging from $500 to $5.5 million
  • Fixed or variable interest rates
  • Repayment terms from 5 to 25 years (depending on the loan purpose)
  • Collateral requirements depend on the loan amount and purpose
  • Personal guarantees by the business owner(s)

For more details, visit the SBA funding programs page.

How can one apply for an SBA Disaster Loan?

To apply for an SBA Disaster Loan, visit the SBA’s disaster loan assistance website and follow the detailed application process. Be ready to submit critical information such as personal financial statements, tax returns, and a description of the disaster’s impact on your business.

What are the differences between SBA 7(a) loans and SBA Express loans?

SBA 7(a) loans are the most common type of SBA loan. They offer amounts up to $5 million. However, they have longer processing times but offer more comprehensive financial assistance.

On the other hand, SBA Express loans have a streamlined application process and a faster decision-making timeline. However, loan amounts are limited to $350,000. Also, the interest rates can be higher for SBA Express loans compared to 7(a) loans. Visit the SBA 7(a) and SBA Express loans comparison page for more information on their differences.

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