How To Apply For An SBA Loan: A Complete Guide
The Small Business Administration offers multiple funding options for small businesses. Find out which loan is the right fit for you.
When it comes to financing, smart small business owners know that you can’t go wrong with a loan from the Small Business Administration. Maybe you’ve heard about the benefits of SBA loans, and you’re ready to get funded.
There’s just one problem: you don’t know how to begin when it comes to the SBA loan application process.
While it may be intimidating, the SBA loan application process isn’t that much different from getting a loan from your bank. However, knowing what to expect before you get started can help the process go much more smoothly and eliminate the hassles and headaches that come with being unprepared. Keep reading to find out how to complete the SBA loan process from start to finish.
Table of Contents
The Basic SBA Loan Application Process, Step-by-Step
Here is a step-by-step look at how to go through the SBA loan process.
Step 1: Check If You Meet SBA Lending Requirements
Before filling out an application or speaking with a lender, make sure that you’re qualified to receive an SBA loan. In most cases, businesses must meet these SBA guidelines to receive a loan:
- No more than 500 employees (for most industries)
- Net annual income can’t exceed $5 million
- Net worth of the business can’t exceed $15 million
- Business must be operated and headquartered in the United States
- Must be a for-profit business (nonprofit child care centers applying for SBA Microloans are an exception)
- Business must not be engaged in illegal activities
- Businesses involved in lending, investing, and real estate rentals will not qualify for most programs
Depending on which loan program you select, there may be additional requirements.
Step 2: Review Your Credit Report & Score
One of the most important factors in the SBA lending equation is your credit report and score. Your full credit report (both personal and business) will be evaluated by a lender to determine if you qualify. To receive the competitive terms that come with SBA loans, you must meet these requirements:
- Minimum personal credit score of 620
- No defaults on government-backed loans
- Foreclosures or bankruptcies may affect eligibility
- Valid explanation is required for negative items on your credit report, such as collections or past-due accounts
Depending on the loan you select and the lender you work with, SBA credit score requirements may be higher than the minimum listed above.
It’s easy to obtain a free credit score and report so that you can make sure you qualify and dispute any erroneous items. If you find that your credit score is low, you can begin taking steps toward improving your credit before you apply.
Step 3: Choose An SBA Loan Program
It’s important to understand the SBA loan programs that are available and which work best for you. Each program has specific rates, terms, and maximum loan amounts, as well as requirements for how the money is used.
Before you apply, you’ll need to evaluate your business needs to decide which program is the best fit.
|Flexible loans that can be used for many purposes, including working capital, equipment, inventory, business expansion, and real estate
|Small loans up to $50,000 that can be used for working capital, inventory, equipment, and other expenses
|Large loans used to acquire or update fixed assets such as real estate. 504 loans are offered in partnership with Community Development Companies (CDCs) or banks.
|Loans used to rebuild or maintain a business following a disaster
Step 4: Find An SBA Partner Lender
The next step in the SBA loan process is to find an SBA lender, also known as an intermediary.
SBA loans do not come directly from the SBA to the borrower. Instead, these government-backed loans are provided through approved lenders, including banks, credit unions, private lenders, CDCs, and nonprofits. Because the SBA guarantees at least 50% of loan proceeds (and in most cases, 85%), lenders are more willing to provide these loans to qualified small businesses.
This doesn’t mean that you can walk into any bank and receive an SBA loan. You have to find an SBA lender partner that services your area. Here’s how you can get started:
- Check to see if your financial institution offers SBA loans
- Get a referral from your financial institution for local SBA intermediaries
- Use the SBA’s Lender Match service
- Apply through online brokers, matching services, and marketplaces like SmartBiz or Lendio
Step 5: Put Together An SBA Loan Application
Once you’ve found an SBA-approved lender, it’s time to dive into the actual application process. This process can be a little intimidating, but it doesn’t have to be difficult, provided you know what to expect going in. The most important thing is to make sure you come prepared with the proper documentation.
Here’s the personal information you’ll need to gather for your SBA loan application:
- SBA borrower information forms for every partner, director, managing member, or owner of the company
- Signed personal guarantees for all owners with at least a 20% stake in the company
- Resumes for all owners with at least a 20% stake in the company
- Personal financial statements.
You’ll also need business documentation, including:
- Income statements
- Balance sheets
- Federal income tax returns for the last three years
- One-year cash flow projection
- Articles of Organization
- Business licenses
- Information pertaining to judgments and lawsuits
- Information pertaining to affiliated and subsidiary businesses
If collateral is required for your loan, you’ll need the following:
- Real estate appraisals
- Lease agreements
- Environmental reports
Before meeting with the lender, you can inquire about any additional documentation that is needed so that it can all be compiled prior to filling out the application.
Step 6: Complete & Submit Your SBA Loan Application
Once you’ve gathered all documentation and have completed your application, you will submit the complete loan package to your lender. It’s important to ensure that you include all information and documentation to prevent delays in the loan application process.
After submission, your lender will review your package to determine if your application is complete. The lender will also determine whether to approve the loan.
If your loan application is complete and the lender approves the loan, your documentation will be sent to the SBA.
Step 7: Wait For SBA Loan Approval
Once the application has been submitted for your SBA loan, the next step is to wait for your approval. Depending on the loan you’ve applied for, SBA loan approval can take several weeks, although some options — like SBA Express loans — will be approved within 36 hours.
During this time, you should communicate with your lender and make yourself available for any additional follow-up questions. More documentation may be required by the lender, so make sure that you deliver this in a timely manner to avoid delays in the application process. Typically, you should expect the entire process, from application to funding, to take 30 to 90 days.
Thankfully, checking your SBA loan status after you’ve applied is a fairly straightforward process.
How To Apply For An SBA 504 Loan
The SBA 504 loan process is a bit different than the standard SBA loan process. More documentation is required for these loans. This includes but is not limited to:
- Estimates, quotes, and costs from vendors and contractors
- Independent appraisals for real estate purchases
- A letter of intent from the lender
- A reason why the lender will not finance the entire project
- Lien instruments and account transcripts for refinancing debt
How To Apply For An SBA Loan To Buy A Business
When SBA loan proceeds are used to purchase a business, the process does not differ much from what it would be when applying for any other loan. Credit reports and financial documentation will be required to determine eligibility. Additional requirements may include:
- Business, stock, and asset purchase agreements for real estate purchases
- Real estate purchase agreements
- Business plans
- Proof of industry experience
How To Apply For An SBA Loan For A Startup
Startup businesses — businesses that have been in operation for 2 years or less — may be eligible for certain SBA loans. The requirements for a startup business are a little different when applying for an SBA loan.
New businesses must be able to show that they will be successful and profitable in spite of a short operating history. Alternative documentation is used to qualify new businesses, including:
- Detailed business plans
- Cash flow analysis
- Financial projections for at least one year
- Proof of industry experience
How To Apply For An SBA Loan For A Franchise
SBA loans are available for franchises. In many cases, loans for a franchise are easier to obtain than for the purchase of other new businesses because the franchise has a proven business model.
The organization has its own SBA Franchise Directory. This directory has a listing of all brands that are eligible to receive financing from the SBA. All brands that meet the FTC definition of a franchise are included on the list.
Some franchises do not fit under the FTC’s definition of a franchise. In these cases, the SBA has the option to add brands to the directory if it meets other requirements.
SBA loans can be obtained to purchase a franchise. The same documentation for other SBA loans applies. In addition, agreements between the franchisor and franchisee will also need to be produced, as well as other documentation.
SBA Loan Application Process FAQs
The Bottom Line On Applying For An SBA Loan
SBA loans are a great option for small business owners, but the application process can be frustrating when you don’t know what to expect. Being prepared, gathering your documentation in advance, and knowing what to expect beforehand can help simplify the process and put you one step closer to getting the funding you need.
If you don’t meet the SBA loan requirements or your application is rejected, there are other options available for your business, including small business loans and business lines of credit. Make sure to do your research, compare rates and terms, and explore your options to find the best funding option for your small business.