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Looking for an SBA loan for your new small business? Explore popular SBA loans, including microloans, 504 loans, and 7(a) loans, and how to apply.
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Lenders view startups as bigger risks than established small businesses, but SBA loans for startups give you access to the financing you need without high-interest rates and unfavorable terms.
Ready to find out how the SBA can help you get a small business startup loan? Read on to learn more about the loan options that can take your new business to the next level.
Table of Contents
Startup businesses can qualify for SBA loans. Startup businesses must show the ability to repay the loan and meet all requirements of the SBA lender to receive funding. These may include having good personal credit, creating a solid business plan, and meeting annual revenue requirements.
The Small Business Administration (SBA) was established to give small business owners the resources they need to operate their businesses successfully. In addition to training and advocacy, the SBA offers loan programs. SBA loans can be used for purposes including:
The SBA helps small businesses, including startups, acquire funding.
Startups are viewed by lenders as risky endeavors. The idea behind a startup may be a game-changer, but it isn’t yet proven — at least not in the eyes of a lender. Whereas established businesses have proof of their success in the form of financial statements, tax returns, and other documents, startup owners rely on their business plans and industry experience.
SBA loans aren’t distributed directly through the SBA. Instead, the organization has established several loan programs targeted at small businesses and startups through intermediaries — banks, private lenders, and even nonprofit organizations.
The SBA has outlined a set of standards for each loan program. Because the administration backs these loans, the lenders assume less risk, which translates to more funding opportunities for you.
SBA loan standards keep interest rates low and terms flexible. SBA loans are designed to help businesses grow and/or stay above water (as opposed to drowning in debt).
You can’t go wrong with SBA loans if you need startup funding. New businesses can qualify for many of the SBA’s most popular types of loans. The best kind of SBA loans for new businesses and startups include:
| Loan Program | Description |
|---|---|
| Microloans | Small loans up to $50,000 that can be used to purchase supplies, inventory, furniture, equipment, other necessities, or as working capital |
| 7(a) Loans | Small business loans up to $5 million; can be used as working capital or to purchase commercial real estate, inventory, equipment, and business expansion |
| Express Loans | Loans up to $500,000 that are similar to 7(a) loans; while interest rates are slightly higher, an approval decision is guaranteed within 36 hours |
| 504/CDC Loans | Loans that cover up to 90% of costs associated with purchasing or upgrading land or commercial real estate, refinancing debt associated with business expansions or upgrades, or acquiring fixed assets |
Most of the SBA loan programs don’t have a requirement for time in business. However, it is important to note that you will have to find an intermediary that works with startups.
Learn more about each type of SBA loan for new businesses and startups below.
Pros
Cons
Under the SBA Microloan program, small businesses can receive up to $50,000 from a nonprofit intermediary. The average amount funded through the Microloan program is $13,500.
Microloans are available to for-profit businesses with solid business plans. Interest rates vary by lender but tend to be low compared to other startup loans. Additional fees may be charged including:
The SBA limits how borrowers can use microloan funds. Loan disbursements can be used for:
Funds cannot be used to purchase real estate or pay off or refinance existing debt.
Pros
Cons
The standard SBA 7(a) program is the most popular choice for most startups and small businesses because of the flexibility it offers. Startups can receive up to $5 million in funding through the 7(a) loan program. Borrowers will also have more flexibility in how they can use the funds, including:
Repayment terms vary depending on how the loan proceeds are used and the borrower’s ability to repay the loan. For real estate purchases, the maximum repayment term is 25 years. If the proceeds are used for equipment financing, inventory, or working capital, repayment terms are set for a maximum of 10 years.
Interest rates vary but remain very competitive. Borrowers can also expect to pay a percentage of the borrowing amount for fees charged by the SBA and its partners. A down payment may be required to purchase real estate or equipment.
Pros
Cons
An SBA Express Loan for your startup business is a type of 7(a) loan that offers up to $500,000 with low-interest rates and long repayment terms. Funds can be used for the same purposes as standard 7(a) loans.
This program’s biggest advantage is that it comes with expedited turnaround times. After the application is submitted, an approval decision from the SBA is guaranteed within 36 hours (as opposed to the 5-10 days for a regular 7(a) loan).
One drawback to the Express program is that the SBA will only guarantee a maximum of 50% of the loan. Because the guarantee is lower, interest rates may be slightly higher than the standard 7(a) loans. However, all interest rates must fall within the SBA’s guidelines, so borrowers will still receive competitive rates.
Pros
Cons
The SBA CDC/504 loan program is designed for small business owners who want to make a fixed asset purchase to expand or update their business. This loan provides funding for:
This program requires the borrower to work with two partners to finance up to 90% of the project’s costs:
This program is a good choice for startups looking to expand or improve their commercial space.
There are a few basic SBA loan requirements businesses must meet in order to receive funding.
To qualify for an SBA loan, your startup must:
The following startups are disqualified from receiving SBA loans:
Most startups will meet the SBA’s basic borrower requirements to qualify for a business loan. Borrowers must find a lender that works with startups and meet additional requirements that may include:
One of the most important things to remember is that lenders will require good or excellent credit. Credit reports should reflect a good payment history, and any negative items must be explained to the lender. Your report shouldn’t contain any recent bankruptcies, foreclosures, or tax liens.
Looking for startup business loans with no collateral? SBA loans that might not require collateral include:
SBA 7(a) loans and Express Loans exceeding $25,000 could require collateral valued up to the total amount of the loan.
For microloans, the SBA does not require collateral but does advise lenders to follow lending best practices and collect collateral or equity if deemed necessary.
Personal guarantees are also required to obtain SBA loans. This agreement means the borrower agrees to put up personal assets if they default on the loan. If the startup does not have enough business property, personal assets will be used to back the loan.
While startups will not necessarily be disqualified from SBA loans by a lack of collateral (if all other conditions are met), your chances of being funded will improve if you have at least some collateral.
Ready to get an SBA loan for your startup? Here’s a breakdown of how to apply for an SBA loan for your new business.
Credit scores and reports are extremely important because they show your history of repaying your debts. Even if you haven’t yet established business credit, your personal score and report will be evaluated by a lender. In general, you want a credit score that is considered good or excellent before applying for SBA funding.
If you aren’t sure of where your credit stands, take a look at one of our favorite free credit score services. If your credit isn’t where it needs to be, you’ll need to put in the time to improve your score before applying. If you need fast funding but don’t meet SBA requirements, consider applying for a startup loan for bad credit.
After you have assessed your credit health, the next step is to find an SBA-approved lender that operates in your area. In addition to offering SBA loans, the lender should also work with startups. Start your search by:
Startups may not have the documentation that established businesses provide for an SBA loan. But there are a few other standard documents that you will need to provide to your lender during the SBA application process. This may include:
Your lender will evaluate your personal credit, your business plan, and your ability to repay the loan.
Once the SBA startup loan application process is completed and all paperwork has been submitted, you’ll simply need to wait for final approval. This could take weeks or even months if a challenge arises. Once approved, you’ll work with the lender to close your loan and receive your funds.
The process of obtaining an SBA loan is daunting for any business. As a startup or new business, the process can be even more complicated. However, with a solid business plan in place and a good credit score, it’s possible to obtain the funding you need with SBA loans for startups to put your new business on the path to success. Good luck!
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