The SBA not only provides funding for women entrepreneurs, but also has online resources, counseling, training, and more. Find out more how the SBA can help your female-owned business.
Until the passage of H.R. 5050: Women’s Business Ownership Act in 1988, women in many states couldn’t even receive a business loan without having a male cosigner. Thanks to this legislation, more resources are available for women business owners, including SBA loans for women.
The Small Business Administration offers affordable loan programs and additional resources to female entrepreneurs and small business owners. Read on to learn how you can use these resources to grow your woman-owned business.
What Is The SBA?
The Small Business Administration (SBA) provides resources to help small business owners be successful. This includes in-person and online counseling, low-cost training, and advocacy for small businesses. One of the SBA’s most significant resources is its low-interest loan programs.
Securing a traditional loan from a bank or credit union can be tough for any business owner. These financial institutions view small businesses as a risk, even when the business has established a track record of success.
Alternative lenders have fewer requirements but much higher rates and less favorable terms. Low borrowing limits through these lenders may also prove to be a problem.
Instead of simply accepting a loan with less-than-desirable terms, many business owners look to the SBA to receive loans with competitive rates and terms, even when they’ve been turned down for other loans.
How The SBA Helps Women-Owned Businesses
Even though legislation has been leveling the playing field for female entrepreneurs, the Center for Women’s Business Research found that almost half of women business owners don’t seek outside sources of funding for their businesses.
Not only does the SBA provide funding for women, but it also has online resources, counseling, training, and more. Here’s what the SBA has to offer women with small businesses.
Female entrepreneurs that don’t qualify for traditional loans can receive competitive rates and terms through SBA programs.
The SBA does not discriminate when it comes to funding and resources. Women-owned businesses can take advantage of everything that the SBA has to offer. Female entrepreneurs can apply for all SBA loans provided they have a “small business” as defined by the SBA and meet all other requirements. These loans open up funding opportunities for women to launch or grow their small businesses.
One important thing to note here is that the SBA is not a lender. Instead, this organization has created guidelines that keep interest rates low and repayment terms flexible. Money is loaned through lenders known as intermediaries — a bank, credit union, nonprofit, or other lender.
The SBA takes the risk off of lenders by guaranteeing large percentages of most loans. This makes it easier for lenders to loan to small businesses.
Women's Business Centers
The SBA’s Office of Women Business Ownership was created to enable and empower female entrepreneurs. Training and counseling are available to all women through Women’s Business Centers, with over 100 educational centers open nationwide.
The Office of Women’s Business Ownership also collaborates with other organizations to provide additional resources to women entrepreneurs.
WOSB Federal Contracting Program
The Women-Owned Small Business (WOSB) Federal Contracting program lets women-owned businesses bid on federal contracts with less competition. Only businesses that are certified WOSBs are eligible to compete for these contracts.
To qualify, a business must be a small business as defined by the SBA, be at least 51% owned and controlled by U.S. citizens that are female, and have women in charge of day-to-day operations and long-term decisions.
Women that operate economically disadvantaged businesses can bid on federal contracts with even less competition, provided they meet all requirements of the SBA.
Types Of SBA Loans For Women-Owned Businesses
While all SBA loans are available to female entrepreneurs, SBA 7(a) loans, Community Advantage loans, Microloans, and CDC/504 loans may be the most suitable options.
SBA Standard 7(a) Loans
The SBA 7(a) loan is one of the most popular loan options for small business owners. Through the 7(a) program, borrowers are eligible to receive up to $5 million that be used for nearly any business purpose, including:
- Acquiring a business
- Expanding a business
- Startup costs
- Working capital
- Refinancing existing
Repayment terms are based on the borrower’s ability to repay and are up to 10 years for loans used as working capital or up to 25 years for loans used for commercial real estate.
SBA 7(a) loan interest rates are based on the amount borrowed and the repayment terms. The maximum interest rate for a 7(a) loan is the prime rate plus a markup between 2.25% and 4.75%.
Collateral requirements for 7(a) loans are as follows:
- $25,000 or less: No collateral required
- $25,001-$350,000: May require collateral based on the lender’s policies
- $350,001-$5 million: Collateral required
A guarantee fee must be paid by the borrower for 7(a) loans over $150,000.
SBA Community Advantage loans are designed to serve businesses in underserved markets, including rural and low-income areas.
These loans are similar to the SBA 7(a) loans in how funds can be used and repayment terms. However, the SBA CA loan can’t exceed $350,000.
These loans may also be a good choice for new businesses that have been in operation for less than two years.
If you have smaller capital needs, the SBA Microloan program may be the right financing solution for your business.
Women-owned businesses can apply for up to $50,000 through this program. The average loan amount distributed through this program is $13,000. These loans are distributed through nonprofit lenders.
SBA Microloan proceeds can be used for:
- Working capital
- Purchasing equipment or fixtures
- Improving a business
Microloans can’t be used to repay existing debt.
Microloans are distributed through nonprofit lenders. Maximum repayment terms are set at six years. The interest rate is based on the lender’s cost of funds. The lender can add a maximum of 8.5% to its cost of funds when distributing loans.
There is no guarantee fee required with these loans. Collateral and/or a personal guarantee may be required by the lender as a condition of receiving the loan.
SBA 504 Loans
The SBA CDC/504 loan is a little bit different from other SBA programs because you work with two different lenders. This is how it works:
- A Certified Development Company (CDC) provides up to 40% of project costs
- A private lender provides 50% of project costs
- The borrower pays the remaining 10% of costs
If you’re a new business or purchasing a special-use property, you may have to pay up to 10% more.
SBA 504 loans can be used for:
- Purchasing or improving commercial buildings
- Purchasing or improving land
- Long-term equipment
- New construction
- Refinancing debt connected to purchasing or updating facilities or equipment
Your CDC loan comes with repayment terms of 10 or 20 years. Interest rates for the portion of the project funded by the CDC are based on the 5-year and 10-year U.S. Treasury issues. Interest rates and repayment terms funded by the private lender vary.
Additional collateral is not typically required. The assets being purchased act as collateral. All owners with at least a 20% stake in the business are required to sign personal guarantees to receive this loan.
How To Qualify For An SBA Loan
Women can apply for any SBA loan product, provided they meet lender and SBA requirements. While specific requirements vary based on lender, type of loan, and other factors, these are the general requirements for receiving an SBA loan.
Basic Requirements For SBA Loans
To qualify for an SBA loan, applicants must:
- Own a business that engages in business or plans to engage in business within the United States or U.S. territories
- Own a for-profit business
- Have invested in their own business
- Have exhausted all other financing options
Although SBA loans are only available to for-profit businesses, nonprofit childcare centers may quality for SBA Microloans.
Only small businesses qualify for SBA loans. This means that there are limits on:
- Number of employees
- Annual revenue
- Net worth of business
Most small businesses operate in an industry that’s eligible to receive SBA loans. However, there are some ineligible industries, including:
- Multi-level sales
- Investment firms
- Lending firms
- Businesses engaged in illegal operations
- Government-owned businesses
- Religious institutions
- Gambling businesses
- Businesses owned by parolees
Personal Credit Score & History
Your personal credit score will be a factor for approval. Though credit requirements vary by lender, most SBA intermediaries require a solid credit score in the mid-600s. Some lenders prefer to see scores in the high-600s or above.
Your credit history will be evaluated and should be free of:
- Recent bankruptcies
- Tax liens
- Defaults on government loans
Other negative items on your credit report — such as late payments, collections, or charge-offs — will need to be explained to your lender. Depending on the severity, negative items may disqualify you from receiving a loan.
You must show sufficient revenue to cover your monthly loan payment. Your lender will evaluate your revenue and your current debts during the underwriting process to determine if you can afford the new loan.
Lenders use formulas like the debt-to-income ratio and the debt service coverage ratio to determine whether you qualify for a loan, as well as the amount you’re eligible to receive.
Down Payment & Collateral
Depending on the loan you apply for and the total borrowing amount, you may also be required to pay a down payment and/or put up collateral to secure the loan. In most cases, all owners with at least a 20% stake in the business must sign a personal guarantee.
Can I Get An SBA Loan If I Have Bad Credit?
Most lenders want to see a credit score of at least 620, while scores over 700 are preferred. If your credit score falls below 620 or your credit report has negative items such as bankruptcies, foreclosures, or collections, the chances of receiving an SBA loan are slim to none.
If your score falls short, there are steps you can take to potentially qualify in the future:
- Access your free credit score online
- Review your free credit report
- Dispute credit report errors with the credit bureaus
- Pay your current debt obligations as agreed
If your financing need is urgent, you can apply for loans for bad credit borrowers. While these options offer fast funding, these loans have less favorable terms, higher interest rates, and an overall higher cost of borrowing than SBA loans.
How To Apply For An SBA Loan
If your business needs financing and you meet the requirements of the SBA, you can apply for an SBA loan. The steps that you take next are determined by the type of loan you select.
The first step is to find your lender. The lender you select is based on the loan you’re pursuing:
- 7(a) Loans: Use the SBA’s Lender Match service to connect with an intermediary lender or get referrals through your existing financial institution. Banks, credit unions, online lenders, and other SBA-approved lenders can help you get the funding you need.
- Microloans: A nonprofit SBA-approved lender is required to receive an SBA Microloan.
- CDC/504 Loans: You will need to find a CDC that is licensed with the SBA, as well as a private lender that will loan money to cover 50% of your project costs.
Once you’ve found a lender, you’ll fill out an application for an SBA loan. In addition to details about your business, your lender may also need:
- Breakdown of ownership
- Summary of how loan proceeds will be used
- Details about how you plan to repay your loan
Documentation will also be submitted with your application. This documentation will be used to determine if your business qualifies for funding. While requirements may vary by lender, expect to present the following items:
- Personal credit reports & scores
- Business credit reports & scores
- Business licenses & permits
- Articles of Incorporation
- Business & personal federal income tax returns
- Cash flow statements
- Balance sheet
- Profit & loss statements
- Business plans
- Financial projections
Depending on the loan product you select, additional documentation may be required. For example, a letter of intent from a private lender is needed when applying for an SBA CDC/504 loan.
As you move through the application process, be prepared to provide information on the collateral being used to secure the loan (if required) and all owners should be ready to sign a personal guarantee.
Once all documentation and information are gathered, the lender will evaluate your application, taking into consideration factors including credit score, credit history, time in business, and your ability to repay the loan. Don’t be surprised if the lender has questions or requests more information throughout the process. Make sure that your contact information is up to date and that you make yourself available to keep the process moving forward.
The underwriters may take several weeks to review your full loan application. With banks and traditional lenders, you may wait two to three months (or longer) from the application stage to funding. Some lenders offer expedited services to help you get the money you need fast, so if time is an issue, shop around for intermediary lenders that offer fast approvals and funding, like online lenders SmartBiz and Lendio.
Other Business Resources For Women
There are plenty of other resources for female entrepreneurs outside of the SBA. The National Women’s Business Council offers nearly 200 resources through the Grow Her Business initiative, including accelerators and incubators, business competitions, conferences, crowdfunding, and alternative lender programs.
The National Association of Women Business Owners also provides resources to help empower women business owners. This organization offers training, education, and virtual networking to female entrepreneurs.
Entrepreneurs can also take advantage of many funding opportunities outside of SBA loans, including grants and small business loans.
The Bottom Line On SBA Loans For Women
Women have come a long way in recent years, especially when it comes to entrepreneurship. The great news is that there are plenty of resources available to female entrepreneurs — you simply need to know where to look.
Before you apply for SBA loans, do your research. Evaluate your loan options, shop around the various lenders, and make sure that getting a loan will help you take your business to the next level.
SBA Loans For Women FAQs
Is it hard for a woman to get an SBA loan?
Provided she meets all requirements set by the SBA and the lender, it’s no more difficult for a woman to get an SBA loan than her male counterparts. The SBA does not discriminate and provides low-cost funding opportunities for all eligible small business owners.
Does everyone qualify for an SBA loan?
Unfortunately, everyone does not qualify for an SBA loan. Applicants with businesses in ineligible industries, credit score challenges, low revenues, no legitimate purpose for taking out the loan, or that exceed the size standards of the SBA may not qualify.
What credit score do I need for an SBA loan?
The higher your personal credit score, the higher your odds of scoring an SBA loan. Generally, your credit score should be in the high-600s or above, while some options may be available to applicants with scores in the low- to mid-600s.
Are SBA loans hard to get?
The application process for SBA loans can be long and difficult. There are many documentation requirements, and you must meet all requirements set by the SBA and the intermediary lender. Depending on the loan you select, the entire process may take several months from application to funding.