The Comprehensive Guide to Getting an SBA Loan
If you are interested in applying for a SBA disaster loan for businesses affected by the coronavirus pandemic, check out our guide on how to get a coronavirus business loan.
As with most affordable small business loans, figuring out how to get an SBA loan isn’t always easy. After all, although the SBA guarantee mitigates the risk lenders assume by issuing loans through their programs, you still have to meet a variety of specific requirements to qualify and apply for an SBA loan.
Overall, whereas some online lenders can fund loans in a matter of hours, getting an SBA loan is a much lengthier (but worthwhile) process—and can take anywhere from 60 to 90 days.
To help you streamline the process, we’ve created this guide. We’ll break down six simple steps you can follow to get an SBA loan for your business:
How to Get an SBA Loan: 6 Steps to Follow
If you’re asking yourself, “how do I get an SBA loan,” you’re likely already aware of the benefits of SBA loans for small business owners. In short, SBA loans are some of the most affordable business loans on the market—with highly desirable rates, terms, and loan amounts.
As such desirable products, however, SBA loans are also very competitive, and the process to actually get an SBA loan is lengthy and involved.
Whether you opt to work with a loan expert or complete the process on your own, getting an SBA loan can be much more manageable when you break things down into individual steps. Plus, at the end of the day, the time and effort will be worth the long-term, low-interest financing you receive for your business.
1. Determine your eligibility for an SBA loan.
In order to get an SBA loan, you first and foremost need to make sure you’re eligible for an SBA loan. As we’ll discuss below, some of the eligibility requirements you’ll need to meet will depend on the SBA loan program you’re applying for, as well as the specific lender you’re working with.
Generally, however, there will also be overarching eligibility requirements you’ll need to meet in order to get an SBA loan. As we mentioned, SBA loans are highly competitive, which means you’ll have to meet top requirements to qualify:
- Be a registered for-profit business
- The business is located and operates in the U.S.
- Meets the SBA definition of a small business
- The business owner has invested time and money into the business
- The business has exhausted other financing options
- Have not had any delinquencies or defaults on government debts in the past
- Strong personal credit score—with a minimum score in the range of 640 to 675
- At least two years in business
- Minimum annual revenue of $100,000
SBA Eligibility Requirements
The SBA sets a range of general requirements that businesses need to meet in order to be eligible for one of their loan programs. These requirements include:
Typical Lender Eligibility Requirements
Although the SBA does provide guidelines for each of their programs, many additional requirements are up to the individual lender. Overall, therefore, you can expect to need to meet the following criteria for SBA lenders to issue a loan:
Some SBA programs, however, will have slightly different qualifications. The SBA Microloan and Community Advantage programs, for example, are much more flexible in terms of their credit and time in business requirements—and therefore, are better SBA loans for startups.
2. Choose your SBA loan program.
Once you’ve determined that you can meet the general SBA loan requirements, the next step involved in getting an SBA loan is choosing your specific loan program.
The SBA offers a variety of different loan programs and each program will have unique requirements, terms, loan amounts, typical interest rates, purposes, and more. Therefore, it’s important to consider all of the options and determine which SBA loan program is best for your business.
Here are some of the most popular options:
SBA 7(a) Loans
There are actually a few different types of SBA 7(a) loans. Overall, however, SBA 7(a) loans are offered from SBA lending partners, typically banks, with loan amounts of up to $5 million.
Terms on 7(a) loans can reach as high as 25 years and interest rates typically range from 8% to 13%.
On the whole, 7(a) loans are one of the most popular SBA loans because they can be used for virtually any business purpose—working capital, real estate purchases, business expansion, and more.
SBA 504/CDC Loans
The CDC/504 loan program is one of the SBA’s most specific financing programs.
Sometimes referred to as SBA real estate loans, CDC/504 loans are exclusively used for major fixed asset purchases—including large equipment purchases, real estate purchases, and other large fixed asset purchases.
CDC/504 loans also have a unique structure. A participating Certified Development Company (CDC) in your area provides 40% of the loan amount, an SBA lender provides 50%, and you offer up the final 10%.
Overall, these loans can range in amounts up to $5.5 million, with terms up to 25 years, and interest rates typically falling from 5% to 6%.
The SBA Microloan program is designed to offer small businesses affordable capital in lower amounts—the maximum loan amount available in this program is $50,000.
In this program, the SBA provides funds to intermediary lenders—nonprofit community-based organizations with experience in lending and business management—and these organizations issue microloans to small businesses.
SBA Microloans can be used for working capital, purchasing machinery or equipment, buying inventory or supplies, and more. The maximum term available on these loans is six years and interest rates generally fall between 8% and 13%.
Compared to the 7(a) and 504/CDC loan programs, the eligibility criteria for the Microloan program is more flexible and therefore, these loans can be a great option for startup businesses.
SBA Disaster Loans
One of the few instances in which the SBA lends directly to businesses, the SBA disaster loan program is designed to help businesses recover from a declared disaster.
Although there are a few different types of SBA disaster loans, generally, you can expect loan amounts of up to $2 million with interest rates as low as 4% and terms of up to 30 years.
For up-to-date information on SBA disaster loans available for business owners affected by the coronavirus pandemic, you can refer to our guide here.
SBA Express Loans
SBA Express Loans are actually part of the 7(a) loan program. Unlike typical 7(a) loans, however, SBA Express loans are a much faster form of funding—with credit decisions in 24 to 36 hours.
Overall, SBA Express loans can be used for a variety of purposes, with loan amounts up to $350,000, terms up to 25 years, and interest rates ranging from 8% to 13%.
3. Find the right SBA lender.
After you’ve determined which SBA loan program is best for your business, the next step to getting an SBA loan is finding the right lender.
As you might imagine, the right SBA lender for you will largely depend on the loan program you’ve chosen.
For a 7(a) loan, for example, you’ll be looking for an SBA lending partner in that program, likely a commercial bank, local bank, or credit union. If you’re trying to get a 504/CDC loan, on the other hand, you’ll need to find a local CDC, as well as a participating SBA lending partner.
Overall, there are a variety of avenues you can take to find your SBA lender.
You can start by going to your local bank, or the bank you currently use for your business, and asking them what kind of SBA loans they offer. Generally, most of the big-name banks in the U.S. offer some form of SBA funding—like Chase, Wells Fargo, Capital One, Celtic Bank, and First Home Bank.
You can also connect to an SBA lender using the SBA’s website.
Another common way to find an SBA lender is to use a broker to facilitate the search. As long as you’re careful about the broker you’re working with, this can be a very efficient way to find a lender, however, it will also be one of the most expensive ways.
Finally, you might also browse online loan marketplaces, like Fundera, that work with small business lenders who offer SBA loans.
- What is your average loan size, and average loan interest rates?
- What is the range of interest rates you approve borrowers for?
- Is there a pre-approval process?
- How long does the funding process take?
- What collateral do you require to qualify?
- Will I have a dedicated SBA loan specialist to guide me through the process?
How to Pick the Best SBA Lender
As we’ve mentioned, the first criteria for choosing an SBA lender will be that they actually offer specific SBA loan program you’re looking for.
Once you’ve found lenders that participate in your program, however, you’ll want to compare them to find the best lender for your business.
Generally, you’ll want to look for a lender who has experience working within the SBA program. Lenders who regularly disburse SBA loans typically approve more applications—they know which borrowers will succeed, and which might not.
This being said, lenders with strong track records in the SBA lending program are typically designated as “Preferred” lenders. Preferred lenders have the privilege to process loan applications faster, based on the experience they have with SBA loans and the volume of applications they bring in. If you can, therefore, you’ll want to filter your search for preferred lenders only.
Once you’re sure you’re working with a reputable, experienced SBA lender, and one that offers the program you need, you can ask some of the following questions to compare your options and choose the best lender for you:
4. Gather the information and documentation needed to apply.
Once you’ve found the best SBA lender for your business, you’re ready to start the application process. When it comes to learning how to get an SBA loan, the actual application process may be the most time-consuming step.
After all, as we’ve mentioned, SBA loan applications require significant information and documentation—some of which will depend on your lender and loan program.
Overall, however, you’ll want to make sure that you gather the following information and documents for your SBA loan application:
- Basic business information
- Basic personal and background information for you, as well as any other business owners
- Loan request letter detailing the amount you’re asking for and how you plan to use the funds
- Business plan
- Personal and business tax returns
- Personal and business financial statements—including a balance sheet, profit and loss statement, bank statements, and cash flow statement for the business
- Existing business debt schedule, if applicable
- Legal documents like business licenses, leases, and contracts
- Any SBA loan requirements that are unique to your program
5. Complete your application.
After you’ve gathered all of the information and documentation you need, the next step to getting an SBA loan is actually completing the application.
Again, the specific document that you’re required to complete will depend on the lender you’re working with. Some lenders may offer online-based applications, whereas others will require that you complete a paper form. In either case, you can expect to use the information you’ve gathered ahead of time to fill out the application, as well as attach the necessary documentation.
This being said, although not all SBA loans require collateral, you may be required or asked to offer up collateral for your loan. You’ll also include information about any collateral on your application.
Moreover, you’ll have specific SBA forms that you’ll need to complete for your application as well, including:
- SBA Form 108: Personal Guarantee
- SBA Form 1919: Borrower Information Form
- SBA Form 159: Fee Disclosure Form
- SBA Form 912: Statement of Personal History
- SBA Form 413: Personal Financial Statement
6. Close your loan and receive funds.
Finally, you’ve reached the last essential step in learning how to get an SBA loan. After you’ve completed and submitted your SBA loan package, you’ll work with your lender to close the loan.
This final step, therefore, can encompass a few things:
Receiving a Letter of Intent
Generally, you can expect to hear back within one or two weeks whether the SBA and your lender plan to move forward with your loan application.
If they do want to move forward with your profile, they’ll likely send you a letter of intent explaining how much you’ve initially qualified for, and what your rates and terms are likely to be.
If you are satisfied with these rates and terms, you’ll return a signed copy of the letter of intent. Some lenders might also require a refundable deposit to move the loan to underwriting.
Sending the Loan to Underwriting
Formal underwriting for an SBA loan can take anywhere from two to four weeks. Typically, this is the longest portion of the SBA loan timeline.
During the underwriting process, your loan representative or loan officer might follow up with you to clarify your financial documents, or even ask you to provide additional information.
You’ll want to respond to these requests as quickly and completely as possible to help streamline the process.
Getting a Loan Agreement
If everything went well with the underwriting process, the SBA lender will send you a business loan agreement for you to commit to—outlining the terms, amount, and rates you actually qualified for.
Additionally, some lenders might also require a deposit with the loan agreement before moving the loan into final closing—this deposit is typically quoted as a percentage of the SBA loan’s principal.
At this point, you might find it helpful to consult with a business attorney or other professional about the loan agreement to ensure you understand all of the terms and ask any questions you may have.
Closing the Loan
After you’ve received and reviewed the loan agreement, you’ll tie up any loose ends and finalize the paperwork in order to close on the loan.
The closing process may be fairly quick, depending on the complexity of your loan.
Towards the end of the loan closing, you’ll sign the agreement, pay the closing costs and SBA guarantee fees, and finally, receive the funds in your account.
The Bottom Line
There you have it—everything you need to know about how to get an SBA loan. As you can see, although the process may not be particularly fast or simple, it’s much more approachable when you break it down into individual steps.
Plus, as we’ve mentioned, the time and effort necessary to get an SBA loan are well worth it—once you’ve completed the process, you’ll have access to one of the best types of business financing on the market.
On the other hand, of course, you might determine that an SBA loan is not right for your business—whether you need faster funding, you can’t qualify, or you’re looking for a specific type of financing that the SBA doesn’t offer.
In this case, you might start your search process with online, alternative lenders, who generally have more lenient requirements, simpler applications, and faster time to funding.