SBA Loan Application: Everything You Need To Know
The SBA loan application is one of the most notable downsides of funding your small business through an SBA program. The SBA application process gathers all the underwriting information necessary for the SBA and whatever financial institution your chosen SBA program involves.
So, when you apply for an SBA loan, you’ll likely be applying to a government entity and a financial institution. And both will have high standards for borrowers—which they’ll put to use as they evaluate the huge amount of information you provide through your SBA loan application.
Therefore, whether this is your first experience with business loans or you’ve been through a lending process before, applying for an SBA loan is going to be a time-consuming and laborious process.
Luckily, we’re here to help. We’ll break down the SBA loan application into five easy and manageable steps—and explain all of the details you need to understand along the way.
How to Apply for an SBA Loan in 5 Steps
The SBA Loan Application Process in 5 Simple Steps
Although applying for an SBA loan can seem intimidating, it’s actually easier than you think when you break down the application process into parts. Plus, even though the process is time-consuming, the effort is worth the end result—SBA loans are some of the most desirable business loans on the market—with low interest rates, long terms, and high loan amounts.
Therefore, if you’re wondering how to get an SBA loan by submitting the best SBA loan application possible, you’ll want to follow these steps:
Step 1: Choose Which SBA Loan Program to Apply For
The first step you’ll need to take in the SBA loan application process is to choose which type of SBA loan you want to apply for. On the whole, there are four main types of SBA loans:
- SBA Paycheck Protection Program (PPP) loans: Specialized SBA loan program designed to offer financial assistance to small businesses impacted by the coronavirus outbreak
- SBA 7(a) loan program: Designed for financing general business expenses like working capital and refinancing debt
- SBA 504/CDC loan program: Designed for financing real estate, construction, and equipment expenses
- SBA microloan program: Provides SBA loans of under $50,000
Let’s learn more:
- Mortgage interest
- Interest rate of 1%
- Maturity of two years
- First payment deferred for six months
- No collateral
- No personal guarantees
- No borrower or lender fees payable to the SBA
PPP Loan Uses
PPP loans are designed to help businesses cover essential financial costs in the wake of the coronavirus pandemic. More specifically, these SBA loans are intended as an incentive for small businesses to keep workers on payroll.
Therefore, the SBA will forgive these loans if all employees are kept on the payroll for eight weeks and the capital received is used for:
PPP Loan Cost
Loans are available from the PPP in amounts up to 2.5x the business owner’s average monthly payroll costs, not exceeding $10 million.
This being said, these loans will have the following rates and terms:
PPP loans are available through any existing SBA 7(a) lender or any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating in the program.
Other regulated lenders may be available to issue these loans as well once they’ve been approved and enrolled in the program.
You can find a list of banks currently accepting PPP loan applications here.
SBA 7(a) Loans
The SBA 7(a) loan is a general-purpose SBA loan that you can use toward a wide range of business purposes.
- Short-term or long-term working capital
- Expanding a business
- Buying a business or franchise
- Refinancing debt
- Starting a new business
- Buying equipment or land
SBA 7(a) Loan Uses
This loan is ideal for:
Within the 7(a) program are a variety of more specific types of SBA loans, such as the SBA Express loan (the best alternative to the now-defunct Patriot Express Loan), CAPLines Lines of Credit, and SBA Export loans.
SBA 7(a) Loan Cost
How much will an SBA 7(a) loan cost?
Interest rates: Prime rate + 2.25% to Prime rate + 4.75%
Fees: Guarantee fee of 2% to 3.75% of the guaranteed amount
The maximum interest rate on SBA 7(a) loans currently ranges from the prime rate + 2.25% to 4.75%. The SBA sets maximum interest rates on different SBA loans. Lenders will negotiate your interest rate with you, but they cannot go over the SBA-designated maximums.
You’ll see that the interest rate is linked to the prime rate, which is a market rate that varies based on how well the economy is doing.
SBA 7(a) loans also come with a guarantee fee ranging from 2% to 3.75% of the guaranteed portion of the loan. The SBA typically guarantees 75% or 85% of the loan, so the guarantee fee is levied on that portion. If your loan is $150,000 or less, then you won’t have to pay a guarantee fee at all.
SBA 7(a) Lenders
Hundreds of lenders offer 7(a) loans nationwide, so the problem is sifting through them. Our advice is to try the 7(a) lenders who have disbursed the most 7(a) loans. The SBA loan application process is likely to go faster when you work with an experienced lender.
The SBA maintains an updated list of the top SBA lenders, and it always includes large banks like Wells Fargo, Chase, and U.S. Bank.
SBA 504/CDC Loans
The next program to consider is the SBA 504/CDC loan program. This program is tailored specifically for small business purchases of large fixed assets.
- Purchasing land, office space, existing buildings, or other commercial real estate
- Renovating and refurbishing existing buildings
- Funding construction of new buildings
- Purchasing long-term machinery or equipment (new or used)
SBA 504/CDC Loan Uses
This loan is ideal for:
Although SBA 7(a) loans and 504/CDC loans have some overlap in loan uses, the latter are usually more affordable for purchasing fixed assets—in this way, 504/CDC loans are often considered the equivalent of SBA real estate loans.
SBA 504/CDC Loan Cost
With SBA 504/CDC loans, you can expect the cost to include:
Interest rates: Around 5% for CDC portion of the loan and 5% to 10% for bank portion
Fees: Various fees totaling about 2% to 4% of the loan amount
The interest rates on 504/CDC loans are a bit complicated because these loans actually involve two loans. Fifty percent of the loan comes from a bank, 40% comes from a certified development company (CDC), and the remaining 10% is your own down payment.
As part of the SBA loan application process, the bank will negotiate an interest rate with you on their half of the loan. The SBA sets maximum interest rates on the CDC, based on U.S. Treasury bond rates. Currently, those rates fall between about 3% and 6% depending on the loan term.
If you decide to fund with a CDC/504 loan, then you’ll also have to pay some fees. There are more fees on the 504 loan because you’ll have to get the real estate, equipment, or fixed assets appraised. Plus, the CDC, SBA, and bank can all charge their own fees. You can expect an annual servicing fee, along with an origination fee, closing fee, appraisal fee, lawyer fee, underwriting fee, and more.
SBA 504/CDC Lenders
If you want to fund large fixed assets for your small business through a 504 loan, then you’ll have to work directly with a CDC and a bank. The bank might be able to put you in touch with a CDC.
Alternatively, you can locate one of the nation’s 270 CDC locations near you with the SBA’s CDC locator.
The last of the most common SBA loan programs is the SBA microloan program. As we mentioned above, this program is meant for smaller business loans of under $50,000. These microloans are also often referred to as SBA startup loans because they typically serve smaller and newer businesses in meeting their funding needs.
- Short-term working capital
- Business startup costs
- Inventory or supplies
- Furniture or fixtures
- Machinery or equipment
SBA Microloan Uses
This loan is ideal for:
Once again, SBA microloans can be a great way for new businesses or very small businesses to get funding.
SBA Microloan Cost
For the cost of an SBA microloan, you can expect:
Interest rates: 6.5% to 13%
Fees: No SBA fees, but the lender might charge some fees
Most SBA microloans don’t come from banks, but instead come from nonprofit community microlenders. These lenders try to help the local community of entrepreneurs by issuing affordable loans. Their rates generally fall somewhere between 6.5% and 13%.
These loans have no SBA guarantee fees, but the lender might charge reasonable fees, such as a processing fee or closing fee.
SBA Microloan Lenders
The SBA refers to microlenders as “intermediary lenders” and maintains a list of microlenders in each state who can help.
Step 2: Determine Your Eligibility Before Applying
So, after you’ve decided which of the SBA loan programs is best for your business, the next thing you’ll need to do is determine your eligibility. Because SBA loans are such great financial products for small businesses, the application process is competitive. You’ll need to have strong credit and finances to qualify.
Therefore, before you sink time into readying your SBA loan application, you’ll want to make sure you meet the minimum requirements for the SBA loan program you chose in step 1. Although it will ultimately be up to the lender to decide if you’re eligible, there are pretty basic requirements from the SBA and lenders in general that you’ll want to consider.
And—if it turns out you won’t be able to qualify, we recommend you look into other SBA loan programs and even non-SBA alternative lenders.
- Be a small business, as defined by the SBA
- Operate for profit in an eligible industry
- Be engaged in, or propose to do business in, the U.S. or its territories
- Invest some of your own personal finances and time into the business
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Not have any current or previous defaults or delinquencies on government loans
- A personal credit score of at least 620 to 640
- At least two years in business (newer businesses, however, can qualify for microloans and even 7(a) loans with some collateral)
- At least $100,000 in annual revenue
SBA Minimum Requirements
Here are some of the minimum SBA requirements that will help you determine whether you’ll be eligible for an SBA loan:
Common Lender Minimum Requirements
Step 3: Find an SBA Lender to Apply With
As we discussed above, different SBA lenders offer different types of SBA loans.
Therefore, once you’ve determined that you’ll be eligible for your chosen program, you’ll need to find a lender to work with.
Based on the SBA loan program you want to apply for, you can either apply at your local bank or at a nonprofit lender. Additionally, many lenders offer an online SBA loan application option. You can start by seeing the top-performing SBA lenders in your chosen SBA loan program from the previous year.
- What is your average loan size and average loan rates?
- What is the range of interest rates you approve borrowers for?
- What does the SBA loan timeline look like?
- What collateral do you require to qualify?
- Who will be working with my business to complete the application?
How to Find the Right SBA Lender
As you’re searching through the SBA lenders that work within your specific program, you might be wondering: How do I know which lender is right for my business?
Ultimately, you’ll not only want to work with a lender that offers your program, but also one that has experience working within the SBA program.
If a lender has a strong track record with SBA loans, they’ll often be designated as a “preferred” lender. With a preferred SBA lender, you know you’ll be working with an entity that processes substantial amounts of SBA loans and knows how to properly navigate the process.
In addition to sorting through lenders using these methods, you’ll also likely want to ask potential SBA lenders specific questions about how they operate, as well as how their SBA loan application works. For example, you might ask questions such as:
Step 4: Submit Your SBA Loan Application
Now, this fourth step will encompass many micro-steps within it: To submit your SBA loan application will mean gathering your documents and filling out all of the necessary SBA forms.
As you may imagine, the specific forms and documents you need to submit will vary based on the SBA loan program you’re applying to and the lender you’re working with. This being said, however, there is some documentation you’ll surely need to submit.
Let’s explore these SBA loan requirements in more detail:
- Balance sheets that list your financial assets and liabilities
- Statement of cash flow
- Business debt schedule
- Bank statements
- Business licenses
- Articles of incorporation or organization
- Certificate of good standing
- Corporate bylaws
- Important contracts
- Commercial lease
- Environmental impact statement
- Evidence of meeting public policy or job creation goals
- Proof that any real estate you’ll buy with the loan proceeds is at least 51% owner-occupied
- Property appraisal
Basic Business Information
Be ready to provide your company name, age, address, number of employees, date, and other basic company information. This will help the lender determine if your business meets basic eligibility criteria.
You’ll need to provide a business loan request letter in which you specify the loan amount you’re asking for and describe how you’ll use the funds. You should make sure that what you want to do with the loan money is an eligible use under the SBA program that you’re applying for.
Personal Background and Character
You’ll submit documents explaining your personal background, such as previous names used and previous addresses.
If you have a criminal record, you’ll need information about the type of crime, the jurisdiction that charged you, the date, the final verdict, etc. A criminal record doesn’t automatically disqualify you from an SBA loan, but you must provide all details about the record.
Some lenders want to see evidence of business and industry experience before approving your loan. You’ll need to submit a resume for yourself and other management-level employees.
Submitting your business plan with your SBA loan application is your chance to show the lender that investing in your business’s future is the right move.
In your business plan for funding, you’ll need to explain your business’s product or service and how your business differentiates itself from competitors. You also need to include at least three years of historical financials (if an existing business) and projected financials. Finally, you’ll need to make clear how the SBA loan proceeds fit into the rest of your business plan and growth strategy.
Your personal credit report will let the lender know how responsible you are personally with your money. Lenders view small businesses as “risky” prospects, so the higher your personal credit rating, the more likely the lender is to approve your loan. The lender will be able to pull your credit report by using your social security number, but it’s a good idea to access and view your report ahead of time.
In addition to your personal credit information, you’ll need to provide a business credit report (if you have one, newer businesses might not have business credit yet). This report will give your potential lender an idea of your business’s financial history. As with the personal credit report, it’s wise to access and view your business report ahead of time.
Personal and business tax returns will verify your personal income and your business’s income. For an existing business, you’ll likely need to produce the last three years of tax returns.
Financial statements are another way that lenders will verify your business’s financial standing for your SBA loan application.
You should be prepared to submit at least these four financial documents:
Your business debt schedule shows existing loans that your business has that might impact your ability to pay back the SBA loan you’re applying for. Most lenders will ask for the most recent financial statements and one year’s worth of bank statements.
Not all SBA loan applications require collateral. If you have really strong personal credit, and your business is generating a lot of revenue, then the lender might approve you for the loan without any collateral. But in most cases, you’ll have to submit some business or personal assets to back the loan. Plus, if you are offering collateral for an SBA loan, you’ll need to get the collateral appraised and provide documentation on the value.
It’s important to note that even if the lender doesn’t require collateral, all SBA loans require an SBA loan personal guarantee from anyone owning 20% or more of the business. The personal guarantee is a promise from you, the business owner, to pay back the loan. The lender can enforce the promise, in the event of a default, by seizing and selling off your personal assets.
Depending on the type of SBA loan you’re applying for, you might have to offer up a few legal documents to prove your business’s entity type and legal operation:
These are the basic SBA loan requirements, but you should work closely with the lender on any additional requests for information. The more prompt you are in providing information, the more quickly the lender can approve you for the SBA loan.
As we’ve explained throughout this discussion, much of what you’ll need will depend on the type of loan you’re applying for, as well as the specific lender you’re working with.
This being said, it’s worth mentioning that if you’re applying for an SBA 504/CDC loan, you may need to include:
Generally, the 7(a) loan doesn’t have additional requirements and the microloan program typically will only require different or additional documentation if you have a less-established business.
On top of the documentation and paperwork we just described, there will also be SBA-specific forms that you’ll likely need to complete before submitting your SBA loan application.
Generally, you’ll need to complete:
- 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
Let’s go through an overview of each of these essential SBA forms:
SBA Form 1919
SBA Form 1919, otherwise known as the Borrower Information Form, will need to be completed if you’re applying for any of the 7(a) loans or a Community Advantage Program loan.
This form will ask for background information about you and your business, such as the purpose of your loan request, current or previous government financing, any current or pending legal action, and the nature of your business.
Learn how to complete SBA Form 1919 here.
SBA Form 159
SBA Form 159 is the fee disclosure form.
You’ll only need to complete this form if you’re applying for an SBA 7(a) loan or an SBA 504/CDC loan and if you used an “agent,” in other words you hired a professional—attorney, broker, or loan packager—to help you with your SBA loan.
Essentially, this form consists of signatures and contact information and is designed to protect you from facing unreasonable fees from the agent you’ve worked with.
This being said, it’s important to note that there are separate versions of SBA Form 159 for 7(a) loan applicants and 504/CDC applicants, so you’ll want to make sure you have the right form.
Learn how to complete SBA Form 159 here.
SBA Form 912
SBA Form 912, the Statement of Personal History, is an important piece of your SBA loan application. This form will be required for most SBA loan applications, including for both 7(a) and 504/CDC loans.
Both the SBA and the lender will use this document to evaluate your personal character, one of the requirements we described above.
On this form, therefore, you’ll be required to provide basic personal information, as well as answer questions about your criminal history (or lack thereof), which will be used to determine your eligibility for the loan you’re applying for.
Learn how to complete SBA Form 912 here.
SBA Form 413
SBA Form 413 is the personal financial statement form. You’ll need to complete this form so that the SBA and lender can evaluate your personal income, debts, and overall cash flow.
Most SBA programs will require Form 413, including the 7(a) program—and, if you have multiple owners or partners within your business, you’ll need to complete one of these forms for each individual.
This being said, to complete SBA Form 413, you’ll need to provide detailed information about your assets and liabilities, so you’ll want to gather many of the financial documents we listed above to do so.
Learn how to complete SBA Form 413 here.
Step 5: Work With the SBA Lender to Close Your Loan
Once you’ve completed all of these pieces of your SBA loan package and submitted it—you’re on your way to the last step. Now, all you have to do is wait for the lender to underwrite your loan, approve your application, and close on the loan.
Unfortunately, with all of the documentation and paperwork, this final part may take a while. However, once you’ve submitted your SBA loan application, you can expect the remainder of the process to include:
- Letter of intent: Once a lender has received and reviewed your application, they’ll notify you regarding whether or not they intend to continue with your application. If they are going to continue, they’ll send you a letter of intent explaining what you’ve qualified for and what your rates and terms are likely to be.
- Underwriting: The actual underwriting process may be the most lengthy part of this last step. During this time, the lender may ask for additional information or documentation as necessary.
- Loan agreement: Once your business loan underwriting is complete, you’ll receive an agreement from the lender. This will list all of the information about your loan—rates, terms, amount, etc. Before moving to loan closing, you may also have to submit a deposit, usually a percentage of the loan’s principal.
- Closing: Finally, you’ve reached the end of the process. Here, you’ll finalize the agreement and sign the paperwork.
After all of this is said and done, the lender will send the funds to your bank account.
This process, of course, assumes that your SBA loan application is approved—if your loan application gets rejected, on the other hand, all lenders have a policy for when you can apply again.
Why Do SBA Loan Applications Get Rejected?
If your SBA loan application is denied, it’s important to remember, as we stated above, all lenders will provide information on when and how you can reapply.
This being said, however, before you submit your application, it’s worth discussing what you should do next, as well as common reasons why applications are denied.
First, if your SBA loan application is denied, you’ll want to make sure you actually receive an explanation as to why (you’re entitled to this by law)—this will inform what you can do to increase your chances of success in the future.
In some cases, you may need to take action like:
- Improving your personal or business credit
- Improving your business financials
- Waiting until you’ve been in business longer
- Consider other financing options
Whatever the case, you’ll want to use the denial explanation from the lender to inform your decision and work to improve your application before applying again.
This being said then, why do many SBA loan applications get rejected?
Ultimately, denials often boil down to the following:
- Insufficient credit: You didn’t meet the SBA loan credit score minimum, your credit history might not be long enough, or you may have a red flag in your credit background
- Character issue: You may be denied due to your criminal record.
- Not enough collateral: You couldn’t put up enough of a guarantee to qualify for the loan.
- Not enough revenue or capital: The lender determined your business financials weren’t strong enough to verify that you could pay back the debt.
- Too much existing debt: If you already have a loan, a lender may determine you don’t have the capacity to take on additional debt.
The Bottom Line
As you now know, learning how to apply for an SBA loan is no easy task. The lender will want to uncover a lot of information about your business to determine if they should lend money to you.
This being said, however, if you break the process into more manageable steps, as we’ve done, you’ll be able to stay organized and prepare everything you need accordingly.
Ultimately, your best bet for success is to pick the right program, find the right lender, highlight your business’s positives in your loan application, and provide as much information about your company as the lender needs.
Although the SBA loan application process may be complex, time-consuming, and at times, frustrating, if you succeed in receiving an SBA loan, your hard work will have paid off—without a doubt, SBA loans are one of the best small business financing products on the market.