SBA Loan Application: Everything You Need to Know
The SBA loan application is arguably 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 reference as they evaluate the huge amount of information you provide through your SBA loan application.
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 breaking down the SBA loan application into five simple 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
Applying for an SBA loan can be intimidating and time-consuming, but the effort is worth the end result—SBA loans are some of the best financing options with their with low interest rates, long terms, and high loan amounts. Following these steps will help you learn how to get an SBA loan by submitting the best SBA loan application possible.
Step 1: Choose Which SBA Loan Program to Apply For
The first step in the SBA loan application process is choosing one of the three main types of SBA loans:
- 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:
SBA 7(a) Loans
The SBA 7(a) loan is a general-purpose SBA loan ideal for short- and long-term working capital, expanding your business, buying a business or franchise, refinancing debt, starting a new business, and buying equipment or land.
You can secure an SBA 7(a) loans of up to $5 million with interest rates as low as the market prime rate plus 2.25%. The SBA typically guarantees 75% or 85% of the loan, and will charge a 2% to 3.75% of the guaranteed amount. The guarantee fee does not apply if your loan is $150,000 or less.
SBA 504/CDC Loans
The SBA 504/CDC loan program targets small business purchases of large fixed assets, such as land, office space, building renovations, and long-term machinery or equipment. This type loan is unique because there are two parties—the bank and SBA-approved certified development company (CDC).
With an SBA 504/CDC, you can access up to $5 million on the CDC portion with interest rates around 5%. Interest rates for the bank portion are different and will vary. Additional fees of 2% to 4% of the loan amount will also apply.
Also called SBA startup loans, this type of loan serves smaller and newer businesses. Funds from SBA microloans are ideal for short-term working capital, business startup costs, and securing inventory, fixtures, and equipment.
You should consider an SBA microloan only if you need less than $50,000 of capital. Interest rates typically fall between 8% and 13%. While rates will vary by lender, the average rate was only 7.5% in 2019.
Step 2: Determine Your Eligibility Before Applying
After deciding which of the SBA loan programs is best for your business, the next step is to determine your eligibility. Since SBA loans are great financial products for small businesses, the application process is competitive. You’ll need strong credit and finances to qualify.
Therefore, you’ll want to ensure you meet your desired loan type’s minimum requirements before readying your SBA loan application. 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
Once you’ve determined that you’re eligible for your chosen loan program, you’ll need to find a lender. 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 SBA loan application, but also one that has experience working within the SBA program.
If a lender has a strong track record with SBA loans, they’re often 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 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:
This way, you’ll have all of the information you need to determine whether or not a lender is reliable, experienced, and finally, the right choice for you.
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 with your SBA loan application will vary based on the 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 your intended use with the loan amount is eligible under the SBA program that you’re applying for.
Personal Background and Character
In your SBA loan application, 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 SBA loan application. 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 your business is worth the investment.
In your business plan for funding, 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 a higher personal credit rating increases the likelihood of getting approved. 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 before submitting your SBA loan application.
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 strong personal credit, and your business is generating a lot of revenue, then the lender might approve you for the loan without 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.
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 the following forms before submitting your SBA loan application:
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 continue, they’ll send you a letter of intent explaining the loan amount, rates, and terms you qualify for.
- 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.
How to Apply for an SBA Loan: FAQs
The Bottom Line
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, if you break the process into more manageable steps, you can 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. SBA loans are undoubtedly one of the best small business financing products on the market.