The Ultimate Guide to SBA Loans for Startups

When you have a startup business, finding the right funding is essential. After all, as a new business, you have a variety of initial startup costs to cover and the right capital can help pay for those costs and get your operations off the ground.

Along these lines, if you’re exploring your options for business loans, you might be looking into SBA loans. With some of the best rates and terms on the market, SBA loans are one of the most competitive types of business funding.

To qualify for an SBA loan, you’ll need to meet a series of specific requirements—typically, including at least two years in business. Unfortunately, therefore, if you’re searching for SBA loans for startups, you might find it difficult if your startup is under two years old.

This being said, however, just because it’s more difficult to find SBA startup loans, doesn’t mean they don’t exist.

In this guide, therefore, we’ll break down everything you need to know about your options for SBA loans for startup businesses—including the Microloan and Community Advantage program. We’ll also discuss some of the best SBA loan options for startups with more time in business, as well as the steps you need to take to actually get one of these SBA startup loans for your new business.

As we mentioned above, finding an SBA startup loan can be difficult—because in most cases, you need strong business financials, a solid credit score, and at least a few years in business to qualify for an SBA loan.

In general, these qualifications can be tough for many small businesses to meet, and even more so for a business that’s just starting out. This being said, however, the purpose of the SBA loan program is to be able to make financing more accessible for small businesses, and therefore, there are some programs that are better-suited for startups with only a little time in business.

Best SBA Loans for Startups

• SBA Microloans: Best for startups who need short-term financing in small loan amounts
• SBA Community Advantage Program: Best for startup founders in underserved communities
• SBA 7(a) and 504/CDC Loans: Best for startups with two or more years in business
• SBA Investment Programs: Best for startups in particular industries

The SBA Microloan program has almost become synonymous with SBA loans for startup businesses. Unlike some of the other SBA loan programs, the Microloan program offers startups tailored access to smaller amounts of capital.

Through the Microloan program, the SBA lends capital to non-profit intermediary lenders who, in turn, lend that capital to local small businesses. These SBA startup loans are offered in amounts between $500 and $50,000, with interest rates typically ranging from 8% to 13%.

As with the majority of SBA loans, some of the specifics will depend on the intermediary lender you work with, however, the SBA sets the maximum term on these loans at six years.

An SBA Microloan can be used for a variety of purposes:

• Working capital
• Inventory or supplies
• Machinery or equipment
• Furniture or fixtures, and more

If you’re a new business with a low capital requirement, this type of SBA startup loan may be right for you.

Like the SBA Microloan program, the SBA Community Advantage loan program is much more friendly for startup businesses. Started in 2011, this loan program was created to improve access to business capital for startup founders (as well as other business owners) operating within underserved communities.

SBA Community Advantage loans are federally guaranteed term loans administered by community-based lenders who have a history of helping small businesses start in disenfranchised communities. These organizations consist of SBA-authorized Microloan intermediaries, Community Development Financial Institutions, and Certified Development Companies.

These SBA startup loans range in amounts from $50,000 to $250,000, with terms from seven to 10 years, and interest rates typically ranging from 7% to 9%.

Like the Microloan program, Community Advantage loans can be used for a variety of different purposes.

In this way, Community Advantage loans are worthwhile SBA loans for startup businesses in disenfranchised communities who are looking for access to larger amounts of capital to support and grow their operations.

The 7(a) and 504/CDC loan programs are two of the most popular SBA loan programs for small businesses. Compared to the Microloan and Community Advantage loan programs, however, these options are not as well-suited for startup businesses.

As we’ve mentioned, where the SBA loan requirements are more flexible for the Microloan and Community Advantage programs, the 7(a) and 504/CDC programs usually require at least two years in business.

This being said, the characterization of “startup,” can encompass a wide variety of businesses. Therefore, if you’re not necessarily looking for funding to start your business, but more so are searching for options for your more established startup, you might consider either of these SBA loan programs.

Although our final option may not necessarily qualify as SBA loans for startups, the different SBA Investment programs can be worthwhile solutions for startups looking for financing.

• Small Business Investment Company (SBICs): SBICs are privately-owned investment companies that are licensed and regulated by the SBA. These investment companies use their own funds, as well as capital borrowed from the SBA (with an SBA guarantee) to invest in small businesses. SBICs offer both equity and debt financing and therefore, can be a great funding option for startups who can qualify.
• Small Business Innovation Research (SBIR) Program: If your startup business is involved in science and technology, you might look into the SBIR program for financing. Through the SBIR program, your business can qualify for grants from government agencies looking to promote and facilitate the commercialization of research in these particular fields.
• Small Business Technology Transfer (STTR) Program: Similar to the SBIR program, the STTR program offers grants for small businesses and nonprofit organizations involved in research and development within the fields of science and technology. Again, although these might not be SBA loans for startups, if you can qualify for one of these competitive grants, you won’t have to worry about interest or paying back the funding.

As you can see, from the Microloan program to the SBIR program, there are a variety of options available for SBA startup loans.

Like we’ve discussed, however, the right SBA loan for your startup will largely depend on what kind of financing you’re looking for and what program you can qualify for.

In addition, the SBA startup loan requirements that you’ll need to meet will also vary based on the loan program and the lender you’re working with.

Generally, though, you can expect to need to do the following in order to get an SBA loan for your startup.

First and foremost, you’ll need to decide which SBA loan program is best for your startup funding needs. For example, if you determine that an SBA Microloan is right for your business, you’ll then need to find an intermediary lender in your area and work with that institution through the application and funding process.

On the other hand, if you think an SBA 504 loan is right for your startup, you’ll need to find an SBA lender who works within this program—and this lender will likely be able to point you in the direction of CDCs available in your area.

Once you’ve found the right SBA lender and program, you’ll need to start gathering documentation for your application and ensuring that you meet the necessary SBA startup loan requirements.

As we’ve discussed, some of the requirements you need to meet will vary based on the program and the lender. Nevertheless, you can expect to need some, if not all, of the following:

• To be able to meet the SBA definition of a small business, among other similar eligibility criteria
• Basic information about your business and any and all owners, stakeholders, or investors
• Personal and business tax information
• Personal and business financial information
• Business plan with financial projections (this will be particularly important if you’re a newer startup)
• Personal and business credit scores
• Collateral and SBA personal guarantee

The last step, of course, will be to submit your application—with all of the information and documentation that’s required.

After you’ve submitted your application, you should be prepared to address any questions or requests your lender has promptly—as this will help speed up the underwriting process.

Generally, SBA loans for startups (or any businesses) have a lengthy application process and funding can take anywhere from 60 to 90 days. If you’re approved for your SBA startup loan, you’ll want to review the terms and conditions carefully and thoroughly before signing any agreement. You may also decide to consult with a business attorney or other professional before agreeing to the terms of the loan.

Learn more about the details of the SBA loan application process here.

At the end of the day, although some SBA loan programs are designed for more established businesses, there are still options available for startups.

If your business is a true startup—in that you’re just starting out and have less than two years in business—you’ll probably find that Microloans or Community Advantages loans are the best SBA startup loan options for your business.

On the other hand, if you can meet the requirements for an SBA 7(a) or 504/CDC loan, these programs are also worth considering. Plus, if your startup is eligible for one of the SBA Investment programs, you may be able to access small business grants—and won’t have to worry about repaying the funding you receive.

With all of this in mind, it’s also possible that you find SBA loans are not the right option for your startup. Luckily, 75% of startup financing comes from small business startup loans—which means there are a variety of other funding products you can explore—from online term loans to lines of credit to business credit cards, and more.