Securing capital for business expansion is a problem that plagues many small business owners. Fortunately, a Small Business Administration (SBA) loan can help you bridge the gap in your company’s finances.
6 Steps to the SBA Loan Process
Applying for SBA loans can be broken down into the following 6 steps.
1. Determine Your Eligibility
To successfully secure approval for an SBA loan, the initial step is determining your eligibility.
Having sound financials and a credit score ranging from fair to good are crucial factors for obtaining a small business loan through the SBA. Typically, minimum credit scores required can vary between 620 and 650, depending on the specific lender. Additionally, you’ll need to provide collateral for the loan and be prepared to offer a personal guarantee from any owner who holds at least 20% ownership in the business.
Moreover, meeting SBA 7(a) loan requirements necessitates that your business:
- Qualifies as a small business
- Operates as a for-profit entity
- Conducts business within the United States
- Has invested equity
- Has exhausted other financing options
- Has been operational for more than 2 years
Given the diversity in eligibility criteria, consulting directly with your lender is advisable to confirm your qualification status.
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Do You Qualify to Get an SBA Loan?
Through iBusinessLender’s SBA lending partners, you are likely to qualify for a loan if you meet the following requirements:
- Been in business 2 years or longer
- Generate $50k in annual revenue
- Have a credit score of 650 or better
2. Consider Which SBA Loan Type Is Best for You
There are several different types of SBA loan, each with its own loan requirements, rates and terms. So you’ll need to figure out which one would best meet your business financing needs. Here’s an overview some of the most popular options:
| SBA Loan Type | Maximum Loan Amount | Use of Funds | Terms |
| Standard 7(a) | $5 million | Working capital, facilities, equipment, inventory | 10 years for working capital or fixed assets; 25 years for real estate |
| SBA Express | $500,000 | Same as standard 7(a) | May be used as term loan with terms the same as 7(a) or as a line of credit up to 7 years (with maturity extensions permitted at the outset) |
| SBA CAPlines | $5 million | Different credit lines available depending on needs: seasonal, contract, building and construction and working capital | 10 years, except Builders CAPline, which can’t exceed 5 years |
| CDC/504 | $5 million (CDC portion) | Long-term fixed assets | 10, 20 or 25 years |
| Microloan | $50,000 | Working capital, inventory, equipment, supplies, fixtures | Not to exceed 6 years |
3. Find the Right SBA Loan Provider
One common misunderstanding is that the SBA directly issues loans, which is not the case. Typically, an SBA-approved lender funds the loan, and the SBA guarantees a portion of it, often up to 90%. This guarantee reduces risk for lenders, leading to more favorable terms for borrowers.
Finding an experienced lender familiar with SBA loans is crucial. Here are some essential questions to ask:
- Does this lender have experience in your industry?
- Do they specialize in SBA loans?
- What types of SBA loans do they offer?
- How accessible and responsive are they?
- What are their typical interest rates for SBA loans?
- What are their average loan sizes for SBA loans?
4. Get Your Paperwork Together
Prepare to gather a substantial amount of documentation when applying for an SBA loan. Start assembling these items as soon as you confirm your eligibility:
- Resume
- Personal background statement
- Business plan outlining how you will repay the loan
- Financial statements, including profit and loss statements
- Detailed explanation of how the loan funds will be utilized
- Personal and business credit reports
- Personal and company income tax returns for the past three years
- Legal documents related to the business, such as leases, licenses, and articles of incorporation
- Proof of collateral
While this list may seem extensive, it’s essential for the thorough application process. Remember, if you have business partners, ensure everyone is prepared to provide their documentation as well.
5. Complete SBA Loan Documents and Submit Your Application
Once you’ve gathered your business paperwork, it’s time for the SBA forms. The primary documents needed for an SBA loan include:
- SBA Form 148: This document is needed to offer a personal guarantee.
- SBA Form 1919 (borrower information form): This form is used to check business eligibility.
- SBA Form 413 (personal financial statement): This form asks for details about each owner’s household assets and liabilities. It can be complicated to fill out, so make sure you know what you need to complete Form 413.
- SBA Form 159 (protects borrowers from unnecessary fees): You may or may not need to complete this.
- SBA Form 912 (statement of personal history): Fill out if you have a criminal history. Having a criminal past doesn’t disqualify you automatically. The SBA will decide your case individually.
6. Close Your Loan
Once you’ve submitted your SBA loan package, the next step is to wait for a response. If the lender decides to proceed with your application, you can expect to receive a letter of intent within a couple of weeks. This letter will outline the prequalified loan amount, estimated terms, and interest rate. If you agree with the terms, you may be required to provide a deposit to continue the process.
Afterward, your application will move to the underwriting stage, which typically takes about a month. During this period, you might need to submit additional financial documents. Once underwriting is complete and approved, you’ll receive a business loan agreement detailing the final terms, loan amount, and interest rate. To accept the offer, you’ll need to sign this agreement and pay closing costs to finalize the loan.
How Hard Is it to Get an SBA Loan?
SBA loans and lines of credit have the highest application rate among small business firms, specifically 44%, according to the Federal Reserve Banks’ 2022 Small Business Credit Survey. Given this popularity, many small business owners are curious about the difficulty of obtaining an SBA loan. It’s important to understand that the process involves extensive paperwork and stringent requirements to secure such a loan.
If you’re planning to apply for an SBA loan, you’ll need to determine which type suits your needs—whether it’s a microloan, SBA 7(a) loan, or 504 loan. It’s crucial to be prepared for a potentially complex process, which may pose challenges for certain individuals and businesses seeking approval.
You might encounter difficulties securing a small business loan if your credit score is less than ideal, your business is relatively new, your annual revenue is low, or if you lack a solid business plan. Additionally, struggling businesses, individuals with a history of defaulting on loans, or those with past criminal records may face obstacles in obtaining these loans.
However, if you have strong credit, a healthy annual revenue, and meet all qualification requirements, you are likely to be viewed as a favorable candidate for an SBA loan.
Related: What Credit Score Do I Need to Qualify for a Small Business Loan
Does Getting an SBA Loan Take a Long Time?
The timeline for finalizing an SBA loan can vary significantly. Generally, you should anticipate a minimum of 60-90 days for the entire process. Applications for larger loan amounts may require even more time for thorough evaluation by the lender.
Before you begin the application process, it’s advisable to thoroughly familiarize yourself with all the steps and requirements involved. Consulting with a loan advisor can provide clarity on your specific timeline and help you navigate the process more effectively.
What If My SBA Loan Application Is Denied?
If your SBA loan application is denied, you still have options when it comes to getting a small business loan or accessing funds to grow your company.
Consider crowdfunding, small business grants or online lenders who offer alternative financing options, including:
- Short-term loans
- Business lines of credit
- Merchant cash advances
- Accounts receivable financing
Final Details for How to Get an SBA Loan
Securing a small business loan can mark a significant milestone for any business owner. Given its importance, thorough preparation is key to increasing your chances of approval for an SBA loan. Follow the steps outlined earlier and refer to our comprehensive guide on small business loan applications. Additionally, visit the SBA website, which offers valuable resources and detailed information on obtaining an SBA loan.
