Small Business Administration (SBA) loans are government-guaranteed business loans for small businesses that struggle to qualify for bank financing. Often, lenders use the term SBA loans as a short-hand for the SBA 7(a) loan program. It’s the most popular option since you can use an SBA 7(a) loan for almost any business purpose.
These loans can come with low interest rates and fees — especially compared to the alternatives available to businesses that can’t qualify for a traditional business loan. But the application process takes more time and effort than your average small business loan. Often it takes at least three weeks to get approved, though it varies by lender. Follow these steps to apply for an SBA 7(a) loan.
An SBA lender is a business loan provider that the SBA has authorized to offer government-guaranteed loans. Many banks are SBA lenders, though many online lenders received SBA authorization in 2020 to help with the Paycheck Protection Program (PPP). Here are some tips for finding the right provider.
Start your search with providers you already have a relationship with. This can speed up the application process since they already have a lot of information about your business on hand. It might also increase your chances of approval if you’re in good standing.
An SBA preferred lender is part of its Preferred Lender Program (PLP) and has the authority to approve SBA loan applications. Other lenders have to wait for the SBA to approve an application after they underwrite the loan, which takes five to 10 business days for most SBA 7(a) loans. The fastest SBA turnaround time is 24 hours for an Export Express loan and 36 hours for an SBA Express loan.
The SBA loan application itself is more complex than your typical business loan application. The forms can be difficult to navigate if this is your first major loan application. Many online providers like SmartBiz and Funding Circle offer packaging services. But packaging fees can run as high as $30,000, — depending on the loan size.
In addition to meeting the general requirements for an SBA loan, most lenders have additional requirements to qualify. Usually, you need to meet the following criteria to qualify for most SBA 7(a) loan programs.
It’s possible to find an SBA lender that accepts a lower credit score and less time in business, but your options will be limited.
Most small business lenders offer standard SBA 7(a) loans. But if your options may be more limited if you want to borrow through the SBA Express loan or a pilot loan program like Community Advantage. Many SBA lenders can be vague about which SBA loan programs are available. In that case, call and ask.
Read our guide to the SBA 7(a) loan program for information on maximum loan amounts, loan repayment terms and for different types of 7(a) loans. Plus, the lender you choose may have an effect on how much you can borrow with your business loan.
Before you get to the SBA loan application, it helps to gather together all of the documents you need to submit with the application. You’ll need the information on these documents to complete the application and supplemental forms that the SBA requires for 7(a) loans.
While some lenders might have different requirements, you typically need the following business financial statements and forms to apply for an SBA 7(a) loan.
Businesses that use a third party to complete their SBA 7(a) loan application must fill out an SBA Form 159: Fee Disclosure Form. If a business owner has faced criminal proceedings, you may also need to fill out SBA Form 912: Statement of Personal History.
An SBA 7(a) loan application also varies from lender to lender. However, you should be prepared to provide the following information.
After your lender has had a chance to review your entire application, it’ll send your business a letter of intent (LOI) if it qualifies.
If you’re satisfied with these potential terms, sign and return your LOI to your lender as soon as possible so it can get started on underwriting your loan.
It can take as long as two or three weeks for your lender’s underwriting team to review an SBA application — it’s as much of a process for them as it is for you. Typically, there’s nothing for you to do but wait, though you might be asked to provide additional documents or details on your business’s financials.
If the underwriters give your business the green light, you’ll get a commitment letter that gives you more details about your loan terms. If you accept these terms, you might have to put down another deposit, usually 5% of the loan amount or $5,000, which you’ll get back if you end up backing out of the deal.
Closing can take a while for loans that require appraisals or reviews by third parties, like real estate loans. Once your lender has finalized every last detail, it’ll send your business the loan agreement. At this point, you’ll review and sign the agreement and pay any closing-related fees andthe SBA guarantee fee. After that, your business will receive the funds.
Worried you won’t get approved? Here are the top reasons the SBA rejects applications.
Several SBA programs offer real estate loans, most commonly through the 7(a) and 504 programs. While the application is similar to other 7(a) loan applications, your business needs to take some extra steps to get all of the documentation together — like getting the property appraised and evaluated for potential environmental issues. On top of the other eligibility requirements, you’ll also need to:
When it comes to documents, lenders typically ask for the following.
SBA loans are one of the least-expensive options out there for entrepreneurs and young businesses — and it’s catching on. Since 2013, the percentage of SBA loans that went to new businesses went up by 12 percentage points, from 26% to 38% of all SBA loans.
While applying for an SBA startup loan is nearly the same as any other 7(a) loan, there are a few key differences.
Not sure where to start looking for funds? You might want to check out these government-backed business loan programs.
The SBA 7(a) application is more complex than your typical bank or credit union business loan. But the low interest rates and fees may be worth for small businesses that need funds to grow. Read about our picks for the best SBA lenders to get started or compare more business loans.
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