How to Apply for an SBA Loan
U.S. Small Business Administration (SBA) loans are well-known for their advantageous features such as extended repayment periods and competitive interest rates. These sought-after financial resources are highly affordable, making them a top choice for entrepreneurs. However, it's important to note that the application process for SBA loans is quite rigorous. To provide you with a better understanding, here's some essential information on how to successfully apply for an SBA loan.
Ensure Your Eligibility for an SBA Loan
Securing an SBA loan necessitates meeting certain stringent criteria. Typically, you will be required to have:
a. A registered, for-profit business that has been operating for two or more years
b. Business owners with a FICO score of 690 or higher.
c. Personal or business collateral to secure a significant portion of the requested loan.
d. have made efforts to secure financing elsewhere but have been unsuccessful.
In the event that you do not meet the qualifications for an SBA loan, it is advisable to explore alternative business lenders. Online lenders or traditional banks may have less stringent requirements compared to SBA loans.
Select an SBA Loan Type
The U.S. Small Business Administration (SBA) offers a diverse range of loan options, each tailored to specific purposes. These loans have distinct application processes and are available through various lenders. Here are some commonly sought-after SBA loan types:
a. SBA 7(a) Loans: This loan type allows you to borrow up to $5 million. Different variations of the 7(a) loan cater to specific business needs, such as expanding an export-oriented enterprise.
b. SBA 504 Loans: Geared towards real estate or large equipment funding
c. SBA Microloans: Offered for amounts of $50,000 or less.
Locate an SBA Lender
The SBA collaborates with reliable intermediary lenders to facilitate the provision of SBA loans. Consequently, a small business must gain approval not only from the SBA but also from the designated SBA lender.
Most SBA 7(a) lenders are established banks, including renowned institutions like Wells Fargo and Huntington National Bank. However, the availability of microloans and 504 lenders varies by city and region. It is crucial to identify the specific SBA loan type you require before seeking a lender.
Eligibility criteria may differ among lenders, so it is recommended to research multiple options for a suitable fit. The SBA's online lender match tool can assist you in exploring various choices.
d. Additional Business Details:
List of business subsidiaries and affiliates (if any).
Resumes of key business principles.
Overview of business history, including the desired loan amount, loan term, purpose of the SBA loan, and repayment plan.
Some lenders may request a comprehensive business plan alongside the loan application, covering similar subjects in greater detail.
Prepare Your SBA Loan Application
SBA loan applications vary depending on the loan type. Let's focus on the SBA 7(a) loan application, which happens to be the most popular. An SBA 7(a) loan application package typically includes the following components:
a. SBA-Specific Forms:
SBA loan application form: All individuals owning more than 20% of the business usually need to complete this form.
Statement of personal history: Primarily inquires about any criminal history.
Personal financial statement (SBA Form 413): Provides an overview of your assets, debts, and income.
b. Records of Business and Personal Finances:
Business financial statements, including profit and loss statements and projected financial statements.
Documentation of any previous loan applications.
Three years of business tax returns (if applicable).
Three years of personal tax returns for business principals.
c. Copies of Important Documents:
Business license or certificate of doing business.
Copy of the business lease (if applicable).
Complete and Submit Your SBA Loan Application Package
Once you have gathered all the required information, it can be beneficial to seek the assistance of a mentor or business coach to review your loan application. Their expertise can help identify any missing elements or areas that need strengthening.
Next, submit your application to your desired lender. They will carefully review it and make a decision regarding loan approval. If they opt for the SBA guarantee, they will forward the application to the SBA. Subsequently, the SBA will evaluate your application, conduct a credit check, and determine whether to support your loan. This stage usually takes around five to 10 days for most SBA 7(a) loans. Express loans can be processed within 36 hours.
If your application is approved, you will collaborate with your lender to proceed with the underwriting process, which may involve providing collateral or personal guarantees if necessary. Due to the multiple steps involved, acquiring an SBA loan can take weeks or even months.
If you require funding on a shorter timeline, you may want to consider applying for an online business loan. Although these loans generally have higher interest rates and shorter terms compared to SBA loans, they offer a quicker funding process.