How to Apply for an SBA Loan in 6 Steps

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SBA loans are a great option for small business owners looking to start or grow their company. They’re also an attractive choice because they allow businesses to fund projects before receiving the funds from traditional lenders and investors. Here’s how it works:

Determine your eligibility, choose an SBA loan type, assemble your loan paperwork, identify a lender, and complete the SBA loan application and forms are the six stages of applying for a Small Business Administration (SBA) loan. Traditional lenders may take three months to approve an SBA loan, but utilizing an SBA loan broker may take less time.

Step 1: Determine whether you’re eligible for an SBA loan.

The first step in getting an SBA loan is figuring out whether you and your company are eligible. Unless you’re asking for a different sort of SBA loan, you’ll usually need to fulfill both basic SBA loan criteria and SBA 7(a) loan standards.

SBA Loan Requirements

It’s critical to think about the individual SBA loan regulations before applying for a loan. Both startups and established firms may apply for SBA financing. However, unless you have substantial expertise in your field, qualifying as a startup might be more challenging. The following are the most important SBA loan requirements:

Credit score: All principal company owners must have a credit score of at least 680.
If you’re utilizing the loan profits to buy a company or commercial real estate, you’ll need a down payment of at least 10%, but up to 30%.
SBA loans don’t have to be fully collateralized, but the more company and/or personal collateral you can provide, the more likely your loan will be accepted.
Repayment ability: You must have enough cash flow to repay all of your debts plus a buffer. A debt service coverage ratio (DSCR) of 1.25x for a firm is usually acceptable.
Time in business: At least two years in business is required. SBA 7(a) loans are available to startups, although they are more difficult to get. You must have appropriate management and industry expertise when evaluating how to qualify for an SBA loan as a starting firm.
Owner-occupied: At least 51 percent of commercial real estate loans must be owner-occupied.
Other restrictions include no delinquencies or defaults on federal financial commitments, including student loans. You’ll also need to make money with your company.

Requirements for SBA 7(a) Loans

The SBA 7(a) loan program includes extra qualifying requirements in addition to the SBA’s regular financing qualifications:

According to the SBA, a small business is one with fewer than 500 workers and annual revenues of less than $7.5 million.
Small company type: A small business must be in a qualifying sector, such as food service, retail, or hospitality. Nonprofits, lenders, gaming firms, and illicit activities businesses are all disqualified.
Your company must be based in the United States or one of its possessions, or seek to conduct business there.
Business purpose and impact: You should be able to establish a legitimate business requirement for the borrowing. In addition, the SBA wants to see employment generated or kept, and financing to your company helps the SBA achieve its public policy objectives.

Step 2: Select the Most Appropriate SBA Loan Program

SBA loans are divided into six categories, each of which is meant to fulfill the requirements of a particular kind of borrower. The remainder of the stages will go more easily if you choose the SBA loan program that best meets your company requirements ahead of time. The following are the main SBA lending programs:

SBA 7(a) loan: This program is suitable for borrowers that require long-term finance for debt consolidation, company acquisition, real estate acquisition, or equipment acquisition. The SBA’s most popular loan is this one.
CDC/SBA 504 loan: This loan is for businesses wishing to buy equipment or owner-occupied commercial real estate.
SBA CAPLines: This program is for borrowers who require working capital for seasonal demands or to satisfy the needs of a specific contract or project.
SBA Export Loan: This loan assists small firms in funding new exporting operations so that they may offer their foreign consumers more flexible terms.
SBA Microloans: These loans, which are given via nonprofit, community-based organizations in amounts up to $50,000, are available to small enterprises.
SBA Disaster Loan: Businesses in designated disaster zones and those who have incurred property damage or economic losses may apply for disaster relief funds. Unlike the other SBA loans offered, this loan is financed directly by the SBA.

You’ll need to locate a lender to finish the process after you’ve decided on the loan program to apply for.

Step 3: Locate a Small Business Administration (SBA) loan provider.

The next step is to identify an SBA loan source if you fulfill the SBA’s eligibility conditions. The ideal lender for you is determined by your present banking connection, the amount you want to borrow, how quickly you need cash, and how you want to spend the funds. Let’s take a closer look at each loan provider choice as you contemplate how to secure an SBA loan.

SBA Direct Lenders

Finding a direct lender that deals with SBA loans on a regular basis is your best bet. Because of their expertise, these lenders are more likely to accept your loan application and are more familiar with dealing with unusual conditions. Conventional banks, credit unions, internet banks, and other traditional lending institutions are examples of direct lenders. Verify if the lender is a member of the Small Business Administration’s Preferred Lender Program (an SBA PLP lender). The SBA allows PLP lenders greater latitude to handle loans quicker since they have enough expertise and a proven track record.

The following questions should be asked of prospective lenders:

What is the total amount of SBA loans you have?
What is the average size of your SBA loans?
Are you a favored lender for the Small Business Administration?
How well-versed in the SBA 7(a) borrowing and lending procedures are you?
What is the average time it takes to be pre-approved?
How long will it take for your project to get funded?
Is there a single point of contact for me to contact if I have any questions throughout the loan application process?
Will I be required to make a down payment? If so, how much will it cost?
What are the estimated interest rates on an SBA loan that I could be eligible for?

South End Capital is one direct SBA lender to consider. With a credit score as low as 650, South End Capital will offer SBA 7(a) financing up to $5 million. It just takes a few pieces of information to contact South End, and they’ll get back to you shortly to begin the SBA loan process.

Brokers for SBA Loans

Brokers for SBA Loans can provide a valuable service to small business owners by leveraging their expertise. Brokers have a keen understanding of which lenders will be most likely to approve your loan for your type of business. They also know how to present your business’ loan request so it has a better chance of approval. Brokers for SBA Loans can also save you a lot of time and headache by coordinating all the lender’s document requests and other communications.

Small company loan brokers, on the other hand, are not all made equal. Asking your prospective loan broker numerous questions as you consider how to obtain an SBA loan is an essential step to take as you consider how to acquire an SBA loan:

How many direct lenders do you deal with?
What method do you use to be paid? How much is it? When?
How many loans have you successfully completed?
Have you dealt with a company my size or in my sector before?
How well-versed in the SBA 7(a) loan procedure are you?
What are the estimated interest rates on an SBA loan that I could be eligible for?
What is the average time it takes to be pre-approved?
How long will it take for your project to get funded?
What portion of the procedure do you take care of for me?

Because of the related broker costs, using a broker to handle your SBA loan process will cost you a little more money, but the appropriate broker may help the process go much more smoothly. Their ability to pitch your loan proposal around to various SBA lenders may also help you get approved.

When you’re looking for a lender, attempt to learn as much as you can about their interest rates and costs. Interest rates are capped by the SBA, although actual rates vary per lender, and SBA loan rates fluctuate often. You may use an SBA loan calculator to estimate your monthly payments after you’ve been preapproved.

SmartBiz is an SBA loan broker with a track record of expediting the application process for customers. Their knowledge makes the process of obtaining an SBA loan considerably simpler. Funding may be obtained in as little as 30 days for qualifying borrowers. By completing their online application, you may prequalify.

Step 4: Gather the SBA Loan Documents You’ll Need

The next step is to collect all of the relevant documentation for your application once you’ve chosen an SBA lender or loan broker. Personal and company tax records, predicted business financials, resumes, leases, and information regarding your loan request are among the papers you’ll need.

SBA Loan Documentation Requirements

The following are the primary documentation that a direct lender or SBA loan broker will require:

Amount of loan requested and detailed funding allocation
Business plan for the Small Business Administration
Financial projections (at least three years)
Year-to-date profit and loss (P&L) statement
Balance sheet for the first half of the year
Evidence of ownership
Certificates and/or licenses for your business
If appropriate, a business lease
History of loan applications
Last three years’ business and personal tax returns
Statements of personal finances

SBA Loan Documentation Requirements for Acquiring a Business

If you’re applying for an SBA loan to buy a company, you’ll also need:

Balance sheet for the first half of the year and profit and loss statement for the business you’re acquiring
Business tax filings over the last three years for the company you’re buying
A purchase agreement should contain a schedule of inventory, machinery and equipment, furniture and fixtures, accounts receivable, and intangible assets, as well as the asking price.
A trained business appraiser can provide you with a company appraisal.

SBA Loan Documentation Requirements for Commercial Real Estate

Commercial real estate may be financed with both SBA 504/CDC and SBA 7(a) loans. The qualifying rules, paperwork, and needed documents are almost similar to those for working capital SBA 7(a) loans, regardless of the loan you pick. However, there are several extra restrictions when using the SBA to get real estate:

Rent rolls for all tenants: Even if your firm is the lone renter, commercial real estate usually has at least one tenant who pays rent. Rent rolls for all tenants linked with the property being acquired or used as collateral will be required.
After your application has been accepted, the loan provider will arrange a property evaluation. This evaluation is usually paid for by you. The appraised value of your home may affect how much you pay down or how much you may borrow.
Environmental studies: As part of your first application, you’ll be asked to do an environmental study of your land. After preliminary clearance, your loan provider may commission an environmental study based on the results of this assessment. The goal of the environmental analysis is to uncover any possible difficulties with your property. If any red flags appear, a more thorough investigation may be required before the loan is accepted.
The following is a list of ongoing maintenance costs: You’ll need to break out the ongoing expenditures of maintaining the property.
Current leases: According to the SBA, the property must be 51 percent owner-occupied. If you want to rent any part of the property, the lender will want to examine any current leases as well as the conditions you and your renters have agreed to.
Report on the property’s condition: Most lenders will ask for a report on the property’s condition to evaluate what deferred maintenance problems are due in the near future. The loan lender will usually want to know if you have the money to complete any necessary facility improvements or maintenance that has been neglected.

Step 5: Finish the paperwork for your SBA loan.

After you’ve gathered all of your loan documentation, you’ll need to complete some more SBA forms to send with your application. The needed documents will be decided by the SBA loan type you’re asking for, the anticipated use of loan funds, and the sort of company you own. Check with your prospective lender to see if they have a version of this paperwork you may use.

Here are detailed instructions on how to fill out the most common SBA forms:

Borrower Information Form (SBA Form 1919): This form is used to record basic borrower information for all 7(a) loans.
SBA Form 912 (Statement of Personal History) Instructions: This form is meant to assess your personality.
Guide to the SBA Form 413 (Personal Financial Statement): This form is intended to evaluate your own financial situation, as well as that of your spouse (if applicable) and any other company owners.
Fee Disclosure Form and Compensation Agreement (SBA Form 159 Guide): If you employ someone to assist you with your SBA loan application, you will need to fill out this form. It specifies the amount you spent and the services you received.

Contact your bank to conclude your loan application after you’ve completed all of the forms and gathered all of your supporting documentation.

Step 6: Fill out the application and send it in.

SBA loan applications differ depending on the lender, but they usually ask for basic information about you, your company, and the reason for your loan request. This information helps the SBA in gaining a better understanding of your company and how you plan to utilize and return the cash you borrow:

How-to-Apply-for-an-SBA-Loan-in-6-Steps

SBA Loan Application Example

The SBA needs the following information to finalize your loan:

A brief overview
Profile of a company
Breakdown of ownership
Experience in management
How cash will be used.
An explanation of how the loan will be repaid.

In addition to the SBA’s documentation, most SBA lenders will want you to fill out additional paperwork. Your application may vary in length, but regardless of the lender or program you pick, this essential information about your small company will be necessary. This application, together with the other supporting papers you’ve collected and the SBA forms you’ve completed, will make up your loan application package. Make sure you send everything in one package to speed up the application process and minimize delays.

Startups Interested in Getting an SBA Loan

Many entrepreneurs find SBA loans to be a more appealing option than taking on high-interest debt, such as credit cards. In FY 2021, enterprises that had been in existence for two years or less received 30% of SBA 7(a) loan dollars and 35% of SBA 7(a) loan units. The SBA’s current strategic plan places a greater focus on small business lending prospects for new and rising enterprises, as well as those in rural and urban regions that have trouble getting loans.

The application process for a startup is mostly the same as it’s for an experienced business. However, there are some additional requirements to help show your commitment to your business or to demonstrate your knowledge of the industry and your business experience in management:

To have your loan accepted, you may need to put up more personal collateral.
The Small Firm Administration (SBA) likes to see that you have put some of your liquid funds into the business. This might account for up to 30% of the project’s total expenditures.
You must have prior experience in management in the industry to show that you can make the startup a success.
If your firm or sector is regarded as underserved, your chances of approval improve.

The Community Advantage Program and the Microloan Program are two SBA loan programs that are more startup-friendly. If you don’t believe your firm will be eligible for an SBA loan, there are a number of additional startup finance choices to consider.

Timeline for SBA Loan Applications

The length of time it takes to get an SBA loan depends on how experienced your lender is with the sort of loan you want and how well you’ve prepared all of the required documents. Funding might take as little as 30 days if you use an internet broker, or as long as three months if you use a conventional lender. Keep in mind that if you utilize a broker, you may be charged extra costs. When applying for an SBA loan, you’ll usually go through these five steps.

1. Prepare & Apply for an SBA Loan (Days or Weeks)

You should prepare by following the instructions on how to apply for an SBA business loan (explained above). By the conclusion of the six processes, you should have applied for an SBA loan and boosted your chances of prequalification. This stage may be completed in days rather than weeks if you plan beforehand.

2. Go through the letter of intent again (Up to 2 Weeks)

After completing a complete application, you should get a response within two weeks. If your lender wishes to proceed with the loan, they’ll send you an initial proposal, also known as a letter of intent (LOI). This will show you how much you qualify for and what loan conditions and rates you may anticipate. If the rates and conditions appeal to you, you’ll need to send a signed copy of the LOI to the lender as soon as possible. To go ahead with underwriting the loan, most lenders will want a modest deposit, generally approximately $2,000.

3. Underwriting a Loan (2 to 3 Weeks)

Formal underwriting will begin when you submit a signed letter of intent and a deposit. SBA loan underwriting normally takes two to three weeks. During this time, the underwriting team may ask you further questions about your finances and your intentions for the loan money, or they may ask for additional documents.

4. Get a Letter of Commitment (Days to Weeks)

If your loan passes underwriting, your lender will send you a commitment letter describing the conditions of your loan and the actions you must do before closing. Accepting the commitment letter normally requires a second deposit, usually $5,000 or 5% of the loan amount, to demonstrate to the bank that you’re ready to go through with the loan. This step’s timeframe is determined by how soon you answer. If the loan isn’t funded, the deposit is refunded, less any third-party fees.

5. SBA Loan Disbursement (Days or Weeks)

The loan conditions are completed upon closing. The intricacy of your transaction, your lender’s knowledge of SBA loans, and the duration of third-party work like appraisals and environmental assessments all influence how long it takes to finalize the loan. You’ll eventually sign the loan agreement, pay all closing charges and SBA guarantee fees, and get the loan funds.

The Most Common Reasons For SBA Loan Denials

It takes time to apply for an SBA loan. Small company entrepreneurs often worry about what would happen if they are turned down for a loan. If your loan application is declined, your lender will send you a letter stating the reason for the refusal. Loan rejection is usually prompted by one of five factors:

Inadequate credit score: If your credit score falls short of the lender’s or SBA’s standards, you may be refused funding. There are methods you may do to enhance your credit score if your loan application is denied due to a low credit score.
Negative personal or credit history: Your SBA loan application is likely to be declined if you have a criminal record, recent bankruptcy, foreclosure, or have defaulted on government debt or student loans.
Inadequate collateral: While an SBA loan does not have to be fully collateralized, the lender will want a major percentage of the loan to be collateralized.
Insufficient business revenues: To qualify for an SBA loan, your company must be profitable. You may be refused funding if your firm does not generate enough revenue to repay the loan.
Inadequate supporting documents: SBA loans demand a lot of documentation from the company owner(s), and lenders may request more documentation as part of the evaluation process. If needed information is not provided, the loan may be denied.

Conclusion

Applying for an SBA loan may be a time-consuming procedure that takes time away from your business’s day-to-day operations. Partner with a loan source that specializes in SBA financing to expedite the process and ensure that you apply appropriately. Additionally, having all of your financial and company documentation available before submitting can aid in the application process.

Frequently Asked Questions

How do I apply for an SBA loan?

In order to apply for an SBA loan, you need to be an entrepreneur with at least one year of experience in your field. You will also have to submit an application form, personal statement, and any supporting documentation that is requested.

How can I get an SBA loan fast?

The process for obtaining one of these loans is quite simple. You would need to find a lender that offers this type of loan and fill out an application with them, providing all the information they request in order to determine whether or not you are eligible. There might be fees associated with some lenders, but most will waive those if you make sure your financial situation meets their requirements before signing up.

How to Apply for an SBA Loan in 6 Steps