How to Apply for an SBA Loan

The first step in applying for an SBA loan is deciding which type of SBA loan best suits your business needs. There are six types of SBA loans, including CAPLines, a business line of credit. Each option offers unique advantages, such as higher loan amounts, lower interest rates, or longer repayment terms, so carefully evaluate what works best for your goals.  

After submitting your application to your chosen lender, a loan underwriter may contact you with additional questions. Be sure to respond promptly to keep the application process moving smoothly.  

The next step typically involves a soft underwriting process. If the lender is satisfied with the initial review, they’ll present you with a loan proposal. This proposal outlines the loan terms, including any associated fees. Once you agree and sign the proposal, the lender will conduct a more detailed underwriting process.  

If your application successfully passes this second review, the lender will issue a commitment letter. After signing the commitment letter, you can expect to receive your funds within a few months.  

Take the first step toward funding your business today!

Applying for any type of business loan can impact your credit.  The application utilizes a “soft” credit pull, which accesses your credit profile without impacting your credit score. In terms of credit, another benefit of SBA loans is that they can help build your business credit score. Having a high business credit score can ensure you can access larger loan amounts in the future at a lower interest rate. 

SBA loans have specific eligibility requirements that businesses and business owners must meet. These include:

• The business is a for-profit business
• The business has been in operation for 2 years
• The business operates, or will operate, in the United States or its territories
• The business owner must be able to prove that they have used or tried alternative financial resources before seeking an SBA loan
• The business owner has a reasonable amount of equity in the business
• Business owner is a US citizen or a valid Visa holder

**Common Reasons You May Not Qualify for an SBA Loan**  

1. Program Requirements:  

   If your business is a non-profit or operates in certain restricted industries, it may not meet the SBA’s basic program criteria. Additionally, the SBA imposes size requirements for each eligible industry. For example, if you own a full-service restaurant and your average annual receipts (total income plus the cost of goods sold) exceed $11.5 million, you won’t meet the size requirements. To check your industry’s size standards, refer to the [SBA Guidelines](https://www.sba.gov).  

2. Low Credit Scores: 

   While SBA loans are more flexible with credit scores, very low scores may still disqualify you. Both personal and business credit scores are considered, so ensure all bills are paid on time. Generally, a 660+ FICO score is needed, but if your business has been operating for less than two years, a higher score may be required.  

3. Low or No Revenue:  

   SBA loans require your business to generate revenue. For example, your business must earn at least $50,000 annually to qualify.  

Pro Tip: Maintaining strong credit and generating consistent revenue increases your chances of securing an SBA loan.

Yes, you can qualify for an SBA loan if a prior bankruptcy was discharged more than three years ago. However, neither the business nor any majority owner can currently be in bankruptcy to be eligible.

Yes! Individuals with certain criminal convictions may still qualify for an SBA loan. However, those with financial felonies or who are currently incarcerated are not eligible. Entrepreneurs with a criminal conviction over seven years ago or a misdemeanor conviction more than three years ago can qualify for an SBA 7(a) loan.

Yes, SBA loans must be repaid. By signing the loan agreement, the borrower commits to repaying the loan principal along with the agreed-upon interest.

No, if an SBA loan is canceled, the collateral securing the loan may be liquidated. Once liquidation occurs, the SBA and the lender settle the remaining balance.

The 7(a) Loan: Your Versatile Funding Solution**

The SBA 7(a) loan stands out for its flexibility, offering a range of uses for businesses like yours:

• Real Estate: Purchase land or buildings, cover construction costs.
• Business Acquisition & Expansion: Buy or expand an existing business.
• Debt Refinancing:Refinance existing business debt.
• Equipment & Supplies:  Acquire machinery, furniture, supplies, or materials.

Loan Amounts and Collateral

• Two Options: Choose between the Standard 7(a) loan (up to $5 million) and the Small Loan (up to $350,000).

Collateral Requirements:

•    Under $350,000: Business assets are typically required as collateral, but no personal collateral is needed.
•     Over $350,000:  Personal collateral is generally required.

With its adaptable nature and generous loan amounts, the 7(a) loan can be a valuable tool for fueling your business growth.

SBA 504 Loans: Powering Major Fixed Asset Investments

The SBA 504 loan program offers a unique pathway to finance significant fixed assets for your business. Here's a breakdown of its key features:

How it Works:

• Three-Way Partnership:  504 loans involve collaboration between a lender (50% of the project cost), the SBA (40%), and you, the borrower (10% down payment).

• Fixed Asset Focus: These loans are specifically designed for acquiring fixed assets like buildings, land, or machinery.

• Personal Guarantee:Be prepared to personally guarantee at least 20% of the loan amount.

Eligible Projects:

• Real Estate: Purchase or construct buildings, acquire land, make land improvements.
• Equipment:  Invest in long-term machinery.
• Refinancing:Refinance debt related to business expansion or renovation.

Advantages:

• High Financing: Secure up to 90% financing for your project.
• Favorable Terms: Benefit from longer repayment periods, no balloon payments, and fixed interest rates.

Eligibility:

To qualify, your business must meet certain size standards, including a tangible net worth under $15 million and an average net income of $5 million or less over the two years prior to your application.

While the 504 loan process may involve a more detailed review of your project costs, its unique advantages make it a compelling option for businesses seeking to make substantial fixed asset investments.

Need Fast Funding?  The SBA Express Loan Delivers**

When time is of the essence, the SBA Express loan offers a streamlined path to financing:

• Rapid Review:** Get a decision on your application within 36 hours.
• Funding Timeline:** While the review is quick, it typically takes around 30 days to receive your funds.
• Loan Amounts: Access up to $500,000 in financing.
• Collateral:  For loans over $25,000, your lender may require collateral.

Flexible Uses:

• Working Capital:  Boost your day-to-day operations with a 5-10 year term.
• Line of Credit:  Gain ongoing access to funds with a 7-year term.
• Commercial Real Estate:  Purchase or refinance property with a 25-year term. 

If you need quick access to capital and value a simplified application process, the SBA Express loan could be your ideal solution.

How Much Can You Borrow with an SBA Loan? 

The maximum loan amount depends on the type of SBA loan you choose:  

- SBA 7(a), CAPLine, and 504 Loans: Up to $5 million  

- SBA Disaster Loan: Up to $2 million  

- SBA Export Loan: Up to $500,000  

- SBA Microloan: Up to $50,000  

When selecting the right SBA loan, consider both the interest rate and the loan term. Loans with longer terms typically have lower monthly payments, but you’ll pay more in interest over time.  

If your cash flow can handle higher monthly payments, a shorter-term loan might be a better option, as it can save you money on interest. However, the loan maturity often depends on how you plan to use the funds. For example, if you’re purchasing commercial real estate, a 20-year loan term may be the most practical choice.  

Evaluate your needs and choose the SBA loan that aligns with your goals!

If you don’t qualify for an SBA loan due to your credit score, consider focusing on improving it over the next 90 days. This can involve actions like catching up on delinquent accounts, making consistent payments, or using credit-building credit cards. Once your credit score improves, you can reapply for an SBA loan without affecting your credit score.