How to Apply for an SBA Loan

 In Finance

The SBA offers a number of SBA loans to get your small business started, with the 7a loan being the most common. You’re looking to apply, but it’s a process; where to start? Fit Small Business put together the steps for applying for an SBA loan. Listed is a step-by-step how-to to get your loan process started.

Step 1: Determine Eligibility

The first step in applying for an SBA loan is to determine whether or not your business is eligible. You’ll typically need to meet both general borrower requirements and SBA eligibility requirements.

Borrower Requirements:

  • 680+ FICO score for all primary business owners. Check your score for free here.
  • Down payment of 10% or more if you’re using the loan proceeds to purchase a business or commercial real estate.
  • Collateral: SBA loans don’t need to be 100% collateralized. But the more business and/or personal collateral you bring to the table the easier it will be to get your loan approved.
  • 2+ years in business: Startups can get SBA 7a loans, but it is more difficult. If you want to try for an SBA loan as a startup, you’ll need to have all of the above plus business management & industry experience.
  • Business is profitable
  • No delinquencies or defaults on debt obligations to the U.S. government (including student loans).
  • Commercial real estate loans must be 51%+ owner-occupied.

The SBA lays out additional basic eligibility requirements for SBA 7A loans. This is a summary of those requirements:

If you don’t meet these requirements check out the Complete Overview of Small Business Financing Options. Or you can view a more complete explanation of the SBA’s 7a eligibility requirements here. 

Step 2: Find an SBA Loan Provider

If you meet the requirements above, the next step in applying for an SBA loan is to find an SBA loan provider that will disburse and service your loan.

Finding an SBA loan provider will mean reaching out to banks and other direct lenders and brokers. We’ll discuss each in more detail below.

Finding a Direct SBA Lender (Banks, Credit Unions, Non-Bank Lenders)

In general, it’s a good idea to find a bank that regularly works with SBA loans. These providers are more likely to approve your loan application and typically know how to deal with any unique circumstances you may have.

Make sure the lender is part of the SBA Preferred Lender Program (an SBA PLP lender). PLP lenders are SBA loan providers that have so much experience and such a strong track record that the SBA actually gives them more leeway to process loans faster.

As you visit potential lenders, we recommend asking them the following questions:

  • What is your total SBA loan volume?
  • What’s your average SBA loan size?
  • Do you participate in the SBA Preferred Lender Program?
  • How familiar are you with the SBA 7a borrowing/lending processes?
  • What length of time does it take to get pre-approved?
  • How long will it take to get funded?
  • Is there one person who will be my point of contact throughout the loan application process in case I have any questions?
  • What are your internal policies on collateral for a loan like mine?
  • Will I need a down payment? If so how much?
  • What are the approximate interest rates I might qualify for?

If the lender you speak with isn’t sure about their bank’s SBA loan performance, you can browse through the SBA’s list of their 100 most active lenders.

Find an SBA Loan Broker

SBA loan brokers can provide a valuable service to small business owners by leveraging their expertise. Brokers often have a keen understanding of which lenders will be most likely to approve your type of loan and business, and how to present your business’s loan request. Additionally, SBA loan brokers can save you a lot of time and headaches by coordinating all the lender’s document requests and other communications.

But not all small business loan brokers are created equal. Here’s a few questions you should ask a potential loan broker:

  • How many lenders do you work with directly?
  • What about payment? How much? When?
  • How many loans have you closed?
  • Have you previously worked with a business of my size or in my industry?
  • How familiar are you with the SBA 7a loan process?
  • What are the approximate interest rates I might qualify for?
  • How long does it take to get pre-approved?
  • When will it get funded?
  • How much of the process do you handle for me?

Using a broker to manage your SBA loan process will typically cost you a little extra money, but the right broker can make the process a lot smoother. Their ability to shop your loan proposal with multiple SBA loan providers may also improve your chances of approval.

When you find bank, either directly or through a loan broker, you should try to find out as much information about their SBA interest rates and fees as possible. The SBA sets a cap on interest rates, but exact rates may vary from bank to bank. Make sure to read this article on SBA Loan Rates before you begin shopping around, and once you’re pre-approved, you can use this SBA Loan Calculator to estimate your monthly payments.

Step 3: Assemble and Organize Your SBA Loan Paperwork

Once you have selected an SBA lender or loan broker, you should begin to assemble the various documents required for your application. The SBA provides a comprehensive checklist, which you can find here. The main documents required are:

  • Loan Request Amount & Detailed Allocation of Funds
  • Business Financials
  • YTD Profit and Loss (P&L) Statement
  • YTD Balance Sheet
  • Projected Financials (1-3 years)
  • Proof of Ownership
  • Business Certificate/License
  • Loan Application History
  • Business Tax Returns (last 2 years)
  • Personal Tax Returns (last 2 years)
  • Personal Financial Statement
  • Owner Résumés
  • Business Overview and History
  • Business Lease

If you are getting an SBA loan to buy an existing business, you will also need the following:

  • Acquisition’s YTD balance sheet and P&L statement
  • Acquisitions last two years of business tax returns
  • Purchase Agreement (should include asking price with schedule of inventory, machinery & equipment, furniture & fixtures, accounts receivable, and intangible assets).

If you are getting an SBA loan to buy commercial real estate, you will also need to provide the following:

  • Real Estate Purchase Agreement
  • Rent Rolls and Leases for any Tenants of Your Property
  • Property Appraisals (which will be ordered by the lender prior to closing)
  • Any Plans for Remodeling or Build Outs (including timelines and costs)

If you own any other businesses (or have a 20%+ stake in any other businesses) or own rental properties, then you should expect that you will need to provide documentation for those as well (such as financials, appraisals, leases, or rent rolls).

The overall goal is to convince a bank that your company is well managed and has an attainable plan to be profitable. There are many software tools that can help you put together a business plan.

Much of the speed of your application process will depend on your ability to provide timely documentation.

Step 4: Complete SBA Forms

In addition to the paperwork mentioned above, you will need to fill out some SBA forms before your loan can be approved.

Here are some comprehensive guides on each form and how to complete them:

  • SBA Form 1919 Guide: Borrower Information Form – Used for all 7a loans, this form is where you note down basic borrower information.
  • 912 Guide: Statement of Personal History – This form is used to evaluate your character.
  • 413 Guide: Personal Financial Statement – This form is used to assess the personal financial standing of you, your spouse (applicable), and anyone who is a proprietor of the business.
  • 159 Guide: Fee Disclosure Form and Compensation Agreement – This form is only necessary if you hired someone to help you with your SBA loan application. It details how much you paid them and the services they provided

Once you have completed all of your SBA forms and assembled your supporting paperwork, you will meet with your bank to finalize your loan application.

Financing is a Must

For a small business with limited sources of capital, SBA loans can be a godsend. Determining your eligibility and then identifying which information to use and how to use it is essential to creating your loan application. Follow each step carefully and you will be on your way to receiving SBA funding.

More Resources:

SBA: Types of SBA Loans

How to Get a Small Business Loan

SBA: Finding and Securing the Right Loan

5 Reasons Why You Might Not Qualify and How to Fix

SBA: Types of Financing

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