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How to Apply for an SBA Loan in 4 Steps

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If your small business needs capital to grow, then you may look to Small Business Administration (SBA) loans. You apply for these loans with private financial institutions but they’re backed by the SBA and offer unique benefits to both the borrower and lender.

With multiple parties involved in these big transactions (including the government), knowing  how to apply for an SBA loan is a bit complicated. You’ll need to find an SBA-approved lender and undergo an extensive application process that can last several months. But the rates and terms are competitive, and the loans can be a lifeline for businesses.

What is an SBA loan?

An SBA loan is a government-backed loan for small businesses. The SBA creates guidelines for its partnering lenders, and by guaranteeing the loans, it reduces risk for lenders. This makes it easier for financial institutions to offer capital to businesses that need money to grow but can’t qualify for other forms of financing.

Applying for Small Business Administration loans can be a time-consuming, tedious process but the headaches can be worth it since these loans typically offer competitive rates and fees compared to non-government loans. Certain SBA loan programs offer additional valuable benefits, such as free counseling and continuous support, lower down payments or no collateral.

SBA loan requirements

SBA loan requirements can vary depending on the loan program you select and the lender you apply with. However, some eligibility requirements are standard for all SBA loan applicants:

  • You must be an officially registered for-profit business
  • Your business must be physically located and operating in the U.S. or its territories
  • The business owner must have invested their own equity (time or money) in the enterprise
  • You can’t obtain business funding from another lender
  • The business must meet the SBA’s definition of small business 

Keep in mind that the SBA loan requirements are a little different for each program. For example, SBA’s 504 loans can’t be used for working capital, and its microloans can’t be used for real estate purchases. So, make sure you apply for the loan that matches up with your financing needs.

How to apply for an SBA loan

1. Find a lender

Only lenders who partner with the SBA can offer SBA loans. If your business already has a trusted bank or credit union, you could check to see if they offer SBA loans. Another option is to use the SBA’s free online Lender Match tool, which can connect you with approved small lenders and the Community Development Financial Institutions (CDFI) Program that provide funding in low-income and underserved communities.

You can also contact your local SBA District Office and ask for referrals to local SBA lenders in your area. Some online lenders now also offer these loans, giving you a way to apply for an SBA loan without having to set foot in a bank.

2. Choose your loan type

When people say “SBA loans,” they’re typically referring to 7(a) loans, which are the SBA’s primary loan program. They can be used for most business purposes, including working capital.

There are also 504 loans, which provide small businesses with long-term financing for acquiring fixed assets that are used for expansion or modernization. The loans are available through a Certified Development Company (CDC), a specific type of economic development nonprofit.

Additionally, the SBA offers microloans up to $50,000 for small businesses and nonprofit child care centers with smaller financial needs. As of now, the SBA is also offering COVID-19 Economic Injury Disaster Loans (EIDLs) and Paycheck Protection Program (PPP) loans for businesses that are having trouble covering their expenses during the pandemic.

Here are the SBA’s best-known loan programs in more depth:

Types of SBA Loans
Loan program Uses Loan Amount, Terms  Best For
7(a) Nearly any business purpose $50,000 to $5 million. For real estate, terms up to 25 years. For equipment, working capital or inventory, terms up to 10 years. Five to seven years for working capital. Long-term financing for businesses that struggle to obtain loans elsewhere
CDC/504 loans Acquiring a fixed asset, like commercial real estate or heavy equipment $25,000 to $5.5 million. Terms are 20 years for real estate and 10 years for equipment. Small businesses that need help purchasing land, renovating buildings, buying machinery
Microloans Working capital or purchasing assets such as furniture or equipment Up to $50,000 and terms no more than six years New or early-stage small businesses or child care nonprofits that need help with some business costs
EIDLs Help businesses meet financial obligations and operating expenses Six months of working capital that can be repaid over 30 years, and first payment can be deferred for a year Small businesses that are struggling to stay afloat due to the COVID-19 pandemic
PPP Provides money for businesses to keep their workforce employed during the pandemic Up to $10 million with the possibility of loan forgiveness. Otherwise, repayment is up to five years with 1% interest.  Qualifying small businesses and nonprofits 

3. Gather your documents

What your lender requires for your application package can vary depending on the program type but it’s often quite extensive and can easily take a few weeks to compile.

Your lender will let you know more specifically what’s needed from you, but these documents are usually required for 7(a) loans, according to the SBA:

  • Your SBA loan application form (Form 1919)
  • A personal financial statement and personal background statement
  • Business financial statements, such as current profit and loss statements and a one-year financial projection statement
  • A list of any business ownerships and affiliations
  • Your business certificate or license
  • Your loan application history
  • Personal and business tax returns for the past three years
  • Personal resumes for each principal of the business
  • An overview and history of your business
  • A copy of your business lease

If you’re not sure what’s needed or you’re having trouble putting together your application, ask your SBA loan officer to help.

4. Apply for your loan

Once you have everything ready, you’ll submit your application to the lender. They may follow up with questions or requests for additional documents as they process your loan application. They then begin the initial underwriting process to review your application and decide whether to proceed.

If they decide to move your request along, after a week or two, you will receive a document called a “loan proposal” or “letter of intent.” The document outlines your request and the loan’s terms, plus information on any required deposits or fees, and closing details.

If you accept the loan proposal and sign it, the lender starts a more formal underwriting process. In most cases, the lender and the SBA thoroughly analyze your application, credit history and the documentation you provided.

If the SBA and lender approve your application, they’ll notify you and send a “commitment letter.” You must accept if you want to proceed. You’ll receive closing documents, and your lender will guide you through the closing process, which can take two to four weeks. Once you sign these final loan documents, the loan is closed and the money is disbursed.

All in all, SBA loans can take two to three months from beginning to end, though time can vary depending on how organization your application is and what type of loan it is. For example, Citizens Bank claims it typically takes them 45 days to close an SBA loan.

COVID-19 relief resources

The unique financial challenges of the COVID-19 crisis has led to the creation of several temporary resources for small business owners.

Currently, small business owners and nonprofit organizations can apply for COVID-19 EIDLs. The SBA created these loans to help organizations that can’t meet financial obligations or operating expenses due to temporary loss of revenue from the crisis. These long-term loans provide six months of working capital. The loans can’t be forgiven, but they have low, fixed interest rates and 30-year repayment terms. Additionally, the first payment can be deferred for a year.

The Paycheck Protection Program is designed to help small businesses keep employees on their payrolls. The program offers loans that could be forgiven by the SBA if businesses met certain criteria, though this program is slated to end March 31, 2021.

 

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