How to Apply for an SBA Loan in 4 Steps
If you need funding to take your business to the next level, it’s a good idea to consider SBA loans first. Individual lenders offer these small-business-friendly loans in partnership with the Small Business Administration, which guarantees a portion of your loan so that your lender can offer you a lower rate.
Business owners often avoid SBA loans because they have a reputation as being difficult to get. But while it’s true that it may require a bit more work than other loans, the benefits almost always outweigh the costs. Planning ahead so you have everything you need for each of the five steps to apply can make the process simpler.
1. Find a lender
Only lenders who partner with the SBA can offer SBA loans. To find a lender:
- If your business already has a trusted bank or credit union, check to see if they offer SBA loans.
- Use the SBA’s free online Lender Match tool, which can connect you with over 800 lenders
- Contact your local SBA District Office and ask for referrals to local SBA lenders in your area.
- Search for lenders online. Many online lenders now offer SBA loans, giving you a way to apply for an SBA loan without having to set foot in a bank.
What to look for in a lender
Here are a few things to consider when looking for a lender:
- What rates and fees do they charge?
- What do recent customer reviews and ratings look like?
- Is it easy to manage your loan online or reach customer service?
- Are they an SBA Preferred Lender that can process your application faster?
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 Certified Development Companies (CDCs), 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. The SBA also offers Economic Injury Disaster Loans (EIDLs) for those in a government-declared disaster area. During the COVID-19 pandemic, it also offered special EIDLs and Paycheck Protection Program (PPP) loans, although those programs are no longer accepting applications.
SBA loans include:
| Loan program | Uses | Loan Amount | Terms | Best For |
|---|---|---|---|---|
| 7(a) | Nearly any business purpose | Up to $5,000,000 |
| General, long-term financing for businesses |
| CDC/504 loans | Acquiring a fixed asset, like commercial real estate or heavy equipment | Up to $5,500,000 | 120 to 300 years | Small businesses that need help purchasing land, renovating buildings, buying machinery or other fixed assets |
| Microloans | Working capital or purchasing assets such as furniture or equipment | Up to $50,000 | 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 | Up to $2,000,000 | Up to 360 months; the first payment can be deferred for a year | Small businesses impacted by a declared disaster |
Traditional banks and non-traditional lenders alike may offer SBA loans and regular, non-SBA small business loans. In general, SBA loans tend to be more business friendly, offering cheaper rates with smaller down payments and less need for collateral. However, they do take longer to get and have a higher denial rate than traditional business loans, which are often quicker to receive but more expensive overall.
3. Check if you qualify
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.
- 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.
4. 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 loan application history
- A copy of your business lease
- Your business certificate or license
- An overview and history of your business
- Your SBA loan application form (Form 1919)
- A list of any business ownerships and affiliations
- Personal resumes for each principal of the business
- Personal and business tax returns for the past three years
- 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
If you’re not sure what’s needed or you’re having trouble putting together your application, ask your SBA loan officer for help.
5. 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 it if you want to proceed. You’ll receive closing documents, and your lender will guide you through the closing process. Once you sign these final loan documents, the loan is closed and the money is disbursed.
How long does it take to get an SBA loan?
All in all, SBA loans can take one to three months from beginning to end, though the timeline can vary depending on how organized your application is, who you’re applying with and what type of loan it is. When you apply for an SBA Express loan, it’ll tend to be on the shorter end of that spectrum. The same is true if you apply for an SBA 7(a) loan through an SBA Preferred Lender. For example, Citizens Bank is a Preferred Lender and claims it typically takes 45 days to close an SBA loan.
How to improve your chances of approval
There are many things you can do to ensure your business gets the funding it needs through the SBA loan program. It’s easier to break these down into two different groups: short-term strategies if you need funding now and long-term strategies if you have the option of waiting a bit to work on your creditworthiness.
If you need funding now:
- Consider scaling down your funding request, as smaller business loans are easier to get approved.
- Work with a small business financing broker to help you find the best lender for your unique situation.
- Create a thorough, professionally presented business plan with financial details and projections to boost your lender’s confidence.
If you have time to focus on long-term strategies:
- Research ways to grow your business and personal credit scores, such as by paying down credit card debt.
- Save up more money so you can lower your borrowing needs and increase your business’s financial resilience.
- Wait until your business has been open for at least a year before you apply, as most SBA loans aren’t available for startups.
Options if you’re rejected
According to Fed Small Business, about one-third of SBA loan applicants were fully approved in 2023, whereas a quarter of SBA loans were partially approved, and 42% of SBA loans were denied outright.
So, it’s not uncommon to have your application declined, and it’s a good idea to know your options if you fall into this camp. If your application for an SBA loan is denied, your lender will be your first point of contact. They should provide you with a letter explaining the reason why you were denied, and they can help provide information about your options after that. For example, you may be able to appeal the decision or you may have to wait a year before applying again.
If you’re not able to find a workaround, here are a few other funding alternatives that you may consider looking into besides SBA loans:
- Equipment financing: Term loans or leases for equipment that your business needs, such as factory machinery or farm tractors.
- Term business loans: General-purpose business loans paid off with equal payments at a fixed rate over the course of several months or years.
- Business lines of credit: Access to funds that you can borrow at any time, up to your credit limit, although there may be ongoing fees even if you’re not using it.
- Merchant cash advances: A lump sum of funds in exchange for daily or weekly payments made as a percentage of your sales, with no defined payback period.
