How to Get an SBA Loan in 5 Steps

This article is part of a larger series on Business Financing.

• 1. Identify Your Intended Use of Funds
• 2. Match Needs With the Right Program
• 3. Verify Your SBA Loan Eligibility
• 4. Shop Lenders & Check Qualification
• 5. Apply & Provide Required Documents
• What Happens After Applying
• FAQs
• Bottom Line

Getting an SBA loan may seem like a complex process. Funding can take one to three months, and there’s typically more paperwork involved compared with traditional loans. However, you’ll often be rewarded with some of the best rates and terms available. You can learn how to apply for an SBA loan by following five major steps.

• Step 1: Identify the intended use of your funds
• Step 2: Match your funding needs with the right SBA loan program
• Step 3: Verify your SBA loan eligibility
• Step 4: Shop lenders, and check qualification requirements
• Step 5: Apply and provide required documents

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Step 1: Identify Your Intended Use of Funds

The SBA offers multiple types of loan programs, which carry different loan amounts. Depending on the specific program you apply for, there may be prohibited uses of loan proceeds. Loans may also be structured differently. Because of this, it’s important to understand why you need funding and what you’ll use the loan for.

Part of understanding why you need an SBA loan should include an analysis of how much funding you’ll need. You’ll want to ensure that the SBA program you select offers a sufficiently high loan amount so that your business needs can be fully funded. Some SBA programs can offer faster funding speeds for smaller loan amounts.

Some SBA loan programs prohibit loan proceeds from being used for certain purposes. This is something that can affect your loan eligibility, so you’ll need to ensure you’ll be allowed to use the funds for what you need.

Depending on the loan program you go with, SBA loans can be structured as a term loan or a line of credit.

• A term loan can be a good option if you don’t have recurring needs for funding.
• A line of credit may be better suited if you have recurring needs or want continuous access to funds on an as-needed basis.

Step 2: Match Your Funding Needs With the Right SBA Loan Program

Once you have a firm understanding of why you need funding, you’ll need to understand the available SBA loan programs to select the one best suited for your company. We summarize the major SBA programs below, but you can check out our guide on the types of SBA loans for more details on each.

• SBA 7(a) Loan: This is the most common type of SBA financing. You can get up to $5 million in funds that can be used for working capital, purchasing furniture, and even refinancing current business debt.
• SBA CDC/504 Loan: Offered through Certified Development Companies (CDCs), 504 loans provide up to $5.5 million in long-term fixed rate financing for major fixed assets that promote job creation and business growth. Some examples include buildings, land, machinery, and equipment.
• SBA CAPLine: This type of loan is a good choice for businesses that operate on a seasonal basis or have cyclical needs for working capital throughout the year. It can be structured as a revolving loan giving you flexibility to draw funds when needed.
• SBA Export Loan: This type of loan is geared towards businesses needing capital to support overseas and international sales.
• SBA Microloans: Microloans provide funding up to $50,000 and are a good fit for businesses that may not need a large amount of financing. According to the SBA, the average microloan is $13,000.
• SBA Disaster Loan: If your business is located in a declared disaster area, you can use an SBA disaster loan to get cash to cover operating expenses that would have been met if the disaster had not occurred.

Step 3: Verify Your SBA Loan Eligibility

Once you’ve identified a loan program that fits your needs, you’ll want to ensure you’re eligible for it. There are general requirements that apply to all SBA loans and items that apply to specific SBA programs. We’ve summarized these requirements below, but you can also head to our SBA loan requirements guide for additional information.

Regardless of which type of SBA loan you are applying for, the SBA requires all loan applicants to meet the following criteria to be eligible for financing:

• Operate as a for-profit business: Non-profit organizations are typically ineligible. You must also meet SBA size standards and operate in an eligible industry.
• Conduct business in the US: Your business must physically be located and conduct business in the US.
• Have invested equity in the business: As the business owner, you must show that you have invested your own time and money into the company.
• Have been unable to obtain financing from other lenders: You must have demonstrated an inability to obtain financing from other banks or lenders, along with reasoning for why you need the funds.

Additional qualification requirements may apply depending on the type of SBA loan you are applying for.

• SBA 7(a) loans: Certain businesses are ineligible for financing. The SBA’s list of eligibility requirements indicates that ineligible companies include those engaged in illegal activities, speculation, gambling, and lending.
• SBA CDC/504 loans: For a CDC/504 loan, your business must have a tangible net worth of less than $15 million. Your average net income for the past two years must also be less than $5 million after federal income taxes have been considered, and you must demonstrate qualified industry expertise and a feasible business plan.
• SBA Disaster loans: Four different types of disaster loans are offered by the SBA.

These loans may require collateral or proof that you are unable to cover daily operating expenses as a result of a declared disaster.

Step 4: Shop Lenders & Check Qualification Requirements

The next step in getting an SBA loan will be to shop for lenders that offer the specific SBA loan program you want to get. SBA lenders include banks, credit unions, loan brokers, and online lenders. Shopping lenders and getting multiple quotes is highly recommended as it will improve your odds of getting approved at the best available rates and terms.

If you’re unsure where to start, you can use the following resources:

• Our list of the best SBA lenders shows the companies that have funded the most SBA loans for the recent fiscal year.
• The SBA Lender Match tool is an online questionnaire designed to help match you with the best lenders based on your circumstances. You can get matched with lenders in under two days, after which you can compare rates and terms.
• If you’re seeking an SBA Microloan, the SBA lists microlenders you can contact for assistance in getting financing.
• If you’re getting an SBA 504 loan, you can visit the SBA website to find a local provider.

If funding speed and experience are important to you, we recommend working with an SBA-preferred lender. This is because these lenders have the delegated authority to make credit decisions on behalf of the SBA. Non-SBA preferred lenders, on the other hand, may need to await a second level of approval from the SBA itself, something that can add multiple days or weeks to the funding process.

You should consider the following aspects in choosing a lender:

• Experience funding loans for companies in your industry
• Rates and fees charges
• Approval and funding speeds
• Other products and services offered
• Branch locations and customer support hours
• Customer reviews and ratings

Lenders often have additional eligibility criteria on top of those set forth by the SBA. Exact requirements will vary depending on the lender you choose but commonly include the following areas:

• Personal credit score: A credit score of 680 or higher will give you a good chance of being approved by most SBA lenders. Credit scores are calculated based on the information in your credit report and are designed to show lenders your likelihood of defaulting on a loan. Keep in mind that this requirement can be different depending on the provider you choose.
• Business credit score: The FICO Small Business Scoring Service (SBSS) may be used to evaluate your business credit. Scores range from 0 to 300, and while the SBA has a minimum of 155 for some of its loans, lenders may have more strict requirements. A score of 160 or higher here will greatly improve your chances of an approval.
• Credit characteristics: In addition to your credit scores, a lender can evaluate specific details of your credit report and credit history. Depending on the lender, certain items or derogatory information can cause you to be ineligible for a loan, even if you meet the credit score criteria.
• Debt service coverage ratio (DSCR): This measures your company’s ability to repay its debts and is calculated by taking your company’s net operating income and dividing it by your current year’s obligations. You’ll generally need a DSCR of 1.25x or higher to qualify for financing from most SBA providers.
• Down payment: There is a 10% minimum down payment for many SBA loans such as 7(a) loans, CDC/504 loans, and microloans. Lenders can, however, require larger down payment amounts, especially if your qualifications are borderline.
• Collateral & personal guarantee: Depending on the type of loan you get, a collateral or personal guarantee may be required by the lender. The SBA’s Microloans are an example of one type of SBA loan that often requires both.
• Time in business: Having at least a two-year history of running a profitable business will significantly improve your approval odds. While you can get an SBA loan as a startup, it may involve more paperwork, as lenders know newer businesses have a higher failure rate.

Step 5: Apply & Provide Required Documents

Once you’ve found a lender you want to work with, you’ll need to complete its SBA loan application in addition to providing all supporting documentation. The type of loan you are applying for will determine what documents the SBA will require. A lender may also have its own requirements.

Most SBA loans will require you to provide the following:

• Borrower informationSBA Form 1919 provides the lender with general information about your business, details of the loan request, and any current or prior government financing.
• Personal financial statementSBA Form 413 is used by the SBA to assess your financial situation, repayment ability, and creditworthiness.
• Statement of personal history SBA Form 912is used to determine the character of a business owner based on things like criminal history and involvement with legal proceedings.
• Fee disclosure and compensation agreementSBA Form 159 is where fees paid to a third party to assist you in getting an SBA loan are disclosed.
• Financial statements—such as business and personal tax returns for the past three years, profit and loss statements, and revenue projections—must be prepared.
• Proof of business ownership may be required. Depending on your company, you may be able to provide stock certificates or tax forms as proof of your percentage ownership.
• A business plan is a document stating your company’s goals and how it plans to achieve them. It should also detail items such as the qualifications of your company’s leadership team, potential challenges, competitors, revenue and income projections, and any subsidiaries your company is connected with. If you need guidance, refer to our article on How to Write an SBA Business Plan, which includes a free template.
• Business license and relevant certification copies, such as required professional certifications for your industry, should be provided.

In addition to the items listed above, if you are purchasing a business, you will also need information on its finances, which may include:

• Current balance sheet and profit and loss statements
• Federal tax returns for the prior three years
• Purchase agreement for the sale of the company
• Business agreements, licensing agreements, and all contracts signed with third-party companies
• Business valuation from a certified appraiser
• Proof of equity injection

If you are using your SBA loan for real estate, there are a few additional documentation requirements:

• Property appraisal: This is used to establish the value of the property and serves as one indicator of any existing health or safety hazards.
• Environmental site assessment: A site assessment is often required to check for the presence of hazardous substances or contamination that could be considered a health or safety issue.
• Lease agreements: The SBA requires that real estate be at least 51% owner occupied. Providing lease agreements from all tenants is required as part of the verification process.
• Rent rolls: This documentation shows the income stream from rents received, cash flow, and profitability. It will contain information about individual tenants and the terms of their leases.
• Maintenance costs: You’ll need to provide a breakdown of expected ongoing costs to maintain the property. This is another item used in determining the potential profitability of a real estate project.

The items listed above are not meant to be an all-inclusive list. This is because the documents required can vary based on your specific business circumstances and the SBA lender you are working with. Some examples of additional items you may need to provide can include:

• SBA Form 1368 if applying for an SBA EIDL
• Explanations for significant increases/decreases in income
• Bank statements
• Documents to explain unusual bank deposits
• Tax returns and financial statements for other businesses you have ownership interest of 20% or more

What to Expect After Applying

After you apply, it will typically take one to three months before you’ll have access to the loan proceeds. The length of time needed can vary depending on the complexity of your financial situation, the program you’ve selected, and the lender you’ve applied with.

1. Review letter of intent (1 to 2 weeks): After you submit your application along with the required documents, the lender will perform a preliminary review to determine if your business is eligible for the type of loan being requested. If approved, you will be issued a letter of intent outlining the terms of the loan. You’ll be able to see your loan amount, interest rate, any required down payment or deposit, and loan fees which may also include an SBA guarantee fee.
2. Undergo loan underwriting (1 to 3 weeks): After accepting the terms on the letter of intent, your loan will be moved to underwriting. During this step, your credit, income, and financials will be reviewed in greater detail. It is common for the lender to ask you questions or request more documents to clarify anything unusual. This can include explanations for items on your credit report, large deposits in your bank accounts, or fluctuations in income or expenses.
3. Receive commitment letter (several days to 2 weeks): If the lender issues a loan approval, it will issue you a commitment letter. This letter outlines the terms of your loan as well as any outstanding items or steps that you must take. If you still wish to proceed, you will need to sign and accept the conditions on the commitment letter to continue moving forward with the process.
4. Sign SBA closing documents (several days to 2 weeks): After accepting your commitment letter, final loan documents and disclosures will be prepared and sent to you to be signed. This process can vary based on the complexity of the transaction and can take anywhere from several days to two weeks to be completed. Upon signing your final loan documents, your loan will be funded.

Frequently Asked Questions (FAQs)

It generally takes 30 to 90 days to get an SBA loan. This can depend on the complexity of your company’s financial situation, the lender you choose, and the specific SBA loan program you’re applying for.

Yes. However, while it is possible, you may not get approved for a lender’s best advertised rates and terms. Specific eligibility criteria can also vary among banks, so it’s wise to shop rates with multiple lenders to increase your odds of getting approved at the best rates for your circumstances. For tips on improving your approval odds, check out our guide on how to get a small business loan.

This depends on your specific business circumstances, needs, and goals. SBA loans can carry some of the most competitive rates and terms, but funding speeds can be slower than many other forms of financing. It can also be more difficult to get an SBA loan because qualification requirements tend to be more strict.

SBA loans are offered by many banks, credit unions, loan brokers, and online lenders. The SBA also provides resources, such as SBA Lender Match, to help you locate local lenders that offer the financing you’re looking for.

Bottom Line

Getting an SBA loan can be a complex and time-consuming process, but it can be well worth it since these loans can carry some of the best rates and terms available. By following the steps in our guide on how to apply for an SBA loan, you can get through the process more quickly and have a smoother experience from application to funding.