How to Get an SBA Loan? See the Complete Guide

The Step-by-Step Guide to Apply for an SBA Loan

To get an SBA loan, you may follow these steps. Remember that loan approvals often rely on independent credit profiles and the underwriting factors. The following steps are only for guidance and don’t guarantee approvals.

1. Step 1: Determine Eligibility for SBA Loans

You’ll need to do your own research before applying. While each lender may follow their own eligibility requirements, the general criteria look like these:

• Credit Score: SBA lenders rely on several factors to process a loan but they still rely on your FICO credit scores to an extent. The higher the credit score, the higher your chances of approval. According to Experian, a score between 670-739 falls under the ‘Good’ range, 740-799 under ‘Very Good,’ and 800-850 under ‘Excellent.’

• Business Plan: You must have a solid business plan indicating market viability, business model, workflow, revenue generation channel, target audience, partnerships, and several essential analyses. You may present growth projections as well to get an SBA loan.

• For-Profit Status: SBA lenders mostly provide loans to for-profit businesses. For this, your business must be officially registered as an LLC, S-corp, C-corp, partnership, or sole proprietorship.

• Location: The business must have a physical headquarter located within the US or its territories.

• Business Size Requirements: SBA follows its own definition of a “small business.” Size standards vary by NAICS industry code but usually refers to those businesses who have workforce count of lower than 500 employees or are under a certain threshold of annual revenue.

• Application History: To get an SBA loan, lenders may ask you to provide an application history with other lenders as well. This is because most lenders only provide loans to those businesses who are not able to secure funds from traditional banks.

• Clean Record: Business owners should not be currently incarcerated, on probation, or have default on a federal debt, be it a student loan or previous SBA loans.

2. Step 2: Select A Loan Program

Currently, there are a few SBA loan programs that small businesses opt for. These include SBA 7(a) loans for working capital, SBA 504 loans for asset-based purchases, and SBA microloans. The loan amounts vary from a few thousand dollars to $5 million depending on your loan product. If you need smaller loans under $50,000 for managing working capital, microloans might be the right option. For larger expenses, like for purchasing commercial real estate or essential business equipment, you might need to opt for SBA 7(a) or 504 loans.

3. Step 3: Review and Polish Your Documentation

Documentation is an important step to get an SBA loan. Before submitting the documentation, ensure to rule out any inaccuracies. Reviewing everything first may take up time but can help you get an SBA loan. A few documents to carefully review are:

• Business Ownership Documents: Make sure you apply with the same name written on your business ownership documents, or with the “marketed as” name. The name of the owner shall also match on the application.

• Personal and Business Credit score: To get an SBA loan, you still need decent credit score. All owners with a significant ownership stake in the business should have good credit scores (ideally above 670, which falls under the ‘Good’ range of Experian.)

• Bank Statements and Tax Returns: Gather your tax returns and bank statements of past few years. These require close evaluation.

• Existing Debt Documents: If your current income is not stable enough to keep up with your existing business debt, it might be difficult to get an SBA loan. Lenders will review your debt-to-income ratio (DTI). Thus, it is better to review your existing debt documents and dues yourself.

4. Step 4: Find and Apply with an SBA Approved Lender

SBA only guarantees the loan, whereas approved SBA lenders provide the amount. Several terms like loan tenure, variable rates, collateral, and more, rely on the lender. There are multiple ways to find an approved SBA lender:

• Preferred Lenders Program (PLP): Certain approved lenders may have been provided the PLP status by SBA. These lenders have autonomous authority to make decisions on SBA loans, and are usually faster.

• SBA Lender Match: To get an SBA loan, you may use the dedicated lender match tool on the official SBA website. You may also submit your business profile and financing needs, then wait for interested SBA-approved lenders reach out to you.

5. Step 5: Formal Submission and Adhering to Underwriting Terms

After collecting all information and documents from you, the approved SBA lender will pass on the file to their underwriting team. The team will closely evaluate all your credentials. They may also perform a soft pull or hard pull to review your credit history, verify details, study cash flow patterns, and identify the business risk.

Once they’ve verified the information, they may make a funding decision and confirm loan amount, downpayment requirements, collateral, loan tenure, interest rate, and more for qualified applicants. In case any detail is missing, the underwriting team will reach out to you. They may ask several details and questions or ask you to submit additional supporting documentation. Timely replying to their queries is essential to get an SBA loan.

6. Step 6: Loan Pre-approval

If underwriters like what they see, they might give pre-approval for your application. This only means that they will issue a commitment letter or letter of intent. Once you sign this document, the underwriting team may send the document to SBA for review, or to a third-party reviewer.

7. Step 7: Closing the Loan Application

This is the last step to get an SBA loan. If SBA or third-party evaluator gives a green signal to your loan application, the lender’s legal team will prepare the final closing documents. You will need to review all details including the interest rate, annual percentage rate, prepayment penalties, etc. and sign extensive paperwork including security agreements for fixed asset collaterals and personal guarantees. Some lenders may also ask for legal fees at this stage.

Conclusion

Securing federal backing requires patience and meticulous documentation. You gather your tax returns, draft a lean business plan, and find an approved lender willing to review your application. The process tests your organization skills. Lenders scrutinize your personal credit score alongside your business revenue. You may face delays if your paperwork has minor omissions. Ultimately, this funding routes through traditional banks while the government reduces lender risk. If you prepare thoroughly, you position your business to get an SBA loan. Success depends on matching your specific funding needs with the right program requirements. Maintaining close contact with your loan officer might expedite your approval timeline.