SBA Loan

How to get an SBA loan: 7 considerations

5 min read
Meredith Wood

If you’re a small business owner, you’ve probably heard of the Small Business Administration — an arm of the government that helps out entrepreneurs in a few important ways. An SBA loan — or a loan partially guaranteed by the SBA in order to lower the risk for lenders — is the holy grail for small business owners. With low rates, long terms and large loan amounts, they’re hard to beat for up-and-coming entrepreneurs searching for financing. If you’re wondering how to get an SBA loan, keep these seven things in mind.

1. An SBA loan can take a long time

Need money right away? If so, an SBA loan probably isn’t the choice for you.

SBA loan applications can take at least a month (and sometimes three) from start to finish.

This includes writing your thorough business plan and gathering all your financials, as well as waiting on the lender and SBA to process everything. If you’re looking for quick financing to help you make payroll next week, then you’re better off finding a faster — and more expensive — loan.

But if you can stand to wait, an SBA loan is worth your while.

2. You’ll need a lot of paperwork

Both your lender and the SBA will need to see a mountain of paperwork related to your borrowing history and business financials.

Here are just a few of the documents you might need to collect, organize, and pass along:

  • Driver's license
  • Voided business check
  • Personal background information
  • Resume
  • Bank statements (one year)
  • Balance sheet
  • Profit and loss statements
  • Personal credit score
  • Business credit score
  • Business tax returns
  • Personal tax returns (past three years)
  • Business plan
  • Business licenses and registrations
  • Articles of incorporation
  • Third-party contracts
  • Franchise agreements
  • Leases
  • Business debt schedule
  • Collateral documentation (depending on your lender)
  • Use of loan proceeds
  • Landlord subordination agreement

While not every lender will ask for each document, you’ll want to make it easier learning how to get an SBA loan by making sure you have everything from the get-go.

3. They come with large loan amounts, long terms and low interest rates

Before you get turned off by all the work and decide to skip learning how to get an SBA loan, just remember your bank account will thank you.

With a 7(a) loan, the SBA’s most popular financing program, you can qualify for up to $5 million, with monthly payments between seven and 25 years, paying interest rates of six to 13 percent.

All in all, that’s a better deal than you’ll find almost anywhere else — especially if you’re new or too small to qualify for a bank loan.

4. They don’t require high annual revenues or a long time in business

Unlike some other types of financing, SBA loans don’t require your business to be operational for two years or to be bringing in a lot of annual revenue for one simple reason — even brand new businesses could potentially qualify.

As a result, you don’t have to rule out an SBA loan if you’re just starting up.

However, strong revenue and a robust business history will improve your chances of getting an SBA loan, alongside a detailed business plan, a good resume, and so on.

5. They do require high credit scores

Based on my company Fundera’s data, we’ve seen business owners need personal credit scores of at least 650 — and often 700 — to be eligible for an SBA loan. Your credit score is a measure of how reliable you are as a borrower, and it’s especially important if your business is small or new.

6. They’ll also look at your business credit score

Or more specifically, the SBA will take into account your liquid credit score — also known as your FICO SBSS (Small Business Scoring Service) score.

Your FICO SBSS score is a kind of business credit built specifically for small businesses.

It’s designed to reflect the variations and changes that small businesses go through and to accommodate for the fact that a small business can have five employees — or 500.

The SBA’s minimum FICO SBSS score for its 7(a) loan program is 140, which is not-so-coincidentally also the maximum score you can achieve with no time in business or business credit history.

So if you’re figuring out how to get an SBA loan, make sure to build up your business credit with business credit cards, smaller loans and on-time payments to vendors who report your transactions.

7. You have to qualify as a ‘small’ business

This one often surprises people who are exploring how to get an SBA loan. According to the SBA, a small business is one that falls under a certain number of employees or average annual receipts, depending on its industry. Check their table to see where your business fits in.

For example, if you run a book printing business, it’s only “small” if you have 1,250 or fewer employees. Otherwise, you won’t qualify for an SBA loan.

Beyond business size, you also need to:

  • Be for-profit
  • Operate in the U.S.
  • Be independently owned
  • Not hold a monopoly in your industry

Once you’ve checked those requirements off your list, you can head on over and apply for an SBA loan.

How to get an SBA loan — conclusion

Although they might be annoying to apply for and hard to qualify for, SBA loans are well worth the work for small business owners who need financing. Keep these seven things in mind, and you’ll be better off in your SBA loan search. And if you’ve followed these tips and you’re still having problems with your SBA loan, check out this article to make sure you’re giving your business a fighting chance.

The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.