SBA Loans: Everything You Need to Know About Small Business Administration Loans

SBA Loans

If you’re a US registered business, Small Business Administration loans (SBA loans) are one of the best and most popular ways to secure funding. The SBA runs a number of financing initiatives for small business, with perhaps the most well known being the SBA 7a loan program. In this article we’ll detail what the SBA 7a loan requirements are and run through a typical SBA 7a loan application process. We’ll also take a look at the 504 SBA loan scheme and the SBA microloan program.

We will not discuss the Paycheck Protection Program in this article – the emergency COVID-19 response measure which is coordinated by the SBA. You can find more information on the Paycheck Protection Program here.

If you are indifferent to which business lender you utilize we recommend using Become’s unique matching algorithm, connecting you with the best SBA loan providers on the market. With Become’s online application, the average wait time for an SBA loan of two or three months can be cut down to as short as 14 days.

Check your eligibility with multiple SBA lenders through one registration.

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What is an SBA Loan?

Small Business Administration loans are loans provided to small businesses that are either in full or in part, guaranteed by the Small Business Administration. This is why SBA loans are often referred to as SBA guaranteed loans. Loans are not issued by the SBA itself but instead by one of the SBA participating lenders. By providing a guarantee the SBA reduces risk to the lender, meaning your business is more likely to receive loan approval, and funding should be at a reduced rate.

The fact the SBA stipulates a maximum interest rate that a lender can charge with regard to their SBA loan rates makes SBA loans one of the cheapest sources of funding possible for small businesses in the US.

SBA loan key facts:

  • SBA loans range from $500 – $5.5m
  • SBA loan terms up to 25 years
  • SBA provides 85% guarantee for 7a loans up to $150,000
  • 75% SBA guarantee loan when 7a loans are greater than $150,000

SBA Loan Requirements

According to the SBA, there are some fundamental SBA loan requirements that your business must meet:

  • Your business operates in the U.S
  • Your business is for-profit
  • You, as the business owner, have invested their own time or money
  • You have explored all other business financing options without success

For most businesses, the first three SBA loan requirements detailed above should present no issues whatsoever and will naturally be met by operating your business in the states. The last point however – “explored all other business financing options” – is a bit more ambiguous. Particularly if the SBA requires proof that this is the case. In order to avoid spending too much time on this it may be worth applying through a specialist small business loan marketplace, such as Become, who will in turn work with multiple lending companies – if you receive two or three conditional approvals based on securing the loan (which you can’t do yourself) then you can take this to the Small Business Administration.

How to Get an SBA Loan

How to Get an SBA Loan

In addition to the fundamental SBA loan requirements that must be met, there are some additional considerations to keep in mind when you are wondering how to get an SBA loan.

Firstly, it’s important to note that you can only get an SBA 7a loan if you are happy to provide a 10% down payment for your total loan amount. So if you are seeking $400,000 this would require a down payment of $40,000 by you the borrower. The down payment shows you are invested in the business and intend to repay the loan. If you are like most small businesses that have limited funds, it may prove worthwhile utilizing what funds you have for your down payment. Once your loan is received you can then use the funding for your working capital and growth needs. The only instance you will not be required to provide a down payment is under the SBA microloan program, in which loans under $50,000 do not require an SBA loan down payment.

As you would expect there are also various financial documents you are required to provide in order to get an SBA loan. For your business you should expect to provide:

  • Personal tax returns for the last 2 years
  • Business tax returns for the last 2 years (if applicable)
  • Bank statements – usually last 3 months in PDF format
  • Year-to-date balance sheet, summarizing your business assets and liabilities
  • Year-to-date profit & loss, since your last filed tax return
  • Business debt schedule – all related payables your business owes

How to Apply for an SBA Loan

When you are considering how to apply for an SBA loan it’s worth noting there are various channels your business can explore. Whether it be visiting a local lender to apply in person, via the telephone or processing an online SBA loan application.

The SBA approved lenders list for SBA 7a loans has temporarily been replaced by a lender finder tool for the Paycheck Protection Program but businesses seeking a loan under the SBA microloan program (loans under $50,000) can discover a list of SBA approved lenders here.

SBA lenders consist of well-known high street banks, local banks, and online lenders. It’s worth noting that online lenders not present as SBA approved lenders often coordinate SBA loans via a bank that is. Online lenders typically place a larger emphasis on customer service than traditional banks, resulting in quicker application and processing times for SBA loans than if you had worked with the bank directly.

If you want to apply for an SBA loan you should expect plenty of paperwork and boxes to be ticked – after all it is a US government division that is providing the collateral for your small business loan. In fact, the average turnaround time to obtain an SBA loan is roughly estimated to be between 2-3 months. However, business loan marketplaces can speed this up – when businesses apply for SBA loans with Become’s online application, the average wait time of two or three months can be cut down to as short as 14 days.

SBA 7a Loan Lenders Online

The number of SBA 7a loan lenders that can be found online is increasing and with it, the process to apply for an SBA loan online is getting easier too. Alongside Become business loans it’s worth mentioning two other established online lenders – Funding Circle and SmartBiz.

Completing an online SBA loan application with Funding Circle is straight forward. With a team of dedicated account managers on hand, it’s their intention to allow business owners to spend more time running their business and as little time possible managing their online SBA loan application. The initial application takes only 6 minutes and through a discussion with Funding Circle you can soon establish if the more lengthy application requirements are worth doing. The standard process to apply for an SBA loan online with Funding Circle would look a little like this:

  1. Start your application online by answering a few questions about you and your business
  2. Receive a call from a Funding Circle account manager who will get to know your business and complete your application
  3. Submit an application to SBA approved lender partners
  4. Review and approve a proposal letter outlining the terms of your SBA loan
  5. Submit the complete loan package for final underwriting
  6. Sign your loan agreement

The process to apply for an SBA loan online with Smartbiz works in much the same way as Lending Circle does – SmartBiz actually created the first online network of preferred SBA lenders for small businesses. With multiple banks that have varying credit requirements on the SmartBiz platform, they’ve been able to help many applicants successfully apply for an SBA loan that was initially rejected by their local banks. Smartbiz’s sophisticated software allows them to match borrowers with the lender most likely to approve and fund their SBA loan.

SBA Loan Programs

As we have already introduced in this article, easily the most popular of all SBA loan programs is the SBA 7a loan scheme. In total, there are actually 13 SBA loan programs but alongside the 7a scheme, the 504 SBA loan and SBA microloan program are the most popular.

SBA 7a Loan 504 SBA Loan SBA Microloan
Maximum Loan Amount Up to $5 million Up to $5.5 million Up to $50,000
Maximum Interest Rate Under $25,000 – 7.5%

$25k to $50k – 6.5%

Over $50k – 5.5%

Complex structure but currently around 5% Generally between 8-13% with the 2019 average at 7.5%
Repayment Terms -Standard up to 10 years

 

-Up to 25 years for real estate

-Up to 10 years for equipment

-Up to 6 years
SBA Loan Down Payment Requirements Usually 10% Usually 10% No down payment
Uses Any business related and working capital expenses Specifically for the purchase of real estate, equipment and construction Working capital and business related expenses

SBA 504 loans are intended for very specific circumstances. So unless your business is intending to buy real estate or machinery, or finance a large construction project, an SBA 7a loan will likely be the most appropriate funding solution. The SBA microloan program is rather similar to the SBA 7a loan program and it is even possible to get 7a loans under $50,000 but the microloan program has assisted many businesses who otherwise would not be served by the private sector. It remains an important source of capital for low-income individuals, women, and minority business owners.

Whichever SBA loan program happens to be the best fit for your business, the chances are it will be one of the cheapest sources of finance you can get. An online SBA loan application will be faster than visiting your local bank and will also allow the online lender to compare a number of different SBA lenders to find the most appropriate provider for your needs and increase your chances of approval. Businesses should however expect a much longer process than applying for either an unsecured or secured loan from an online lender without an SBA loan guarantee and also be cautious of the need for a minimum 10% SBA 7a loan down payment.