How to Access SBA Loans (Eligibility, Requirements and Application Process)

Last Updated on November 8, 2020

This page provides detailed information on how to access SBA loans. Here, you will be walked through what SBA loans are, how to get them, requirements to access SBA loans, the application process, and all other important information you might need to know about SBA loans. Please stay tuned.

What Is a SBA Loan?

A SBA loan is a small business loan that is guaranteed by the government (the Small Business Administration) and issued by an SBA approved lender.

SBA-guaranteed loans are made by private lenders and guaranteed up to 80 percent by the SBA, which helps reduces risk for lenders and makes it easier for them to access capital. That makes it easier for small businesses to get loans.

The Different Types of SBA Loans

The SBA offers different types of business loans, and which one you apply for will depend on the type of business you are running. Here’s a rundown of some popular SBA loan programs

1. 7(a) Loans

The 7(a) loan is the SBA’s most popular and flexible loan program for startups and small businesses. This loan can be used for a variety of purposes, including buying equipment, real estate, or even debt refinancing.

These loans are available for up to $5 million, for up to seven years on working capital loans and 25 years on commercial real estate loans. Borrowers must have a minimum credit score of 680 and a down payment of at least 10 percent.

There are a variety of loans that fall under the umbrella of 7(a) loans. For instance, SBA Express loans are a sub-program within the 7(a) loan program. These loans are also partially guaranteed by the SBA and come with expedited credit decisions.  The maximum SBA guarantee is 85 percent for loans up to $150,000 and 75 percent for loans greater than $150,000.

For the Express loans, you’ll apply through an SBA-approved lender and typically receive a credit decision within 24 to 36 hours. The underwriting on traditional 7(a) loans can take up to 10 days to complete. The current rates for 7(a) loans are 5.50% – 9.75%.

2. 504 Loans

504 loans are available for businesses that want to buy real estate, machinery, or equipment to expand their current business operations. These loans are available in varying amounts up to $20 million, and the repayment terms range up to 25 years.

The private lender you use will cover up to 50 percent of the loan amount, and a Certified Development Company–a nonprofit organization certified by the SBA to provide 504 loans–will cover 40 percent. The borrower must be able to cover the remaining 10 percent in equity.

Borrowers must have a strong credit history to qualify, and the real estate must be at least 51 percent owner-occupied. The business’s net worth cannot exceed $15 million.

3. CAPLines

The CAPLines program offers loans to help small businesses meet their working capital needs. Four different SBA loans fall under this program, as well as a line of credit.

This type of loan is ideal for businesses that need a revolving line of credit to meet ongoing expenses. Borrowers may receive a CAPLines loan in addition to a 7(a) loan or 504 loans.

RELATED: How to Access FHA Loans (Eligibility, Requirements and Application Process)

Borrowers can receive up to $5 million with a five- to 10-year repayment term. The requirements are similar to those for a 7(a) loan.

4. Export Loans

Export loans are designed to help small businesses expand their exporting activities and enter foreign markets. These loans are ideal for companies that regularly engage in international business.

The loans are between $500,000 and $5 million, depending on the purpose of the loan and timing constraints. To qualify, you need to be involved in exporting goods to foreign countries.

5. Microloans

Microloans may be ideal for small businesses and nonprofit child care centers with low working capital needs. A microloan can be used for working capital, purchasing inventory, and buying furniture or equipment.

These loans are administered through nonprofit organizations that have been approved by the SBA. Unlike other loans, the SBA doesn’t guarantee microloans.

Microloans are available for up to $50,000 with six-year repayment terms. To qualify, you’ll need a minimum credit score of 640.

6. Disaster Loans

The SBA issues disaster loans for natural or economic disasters, like the coronavirus pandemic. These loans are for companies that can show they’ve been negatively impacted by a disaster.

Disaster loans are available for up to $2 million with repayment terms of up to 30 years. They can be used for working capital, daily operating expenses, and to replace damaged property.

Benefits of SBA-guaranteed Loans

As a small business owner, you may have considered applying for a loan through the U.S. Small Business Administration (SBA). And for good reason, because there are a lot of advantages to taking out a SBA loan.

SBA loans offer competitive interest rates and flexible repayment term, and no collateral needed for some loans. And when you qualify for a loan, you may receive access to valuable resources that can help you put your money to good use.

How to Access SBA Loans: Eligibility, Requirements and Application Process

It’s more important than ever for small businesses to access SBA loans. But these loans are particularly challenging to qualify for, so you need to know the right steps to take that will make the process easier. Listed below are the steps you can take before and after applying for an SBA loan.

Check Your Eligibility

Before you start the application process, you’ll want to make sure your business is eligible for an SBA loan. Check to ensure you meet the SBA’s definition of a small business, which can vary depending on the industry. Some of the requirements include;

  1. The business is officially registered and operates legally.
  2. The business is physically located and operates in the U.S. or its territories.
  3. Have invested equity
  4. The business owner has invested their own time or money into the business.

Also, check your credit to make sure you’re in good standing. Keep in mind, if you’ve never applied for a business loan before, then you’re not eligible for an SBA loan. The SBA needs to see that you’ve unsuccessfully applied for funding from other lenders. 

Gather your paperwork

One of the most time-consuming aspects of applying for an SBA loan is all the paperwork that’s required. Take the time to put together everything you need before approaching potential lenders.

  1. At the very least, you’re going to need to submit the following documents:
  2. A very detailed business plan
  3. Your personal and business financial statements
  4. Your personal and business tax returns from the previous two years
  5. Your business’s complete financial history
  6. Articles of incorporation
  7. Business licenses
  8. Your resume
  9. Financial projections to make a case for how you’ll be able to repay the loan

During the preparation stage, it can be helpful to seek advice from someone experienced in preparing SBA loan packages. SCORE, Small Business Development Centers, and CPAs are a good place to start.

Choose an SBA Lender

Now it’s time to choose a bank or lender that works with the SBA. Many lenders will offer 7(a) loans; you can find a state-by-state list on the SBA’s website.

It’s a good idea to contact multiple lenders and, if possible, try to find a personal connection at that bank. When you meet with the lenders, it’s important to dress professionally and bring copies of your business plan and financial projections.

The goal of this meeting is to help the lender feel comfortable doing business with you. You want to show them that you have a plan in place and strong financial projections to back it up.

One of the best ways to show that you’re serious is to put down some type of collateral. Lenders want to see that you have some skin in the game, and collateral is the best way to demonstrate this.

Fill Out Your Application

Once you’ve provided all the necessary information and your lender is satisfied, it will give you an SBA loan package. You’ll fill out the necessary forms and submit your materials to the SBA.

After applying, you’ll receive a letter of intent (LOI) from your lender. The LOI will outline your potential rates, terms, and how much money you’re eligible to receive.

Once you sign and return the LOI, the underwriting process will begin. It can take several weeks for underwriting to review your application for some types of loans, and you may be contacted to provide additional information.

When you’ve passed the underwriting process, you’ll receive a commitment letter with more details about your loan. Once you accept the terms, it will be time to close on your loan.

We hope you will find this useful. Do you have any queries on how to access SBA loans? Please feel free to let us know so we can assist you with any information you will need.

Please, do not hesitate to share it with friends, colleagues and relatives whom you know may be in need of this kind of information. Thanks for caring and do have a nice one ahead!

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