In this guide, we will tell you everything you need to know about how to apply for an SBA loan from start to finish. We will focus on SBA 7a loans, which are by far the most popular among the different types of SBA loans. Also included is an overview of the major differences between a normal SBA 7a loan and SBA loan for commercial real estate.
SmartBiz offers SBA working capital loans up to $350K and commercial real estate loans up to $5MM. Loans have terms of 10 or 25 years and rates start at 5.5%. Their streamlined, online application can have you prequalified in a few minutes and funded in weeks. See how much you qualify for.
How to Apply for An SBA Loan
Step 1: Determine Eligibility
The first step in applying for an SBA loan is to determine whether or not your business is eligible. You’ll typically need to meet both general borrower requirements and SBA eligibility requirements.
SBA Loan Requirements:
- 680+ FICO score for all primary business owners. Check your score for free here.
- Down payment of 10% or more if you’re using the loan proceeds to purchase a business or commercial real estate.
- Collateral: SBA loans don’t need to be 100% collateralized. But the more business and/or personal collateral you bring to the table the easier it will be to get your loan approved.
- 2+ years in business: Startups can get SBA 7a loans, but it is more difficult. If you want to try for an SBA loan as a startup, you’ll need to have all of the above plus business management & industry experience.
- Business is profitable
- No delinquencies or defaults on debt obligations to the U.S. government (including student loans).
- Commercial real estate loans must be 51%+ owner-occupied.
SBA 7a Loan Program Requirements:
- Be a small business as defined by the SBA (generally means under 500 employees or less than $7.5 million in annual sales).
- Be engaged in an industry that is eligible. (Most non-vice, non-speculative business are.)
- Be a for-profit business engaged in, or planning to do business in, the United States or its possessions.
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for the loan proceeds that also qualifies as a sound business purpose
- You are required to create or retain jobs and meet public policy goals that are in line with the SBA goals.
If you don’t meet these requirements check out our Complete Overview of Small Business Financing Options. Or you can view a more complete explanation of the SBA’s 7a eligibility requirements here. If your business does meet the above requirements, you can prequalify for an SBA loan online in minutes with SmartBiz.
Step 2: Find an SBA Loan Provider
If you meet the requirements above, the next step in applying for an SBA loan is to find an SBA loan provider that will disburse and service your loan. Our recommended SBA loan provider is SmartBiz because they are fast and efficient. Their streamlined process can get you pre-qualified in minutes and funded as quick as 30 days.
Finding an SBA loan provider will mean reaching out to banks and other direct lenders and brokers. We’ll discuss each in more detail below.
Finding a Direct SBA Lender (Banks, Credit Unions, Non-Bank Lenders)
In general, it’s a good idea to find a bank that regularly works with SBA loans. These providers are more likely to approve your loan application and typically know how to deal with any unique circumstances you may have.
Make sure the lender is part of the SBA Preferred Lender Program (an SBA PLP lender). PLP lenders are SBA loan providers that have so much experience and such a strong track record that the SBA actually gives them more leeway to process loans faster.
As you visit potential lenders, we recommend asking them the following questions:
- What is your total SBA loan volume?
- What’s your average SBA loan size?
- Do you participate in the SBA Preferred Lender Program?
- How familiar are you with the SBA 7a borrowing/lending processes?
- How long does it take to get pre-approved?
- How long will it take to get funded?
- Is there one person who will be my point of contact throughout the loan application process in case I have any questions?
- What are your internal policies on collateral for a loan like mine?
- Will I need a down payment? If so how much?
- What are the approximate interest rates I might qualify for?
If the lender you speak with isn’t sure about their bank’s SBA loan performance, you can browse through the SBA’s list of their 100 most active lenders.
Find an SBA Loan Broker
SBA loan brokers can provide a valuable service to small business owners by leveraging their expertise. Brokers often have a keen understanding of which lenders will be most likely to approve your type of loan and business, and how to present your business’s loan request. Additionally, SBA loan brokers can save you a lot of time and headaches by coordinating all the lender’s document requests and other communications.
But not all small business loan brokers are created equal. Here’s a few questions you should ask a potential loan broker:
- How many lenders do you work with directly?
- How do you get paid? How much? When?
- How many loans have you closed?
- Have you previously worked with a business of my size or in my industry?
- How familiar are you with the SBA 7a loan process?
- What are the approximate interest rates I might qualify for?
- How long does it take to get pre-approved?
- How long will it take to get funded?
- How much of the process do you handle for me?
Using a broker to manage your SBA loan process will typically cost you a little extra money, but the right broker can make the process a lot smoother. Their ability to shop your loan proposal with multiple SBA loan providers may also improve your chances of approval.
When you find bank, either directly or through a loan broker, you should try to find out as much information about their SBA interest rates and fees as possible. The SBA sets a cap on interest rates, but exact rates may vary from bank to bank. Make sure to read our article on SBA Loan Rates before you begin shopping around, and once you’re pre-approved, you can use our SBA Loan Calculator to estimate your monthly payments.
One advantage SmartBiz has over traditional banks is that they automatically pair you with the lender most likely to give approve your loan the fastest. Borrow up to $5MM with rates that start at 5.5%. Getting prequalified online with SmartBiz take just a few minutes.
Step 3: Assemble and Organize Your SBA Loan Paperwork
Once you have selected an SBA lender or loan broker, you should begin to assemble the various documents required for your application. The SBA provides a comprehensive checklist, which you can find here. The main documents required are:
- Loan Request Amount & Detailed Allocation of Funds
- Business Financials
- YTD Profit and Loss (P&L) Statement
- YTD Balance Sheet
- Projected Financials (1-3 years)
- Proof of Ownership
- Business Certificate/License
- Loan Application History
- Business Tax Returns (last 2 years)
- Personal Tax Returns (last 2 years)
- Personal Financial Statement
- Owner Résumés
- Business Overview and History
- Business Lease
If you are getting an SBA loan to buy an existing business, you will also need the following:
- Acquisition’s YTD balance sheet and P&L statement
- Acquisitions last two years of business tax returns
- Purchase Agreement (should include asking price with schedule of inventory, machinery & equipment, furniture & fixtures, accounts receivable, and intangible assets).
If you are getting an SBA loan to buy commercial real estate, you will also need to provide the following:
- Real Estate Purchase Agreement
- Rent Rolls and Leases for any Tenants of Your Property
- Property Appraisals (which will be ordered by the lender prior to closing)
- Any Plans for Remodeling or Build Outs (including timelines and costs)
If you own any other businesses (or have a 20%+ stake in any other businesses) or own rental properties, then you should expect that you will need to provide documentation for those as well (such as financials, appraisals, leases, or rent rolls).
“If you are a startup, it is important to provide a pro forma and cash flow projection that shows viability” according to Andrea Roebker, Regional Communications Director for the SBA. “You will also be required to provide a solid business plan, which is vital to your application being approved.”
The overall goal is to convince a bank that your company is well managed and has an attainable plan to be profitable.There are many software tools that can help you put together a business plan–we recommend LivePlan.
Much of the speed of your application process will depend on your ability to provide timely documentation. This is a great reason why you may want to use a company like SmartBiz to help you with the process. They streamline your documentation submissions, speed up the approval process, and improve your chances at getting approved for an SBA loan.
Step 4: Complete SBA Forms
In addition to the paperwork mentioned above, you will need to fill out some SBA forms before your loan can be approved. SmartBiz auto populates these SBA forms for you to help you get through this step a lot faster.
If you’re not working with SmartBiz, we’ve put together comprehensive guides on each form and how to complete them:
- SBA Form 1919 Guide: Borrower Information Form – Used for all 7a loans, this form is where you note down basic borrower information.
- SBA Form 912 Guide: Statement of Personal History – This form is used to evaluate your character.
- SBA Form 413 Guide: Personal Financial Statement – This form is used to assess the personal financial standing of you, your spouse (applicable), and anyone who is a proprietor of the business.
- SBA Form 159 Guide: Fee Disclosure Form and Compensation Agreement – This form is only necessary if you hired someone to help you with your SBA loan application. It details how much you paid them and the services they provided
Once you have completed all of your SBA forms and assembled your supporting paperwork, you will meet with your bank to finalize your loan application.
How SBA Applications Change When Buying Commercial Real Estate
There are two types of SBA financing for commercial real estate: SBA 504/CDC loans and SBA 7a loans for commercial real estate. The eligibility requirements, forms, and required documentation are almost identical to the working capital SBA 7a loan requirements discussed above for both loan types.
Applying for a commercial real estate loan that is guaranteed by the SBA is a little more complicated and time consuming than a normal 7a loan that we discussed above. When applying, in addition to everything required for a general SBA 7a loan, you’ll need to include the following:
- Rent Rolls for All Tenants
- Download our free Rent Roll and Expense Worksheet.
- Property Appraisal
- Ordered by the loan provider after your application is approved. The amount your property appraises for may change how much you pay down and how much you can borrow.
- Environmental Studies
- Ordered by the loan provider after your application is approved. The study will show any environmental issues with the property. If any red flags come back from this study then a more in-depth study may need to be ordered before your property is approved by the loan provider.
- List of Ongoing Maintenance Expenses
- What is the breakdown of costs that must be spent on an ongoing basis to upkeep the property? The loan provider will likely want to make sure you have the cash to handle these costs, even if you plan to pass much of it on to other tenants.
- Report on the Condition of Property
- Many lenders will require this to see what deferred maintenance items are coming up in the near future. The loan provider will typically want to be comfortable that you have the cash to make any standard facility upgrades or needed maintenance.
- Current Leases on the Property
- Your property must be 51%+ owner occupied. If you are renting any portion of the property then the loan provider will want to see any existing leases. And they will want to see any terms you and your tenants have agreed to that will go into effect after closing.
Note: If you’re not going to occupy more than 51% of the property, you may want to consider a traditional commercial real estate loan.
Getting funded for your SBA commercial real estate loan can be done as fast as 45 – 60 days if you have an experienced loan provider like SmartBiz. They offer 25 year loans of up to $5 million with rates that start at 5.5%. Plus, they make the application process painless.
How Application Change for Startup SBA Loans
Many startups find SBA loans an attractive alternative to taking on high-interest debt like using their credit cards. As of January 2017, 38% of the SBA loan originated have gone to startups. However, only 14% of SBA funding has made it’s way startups. So while SBA loans are available for startups, funding may be on the smaller side.
The application process for a startup is virtually the same as it is for an experienced business. The only differences are:
- You may need to pledge additional personal collateral to get approved for your loan.
- The SBA likes to see that you have invested a portion of your own liquid savings into the business.
- You must have prior management experience in the industry to show that you can make the startup a success.
- Your approval chances increase if your business or industry is considered to be underserved.
Two SBA loan programs that are more startup friendly are the Community Advantage Program and the Microloan Program. You can learn more about all available SBA loan programs by reading our in-depth article. If you don’t think your business will qualify for an SBA loan, there are plenty of other startup loan options that might be available to you.
SBA Loan Timeline: 5 Stages
The timeline involved with getting an SBA loan will depend in great part in how familiar your SBA lender is with the type of SBA loan you want and how prepared you are with necessary documents. If you apply for an SBA loan online with someone like SmartBiz, you’ll likely experience SBA funding times under 30 days. Getting an SBA loan from traditional SBA lenders typically takes 2-3 months. You’ll go through the following 5 stages:
- Prepare & Apply: Follow the 4 steps above! By the end of the 4 steps you are ready to apply and have greatly increased your chances at pre-qualifying for an SBA loan.
- Letter of Intent: Once you have submitted a full application you can usually expect to hear back within 1-2 weeks. If your lender wants to move forward with the loan they will provide you with an initial proposal called a Letter of Intent (LOI). The LOI will outline how much you qualify for and what you may expect as far as loan terms and rates. If you find the rates and terms agreeable you will need to return a signed copy of the LOI. Most lenders will also require a small deposit, usually around $2,000 (refundable, minus 3rd party fees, if the loan isn’t funded), in order to move forward with underwriting.
- Underwriting: After submitting a signed LOI and deposit, formal underwriting will take place. Underwriting for an SBA loan can typically take 2-3 weeks. During that time the underwriting team, or your loan officer, may have further questions about your financials, your plans for the loan proceeds, or other relevant information. You can expect to turn in a few more documents and to set aside time for a few more phone calls or meetings.
- Commitment Letter: If underwriting is successful, your lender will give you a commitment letter outlining the terms of your loan and what steps remain before you can close. Accepting the commitment letter typically requires you to put down an additional deposit to show the bank you are ready to move towards closing. This deposit is typically $5,000 or 5% of the loan and counts toward your down payment. This deposit is also refundable (minus 3rd party expenses) if the loan is not funded.
- Closing: Loan terms are finalized and attorneys are crossing t’s and dotting i’s to finalize the paperwork. The amount of time it takes to close the loan is determined by the complexity of your deal, your lender’s familiarity with SBA loans, and completing third-party work (like appraisals and environmental reviews). Eventually, you’ll sign the loan agreement, all closing costs and SBA guarantee fees will be paid, and the loan proceeds will be disbursed.
The general application process for financing through a bank can be time consuming, and involve a lot of paperwork. Providing documentation and dealing with phone calls from multiple lenders can take up most of your time. This can take a significant amount of time away from running the day-to-day operations of your business, even if you’re pursuing an SBA express loan. If you’d like to speed up this process and spend more time on your business instead of applying for a loan, you could get an SBA loan in as little as 30 days by partnering with SmartBiz.
Applying for an SBA loan can be a complicated process. The guidelines above cover the essential steps of how to apply for an SBA loan successfully. The more organized you are and the more attention you pay to gathering essential documents and forms, the smoother and quicker your experience will be. SmartBiz can make this process even easier for you, and they can get you funded with an SBA loan faster than anyone else we have reviewed. Visit them today and get prequalified in just a few minutes.