How to Apply for an SBA Loan in 6 Easy Steps

There are six steps for how to apply for an SBA loan, including determining your eligibility, selecting an SBA loan type, finding a provider, assembling paperwork, and completing the SBA loan application and forms. Getting an SBA loan can take up to three months with traditional lenders, or approximately 30 days with a broker.

On December 27, 2020, the federal government authorized an additional $284.5 billion in funding for the Paycheck Protection Program (PPP). Under this new allocation, PPP loans are available to first-time borrowers as well as businesses that have already received one PPP loan. Similar to prior funding rounds, this allocation will likely be depleted quickly. We recommend submitting an application through Lendio, a broker that has handled—and received funding for—thousands of PPP loans since the program’s inception.

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The six steps to take when considering how to apply for an SBA loan are:

Step 1: Review the SBA Loan Requirements

The first step when learning how to apply for an SBA loan is to determine if your business is eligible. You’ll typically need to meet both general SBA loan qualifications and SBA 7(a) loan requirements unless you’re applying for another type of SBA loan.

SBA Loan Qualifications

As you learn how to apply for an SBA loan, it’s important to consider the specific SBA loan requirements. SBA loans are available to both startups and established businesses. Qualifying as a startup can be more difficult, as you need to meet the requirements below as well as provide a business plan and demonstrate that you have experience in the industry.

The primary SBA loan requirements are:

• Credit score: At least 680 for all primary business owners.
• Down payment: At least 10%, but up to 30% 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 personal collateral you can offer, the easier it will be to get your loan approved.
• Repayment ability: You need to have sufficient cash flow to cover all your loans with a cushion. A business debt service coverage ratio (DSCR) of 1.25x is typically sufficient.
• Time in business: At least two years; as noted, startups can get SBA 7(a) loans, but it is more difficult. When considering how to qualify for an SBA loan as a startup business, you need to have all the above plus sufficient management and industry experience.
• Owner-occupied: Commercial real estate loans must be at least 51% owner-occupied.
• Other requirements: No delinquencies or defaults on debt obligations to the U.S. government (including student loans). Additionally, your business will need to be profitable.

SBA 7(a) Loan Requirements

To qualify for an SBA loan, you need good credit (at least 680), management experience, and sufficient cash flow (minimum 1.25x DSCR). You’ll need to provide collateral and personal guarantees from all business owners with 20% or greater ownership interest in the company. Additionally, to be eligible, you need to be a for-profit, U.S.-based small business.

The key SBA 7(a) loan requirements pertaining to eligibility include that you are:

• A small business as defined by the SBA (generally means under 500 employees or less than $7.5 million in annual sales).
• Engaged in an industry that is eligible, such as food service, retail, or hospitality (most active, non-speculative businesses qualify).
• A for-profit business engaged in, or planning to do business in, the United States or its possessions.
• Using alternative financial resources, including personal assets, before seeking financial assistance.
• Able to demonstrate a need for the loan that also qualifies as a sound business purpose.
• Required to create or retain jobs and meet public policy goals that are in line with the SBA goals.

Working with an experienced SBA lender can help streamline the application and approval process. Celtic Bank is a national lender that ranks in the top 10 SBA lenders nationwide. Small business owners seeking an SBA 7(a) loan of up to $5 million can apply online and feel confident that the lender understands the nuances of SBA loans.

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Step 2: Choose the Right SBA Loan Program

There are six primary types of SBA loans available and each program is designed to meet different borrower needs. Review the six different SBA loan types to see which ones you qualify for and which meet the needs of your small business. Selecting the SBA loan program in advance that best suits your business needs will make the rest of the steps go more smoothly.

The SBA 7(a) program is the most common, and most versatile, of the various loan types offered by the SBA. Other SBA loan programs include CDC/SBA 504 loans, SBA CAPLines, SBA Export loans, SBA Microloans, and SBA Disaster loans.

The primary SBA loan programs are:

• SBA 7(a) loan: SBA 7(a) loans are good for borrowers who need access to long-term capital for refinancing debt, buying a business, real estate, or equipment.
• CDC/SBA 504 loan: For prime borrowers (credit score of at least 680), CDC/SBA 504 loans are good for purchasing equipment or owner-occupied commercial real estate.
• SBA CAPLines: SBA CAPLines are good for borrowers who need access to working capital for seasonal needs or to meet the needs of a particular contract or project.
• SBA Export loan: SBA Export loans help small businesses fund new exporting operations so they can offer more flexible terms to their international customers.
• SBA Microloan: SBA Microloans are great for borrowers of a very small size, and are issued through nonprofit, community-based organizations in amounts up to $50,000.
• SBA Disaster loan: SBA Disaster loans offer disaster relief funding to businesses in declared disaster areas and who suffered property damage or economic losses.

After narrowing down the SBA loan programs that best fit your financing goals, you will need to find a lender to complete the process. Different SBA loan types are offered by different types of lenders.

Step 3: Find an SBA Loan Provider

If you meet the SBA loan requirements and qualifications, the next step is to find an SBA loan provider to originate and service your loan. Finding an SBA loan provider means reaching out to direct lenders like banks and brokers. The right one for you will depend on your current banking relationship, how much you’re looking to borrow, how fast you need funds, and your planned use for the funds. For example, if you are looking for an SBA loan to finance a restaurant, you will want to consider SBA lenders experienced in restaurant financing.

Celtic Bank is one of the top 10 SBA lenders nationally; as such, the experience this lender has with SBA loans can help take the guesswork out of applying. Celtic Bank is one of the few SBA lenders that offers an online application process, making the application process faster for small businesses. As you consider how to get an SBA loan, let’s take a look at each loan provider option in greater detail.

Find a Direct SBA Lender

In general, it’s a good idea to find a direct lender that regularly works with SBA loans. These providers are more likely to approve your loan application and typically know how to deal with unique circumstances you may have because of their experience. Direct lenders include traditional banks, credit unions, and other traditional lending institutions.

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 7(a) borrowing and 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 on an SBA loan?

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 the 100 top SBA lenders. These lenders are more experienced with SBA loans than anyone else and should be able to answer your questions.

Use a Broker to Get an SBA Loan

SBA loan brokers can provide a valuable service to small business owners by leveraging their expertise. Brokers have a keen understanding regarding which lenders will be most likely to approve your loan for your type of business, as well as how to present your business’ loan request so it has a better chance of approval.

Additionally, SBA loan brokers can save you a lot of time and headache by coordinating all the lender’s document requests and other communications. However, not all small business loan brokers are created equal. As you think about how to get an SBA loan, putting together a list of questions for your potential loan broker is an important step.

Here are a few questions you should ask a potential SBA 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 7(a) loan process?
• What are the approximate interest rates I might qualify for with an SBA loan?
• 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 as a result of associated broker fees, 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 a lender, 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 by lender. SBA loan rates change frequently; before you begin shopping around, you may want to review the current rates. Once you’re pre-approved, you can estimate your monthly payments using an SBA loan calculator.

SmartBiz is an SBA loan broker that is experienced at getting borrowers through the application process quickly. Their experience makes the process of applying for an SBA loan much easier. They can help you get funded for up to $5 million in as quickly as 30 days. You can prequalify by filling out their online application.

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Step 4: Gather the Required SBA Loan Documentation

Once you have selected an SBA lender or loan broker, you should begin to assemble the documents required for your application. These documents include personal and business tax returns, projected business financials, resumes, leases, and information about your loan request. You can download our comprehensive SBA loan document checklist for more information.

General SBA Loan Documentation Requirements

The main documents required by a direct lender or SBA loan broker include:

• Loan request amount and detailed allocation of funds
• SBA business plan
• Business financials
• Year-to-date profit and loss (P&L) statement
• Year-to-date balance sheet
• Projected financials (one to three years)
• Proof of ownership
• Business certificate or license
• Loan application history
• Business tax returns (last two years)
• Personal tax returns (last two years)
• Personal financial statement
• Owner resumes
• Business overview and history
• Business lease

Business Acquisition SBA Loan Documentation Requirements

If you are getting an SBA business acquisition loan, you’ll also need:

• Year-to-date balance sheet and profit and loss statement for the business you’re acquiring
• Last two years of business tax returns for the business you’re acquiring
• Purchase agreement (should include asking price with a schedule of inventory, machinery, equipment, furniture, fixtures, accounts receivable, and intangible assets)

Commercial Real Estate SBA Loan Documentation Requirements

If you are getting an SBA loan to buy commercial real estate, you’ll also need:

• 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 buildouts (including timelines and costs)

Other SBA Loan Documentation Requirements

If you have a 20% or more stake in any other business or own rental properties, you will also need to provide documentation for those as well (e.g., financials, appraisals, leases, and rent rolls). These are used to verify your ability to repay the loan, making them especially important if you are a startup.

“If you are a startup, it is important to provide a pro forma and cash flow projection that shows viability. You will also be required to provide a solid business plan, which is vital to your application being approved.”

—  Andrea Roebker, Regional Communications Director for the SBA

The overall goal is to show a bank that your company is well managed and has an attainable plan to be profitable, so make sure you take the time to prepare a great business plan. This includes projections of how you expect the business to perform in the next three to five years.

Much of the speed of your application process will depend on your ability to provide timely and accurate documentation to your loan officer or lender. Download our free SBA loan document checklist to make sure you collect all the information you need to streamline your loan process.

Free SBA Loan Document Checklist

Step 5: Complete the SBA Forms

After compiling the documents, you will need to fill out some required SBA forms to submit with your application. The specific SBA forms required will be determined based on the specific SBA loan type you are applying for, the intended use of loan proceeds, and your business type.

Here are comprehensive guides on the most used SBA forms and how to complete them:

• SBA Form 1919 Guide (Borrower Information Form): Used for all 7(a) loans, this form is where you note down basic borrower information. The previous version, Form 4, is no longer in use.
  

  SBA Form 1919

• SBA Form 912 Guide (Statement of Personal History): This form is used to evaluate your character. Despite the 2016 expiration date on the top, this is still the current version of this form being used by the SBA.
  

  SBA Form 912

• SBA Form 413 Guide (Personal Financial Statement): This form is used to assess the personal financial standing of you, your spouse (if applicable), and anyone who is a proprietor of the business.
  

  SBA Form 413

• 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.
  

  SBA Form 159

Once you’ve completed all of your SBA forms and assembled your supporting paperwork, you will meet with your bank to finalize your loan application. This is where the process of getting an SBA loan is taken out of your hands. You’ll rely on your lender to push the loan forward and close quickly. An experienced SBA loan provider is invaluable if you need funds fast.

SmartBiz can get your SBA loan funded in as soon as 30 days. It offers SBA working capital loans up to $350,000 and commercial real estate loans up to $5 million. Once you’ve learned how to apply for a business loan from the SBA, you can get prequalified with SmartBiz in minutes. You may qualify if you’ve been in business for two or more years and have a credit score above 680.

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Step 6: Complete the SBA Loan Application

SBA loan applications vary by lender, but they typically all request basic information about your business and the purpose of your loan request. This requested documentation helps the SBA get a better understanding of your business and how you intend to use and ultimately repay the funds you borrow.

The information required by the SBA to complete your loan includes:

• Executive summary
• Business profile
• Ownership breakdown
• Management experience
• Breakdown of how the funds will be used
• Statement of how the loan will be repaid

This application will be combined with all the other documentation you have gathered and will be supplemented by the SBA forms you have prepared. All of these documents together make up your loan application package. To expedite the application process, and to avoid having to continually send documents to your lender, make sure you submit all of the required documentation and forms with your SBA loan application.

Sample SBA Loan Application

SBA application for a business loan[/caption]

Every SBA lender is going to have different paperwork that you’ll be required to fill out in addition to the SBA’s paperwork. Your application will vary in length, but this basic information about your small business will be required regardless of which lender or program you choose. However, certain SBA loan types will require additional information specific to the loan type. One example of this is the SBA 504/CDC program, which will require information specific to the real estate you are financing.

SBA Loan Application for Commercial Real Estate

SBA 504/CDC loans and SBA 7(a) loans can both be used for commercial real estate. Regardless of which loan you choose, the eligibility requirements, forms, and required documentation are almost identical to the working capital SBA 7(a) loan requirements. However, applying can be more complicated and time-consuming than a regular 7(a) loan.

In addition to general SBA 7(a) documentation, your application will need to include:

Rent Rolls for All Tenants

Commercial real estate typically has at least one tenant that pays rent, even if the only tenant is your business. You’ll need to provide rent rolls for all tenants involved with the property being purchased or used as collateral.

Property Appraisals

A property appraisal will be ordered by the loan provider after your application is initially approved. You’ll typically pay for this appraisal. The amount your property appraises for may change how much you pay down or your maximum borrowing limit.

Environmental Studies

During the initial application, you will complete an environmental survey regarding your property. Based on this survey, an environmental study may be ordered by your loan provider after your application is preliminarily approved. The purpose of the environmental study is to reveal any potential environmental issues with your property. If any red flags show up, then a more in-depth study may need to be ordered before your loan can receive final approval and funding.

List of Ongoing Maintenance Expenses

You’ll need to provide a 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 many of them on to other tenants.

Report on the Condition of Property

Many lenders will require a report on the condition of your property 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 overdue maintenance.

Current Leases on the Property

To get an SBA loan for your property, it must be at least 51% owner-occupied. If you are renting any portion of the property, then the loan provider will want to see all existing leases. They will also want to see any terms you and your tenants have agreed to that will go into effect after closing.

If your business is not going to occupy more than 51% of the property, you may want to consider a traditional commercial real estate loan. The SBA wants to ensure that the real estate being financed is to benefit the business receiving the loan. The purchase of real estate property that is not majority-occupied by the owner is seen as an investment rather than a need of the business.

How to Apply for a Business Loan From the SBA for Startups

Many startups find SBA loans an attractive alternative to taking on high-interest rate debt, like using their credit cards. SBA statistics indicate that in 2018, 70% of SBA 504 and 7(a) loans went to new businesses, which included startups, business two years or younger, and business acquisitions. Additionally, 34% of the SBA loans made to date in 2019 have been to new businesses.

The shift in focus to funding new businesses is primarily due to the release of the SBA’s updated strategic plan that covers fiscal years 2018 through 2022. The new strategic plan added additional emphasis on providing small business loan opportunities to new and emerging businesses, as well as those in rural and urban areas with difficulty accessing loan funds. It is likely a similar pattern will be seen once the SBA’s 2019 fiscal year is completed.

The application process for a startup is virtually the same as it is for an experienced business. However, there are some additional details that will need to be addressed, and evidence provided to show your knowledge of the industry and your business management experience.

The additional requirements of an application for a startup business are:

• You may need to pledge additional personal collateral to get approved for your loan.
• The SBA likes to see you have invested a portion of your own liquid savings into the business (usually 20% to 30% of the loan amount).
• 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 read our article to learn more about the various types of SBA loans. 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.

Guidant Financial can help entrepreneurs prepare an SBA loan package and identify an SBA lender that is most likely to fund your loan. Additionally, Guidant can help you find creative ways (including using retirement savings without paying penalties or taxes) to come up with the 20% to 30% down payment often required by SBA lenders. Guidant offers free SBA startup loan consultations.

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5 Stages of an SBA Loan Timeline

The SBA loan timeline will depend on how familiar your SBA lender is with the type of SBA loan you want and how prepared you are with the required documentation. 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 usually takes two to three months.

You’ll typically go through the following five stages when getting an SBA loan:

1. Prepare & Apply for an SBA Loan (Days or Weeks)

First and foremost, you should prepare by following the steps on how to apply for a business loan from the SBA we already discussed. By the end of the six steps, you’ve hopefully applied and have likely increased your chances of prequalifying for an SBA loan. Good preparation can help you accomplish this step in days versus weeks.

2. Review SBA Letter of Intent (1 to 2 Weeks)

Once you have submitted a full application, you can usually expect to hear back within one to two 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). This 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 Letter of Intent to the lender pretty quickly. Most lenders will also require a small deposit, usually around $2,000 (refundable, minus third-party fees if the loan isn’t funded), in order to move forward with underwriting the loan.

3. Complete SBA Loan Underwriting (2 to 3 Weeks)

After submitting a signed Letter of Intent and deposit, formal underwriting will take place. Underwriting for an SBA loan can typically take two to three weeks. During that time, the underwriting team may have further questions about your financials and your plans for the loan proceeds, or they may request other relevant documentation.

4. Receive SBA Loan Commitment Letter (Days to Weeks)

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’re ready to move toward closing. The timeline for this step depends on how quickly you respond.

This deposit is typically $5,000 or 5% of the loan, and it counts towards your down payment. It’s also typically refundable (minus third-party expenses) if the loan is not funded.

5. Complete SBA Loan Closing (Days or Weeks)

During closing, loan terms are finalized. 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 the length of 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.

Common Reasons Why SBA Loan Applications Get Denied

Applying for an SBA is a time-consuming task, and small business owners often wonder what will happen if they are denied a loan. In the event your loan application is denied, you will receive a letter from your lender detailing the reason for the denial. Generally, loan denial is caused by one of five factors.

The five most common reasons why SBA loan applications get denied are:

1. Inadequate credit score: You can be denied financing if your credit score does not meet the SBA loan requirements of the lender. If your loan is rejected based on an inadequate credit score, there are steps you can take to improve your credit score.
2. Negative personal history or credit history: If you have a criminal record, recent bankruptcy, foreclosure, or have defaulted on a federal debt (including student loans), your SBA loan application may be denied.
3. Insufficient collateral: While an SBA loan does not need to be 100% backed by collateral, the lender is going to require a significant portion of the loan to be collateralized.
4. Insufficient business revenues: Your business needs to be profitable to obtain an SBA loan. If your business is not generating enough to repay the debt, you may be denied financing.
5. Failure to provide required documentation: SBA loans require the business owner to supply a lot of documentation, and additional documentation may be requested as part of the review process. Failure to provide any documentation that has been requested can result in denial of the loan.

How to Get an SBA Loan Frequently Asked Questions (FAQs)

This article has provided a lot of information about how to apply for a business loan from the SBA. However, some questions are asked more frequently than others. We’ve tried to address the most frequently asked questions here.

How do I apply for a business loan?

To apply for a business loan, you will need to first select a lender. Traditional banks and SBA loans typically provide the best rates and terms, but have strict qualification requirements and a lengthy application process. Online lenders can prequalify a small business loan within minutes and provide funding in one to two days.

What should I do first when considering how to get an SBA loan?

An initial step when considering how to get an SBA loan is determining the eligibility of your business, as per the SBA’s requirements. Figuring out if you meet the SBA’s eligibility criteria early will make the process quicker. If you’re not eligible, you can quickly find an alternative financing solution, such as an online lender.

Is it hard to get approved for an SBA loan?

If your credit score is lower than 680, you’re a startup, or you’re delinquent on federal loans, it’s hard to get approved for an SBA loan. If your credit is good and you meet the SBA’s requirements, it’s easier to get approved for an SBA loan. It’s also easier if you provide all requested information.

How can I improve my SBA loan application?

A key to improving your SBA loan application is paying close attention to the SBA loan requirements and qualifications. Take time to assemble and organize your SBA loan paperwork, and make sure you’ve included everything before submitting your loan application. Using a loan document checklist makes it easier to ensure you’ve included all the paperwork.

We asked this question of Cece Mitchell, SVP and Enterprise SBA Administrator for Zions Bank, which is an SBA PLP lender. In response, Cece provided the following suggestions:

“As for what can improve an SBA loan application package:

1. Have a business plan and provide a copy to the lender. This is especially important for new or newer companies.
2. Be precise when indicating how much you need to borrow and very detailed on how those funds will be used.
3. Answer all questions on the application forms. Missing information can delay the application.
4. Be prepared for the lender to ask questions.”

– Cece Mitchell, SVP & Enterprise SBA Administrator, Zions Bank

How long does it take to get an SBA loan?

The time it takes to get an SBA loan depends on your lender and how quick you are at responding to their questions. This time frame could be anywhere from 30 to 120 days or more. You can significantly reduce this timeline by providing the required documentation initially and promptly responding to any requests.

Bottom Line: How to Apply for an SBA Loan

Learning how to apply for an SBA loan can be a complicated process. It 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. To speed up the process and make sure you apply correctly, partner with a loan provider that is well-versed in SBA lending.

SmartBiz can make getting an SBA loan much easier for you by dealing with most of the paperwork on your behalf. They can also get you funded with an SBA loan faster than anyone else we’ve reviewed, funding in as quickly as 30 days after you learn how to get an SBA loan. You can qualify for up to $5 million by filling out an online application that only takes a few minutes.

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