UK
IRE
AU
CA
US
ZA
NGExpert financial copywriter
Loans through the United States Small Business Administration (SBA) are very popular for small businesses looking to fund their businesses.
The loans tend to have excellent interest rates and payback terms and are meant for small businesses that have difficulty getting loans elsewhere. Because of their popularity, it can be difficult to get an SBA loan, but knowing the steps to making a successful application can help.
Read on for the complete guide on getting an SBA loan.
Page written by Kat Cox. Last reviewed on February 14, 2024. Next review due October 1, 2025.
Funding is one of the most difficult aspects of running a business, especially if you’re looking to grow or expand. Many small business owners don’t know where to turn, whether it’s a traditional bank loan, online loans or even crowdfunding. And many small businesses may not qualify or even know what the requirements are to get a traditional loan.
SBA loans offer an alternative for small businesses that may have exhausted their personal funds and need another way to pay for business expenses, such as commercial real estate, equipment or working capital. These loans tend to have longer repayment terms and low interest rates, which make them attractive to small business owners. Because they’re guaranteed by the federal government, they can be somewhat easier to qualify for, because the government takes on risk that a lender would usually have to assume. But with the number of options available and the list of requirements, it can be difficult to figure out how to apply.
Applying for an SBA loan can appear overwhelming, but knowing what an SBA loan program entails, how to qualify and how to apply can help.
SBA loans are administered through the SBA but managed by approved lenders, like traditional banks, credit unions or community partners. The SBA guarantees the loan up to a certain amount, which means that if the borrower can’t repay the loan, the SBA will pay the lender the outstanding balance. This makes it easier for lenders to take on the risk of lending to borrowers who may not be conventionally attractive, which many small businesses are.
With an SBA loan, you find your own lender based on your location and what program you’re applying for. They work with the SBA to administer your loan, but you get the money directly from the lending financial institution and pay them back. SBA-approved lenders can set their own terms and rates, although they’re guided by SBA rules on how much they can charge.
There’s a variety of different SBA loans available for different purposes, and applying for the right loan for what you plan to do with the money can help your application be more successful. It’s also important to understand what the qualifications are so you don’t waste time applying for a loan you can’t qualify for.
Eligibility for SBA loans may be the biggest hurdle to getting the funding. As with any loan, the lender wants to assess the risk of a borrower not paying them back. Usually, this is established through credit scores and business history, but there are other ways that the SBA and lenders may establish creditworthiness.
In addition, SBA loans can only be used for certain purposes, and each loan program has its own requirements. In order to decide whether or not they’ll lend to you, the SBA has general requirements and lenders will have their own as well.
To qualify for an SBA loan program, your small business must:
Each lender may have their own requirements that small businesses must meet to qualify for an SBA loan. These can include:
These requirements will change depending on the loan program, how much money you borrow and other factors. It’s important to check with your lender to fully understand their requirements.
Both the SBA and the lender will want to know your reason for needing the loan. Your business plan can play an important part in showing them what you plan to do with the funds, such as adding employees, expanding a product line or opening a brick-and-mortar shop.
Before you apply for an SBA loan, you need to know which program you want to apply for. These programs all have different requirements and support different business needs. You must apply specifically for a loan in the program you wish to apply for – there’s not a blanket SBA application that works for all of them.
Different programs are better for different types of businesses. For instance, the SBA microloan program and start-up loans will be better for newer businesses, but they provide less funding. The bigger loan programs, such as the SBA 7(a) and SBA 504/CDC loan programs, can provide a larger lump sum of money, but may have to be used for specific purposes.
The most popular loan program the SBA administer is the SBA 7(a) program. You can get up to $5 million for your business with an SBA 7(a) loan, and can use it for a variety of purposes, including real estate, buying equipment or inventory, adding to your working capital or even to refinance existing debt.
For an SBA 7(a) loan over $50,000, the interest rate is tied to the WSJ Prime rate plus 2.75%. While the WSJ Prime rate may fluctuate, you can generally get an SBA 7(a) loan for an interest rate of 8-13% or less. The repayment rate depends on how much money you get and what you’re using it for, but can be as high as 25 years.
SBA export loans are another type of SBA 7(a) loan.
The SBA express loans program falls under the SBA 7(a) umbrella. There’s one major difference between an express loan and a regular 7(a) loan: decisions on loan approval are made within 36 hours. An express loan is also typically for a much smaller sum of money, usually $350,000 or less, but with similar repayment terms and interest rates.
The SBA 504/CDC loan program is similar to the SBA 7(a) program, but has some stricter requirements on how you can use the funds. Most notably, you can only use an SBA 504/CDC loan for fixed assets – generally real estate or equipment. They’re often called SBA real estate loans, because purchasing or fixing up commercial real estate is the most common purpose of an SBA 504/CDC loan. Other requirements include that the business be able to prove that it will use the fund to create jobs, grow the local economy or otherwise support the local community.
The structure of an SBA 504/CDC loan is different from an SBA 7(a) loan in how it’s funded as well: 40% of the loan is financed by a Certified Development Company (CDC) approved by the SBA, an SBA-approved lender finances 50% and the borrower provides the remaining 10% as collateral.
You can get up to $5.5 million from an SBA 504/CDC loan, depending on your reason for getting the loan. Interest rates are similar to those of an SBA 7(a) loan, with repayment terms up to 25 years.
With a funding cap of $50,000, SBA microloans are popular for smaller, newer businesses that may not qualify for some of the SBA’s larger programs due to their time in business. Unlike other SBA loan programs, the approved lenders in the microloan program are community-based non-profit organizations.
Although the amount you get for an SBA microloan may be small, they’re very flexible in terms of what they can be used for, including buying inventory, equipment or working capital. They tend to have interest rates of 8-13% and the maximum repayment terms are six years. However, they also tend to have more relaxed qualifying terms for borrowers, which makes them easier to get for startups.
When a major economic disaster strikes the U.S. (such as during the COVID-19 pandemic), the SBA will offer its disaster loan program. This is a rare loan type that the SBA manages directly, making loans to businesses directly affected by a declared disaster. The type of loan available will depend on the type and location of the disaster, but a business can expect to get as much as $2 million with an interest rate of 4%. The repayment terms for these loans are also typically very agreeable – up to 30 years for some. In some cases, the government may even forgive disaster loans altogether for qualifying businesses.
The SBA also offers additional programs that you may consider, especially if you don’t qualify for the bigger loan programs. For instance, a SBA line of credit may provide a more flexible option for you, or you may find that you qualify for the SBA Community Advantage program. The SBA also offers investment and grant opportunities to small businesses.
Once you know which loan program you wish to apply for, the next step is finding a lender. As stated before, lenders manage your loan and have the ability to set your interest rate and repayment terms, within the limits of the SBA’s loan programs. They may also determine the speed with which your loan is reviewed and approved. Some SBA loans can take 60-90 days to fund, which can be a long time if you’re trying to build your business or need working capital now.
Most SBA-approved lenders are major banks or credit unions. For an SBA 504/CDC loan, you’ll need to find the right CDC. The SBA keeps lists of their approved lenders based on geographic region, which you can easily sort through.
If you already work with a bank, you may approach them to find out if they offer SBA programs. Often local banks or credit unions will have more personalized customer support to help walk you through the application process and find the loan that’s right for your business.
Of course, you should compare rates and terms before you sign on the dotted line. Bigger banks may be able to provide better interest rates or terms, depending on your qualifications. There are also SBA-approved online lenders that may provide you with faster funding or easier application services, although these may come with a price such as higher interest rates or shorter repayment terms.
Many small businesses that an afford it use a broker service to find the right SBA lender for their needs. This can be an expensive option, as the broker will require a fee, but it can help smooth the process for you.
You can also use services like Swoop to find a list of SBA lenders that meet your needs.
Another large hurdle in applying for an SBA loan is the amount of paperwork you need to fill out and the corresponding proof you’ll have to submit. The information you’ll have to provide will depend on the type of loan you apply for and your lender, but you can expect a certain amount of general documentation. The information you should be ready to supply includes:
In addition, there are a number of forms that the SBA requires for you to fill out in order to apply for an SBA loan, including:
Gathering these documents and information before you start your application can make the process run a lot more smoothly.
Depending on which lender you’ve chosen, you can complete your application online or on paper and submit it to your lender. They’ll review your application and your qualifications, including credit scores, financials and other documentation. Again, this process can take a long time – from two to six months in some cases.
If the lender needs more information or has questions about your application, they’ll ask you for it. This can make the approval process even longer, which is why it’s so important to make sure you submit a complete application the first time.
It’s a good idea to have a professional review your application before you submit it. Some banks or financial institutions may provide personal account representatives who can walk you through the process to make sure your application is complete. You may want to hire an accountant or work with a CPA that you use for your business financial processes already if you can afford their services.
Within two or three weeks, you’ll usually hear back from your lender with a Letter of Intent regarding their decision to move forward on your loan. This letter will tell you what amount of money you’ve qualified for as well as your rates and terms. You’ll need to sign the letter if you agree, and then the loan will be moved on to underwriting.
During the underwriting process, you’ll be asked to sign a business loan agreement, which officially outlines the terms of the loan, including how long you have to repay it and what the interest rate is, as well as the final funding amount. You may want to get an attorney or accountant to look over the loan agreement to make sure you fully understand it and that everything is in line with your expectations. The underwriting process can take several weeks and the lender may have questions for you, which you should answer as soon as possible in order to keep the process moving.
Once your loan is approved and all the underwriting is complete, you’ll sign the final paperwork and the lender will deposit it into your business bank account. You’ll also set up your repayment schedule, which is usually a monthly payment. It’s important to stay on top of your repayments so that you don’t default on the loan.
Find the best loan for your business with help from Swoop. Simply register online, answer a few questions and we’ll show you some potential loans your business is eligible for, including SBA loans. Click here to get started today.
Written by
As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
Daire made it happen! There is no doubt that Swoop sped up the process and found lenders that worked to our time scale rather than the other way round
Joint owner, F45 Virginia
Swoop was actually very helpful in helping us get our initial fundraising in place. Swoop was able to connect us with investors, with grant financing options and debt financing options.
Founder, SingleKey
Pedja was amazing. Super supportive, understanding of our needs and wasn't pushy at all. We've been going back and forth with Swoop for over a year inquiring about different financing options and they were patient until we were ready!
F45 Multi-studio owner
We work with world class partners to help us support businesses with finance
yet? Register here!