SBA Loan Guide for New Business Owners

SBA Loan Requirements and Steps for Applying

A business owner repairs a bicycle.
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Funding a small business can be a challenging endeavor, no matter what stage you’re at—starting up, expanding to a second location, or investing in new equipment. The U.S. Small Business Administration, or SBA, helps small businesses secure competitive loans to establish themselves and continue to grow.

We’ll discuss the basics of what SBA loans are, SBA loan requirements, the different types of SBA loans available, and what you should know before applying.

Key Takeaways

  • The SBA is a federal agency designed to help support small businesses. It offers financial assistance to help qualifying small businesses get established and grow.
  • The SBA has many different loan programs designed to meet various business needs. Its main offerings are 7(a) loans, 504 loans, and microloans.
  • Eligibility requirements, application processes, time to funding, and loan terms and conditions all vary depending on the type of loan and the lender.

What Is an SBA Loan?

The SBA is a federal agency created to support small businesses in the United States, and one of the ways it does this is by helping small businesses obtain loans.

The SBA doesn’t directly lend funds to businesses; it works with lending partners such as banks, community development organizations, and micro-lending institutions to facilitate the lending process.

The SBA sets guidelines for the loans and makes it easier for lenders to access capital. The loans are partially guaranteed by the federal government, which makes them less risky for lenders. SBA loans come in a wide range of amounts—from $500 to $5.5 million—and are available for most business purposes. Depending on the program, your loan may come with guidelines around how you can use the funds.

SBA Loan Requirements

While some lenders and loan programs have specific requirements, business eligibility for SBA loans tends to depend on certain factors:

  • How a business earns income
  • How business ownership is structured
  • Where the business operates
  • Business size
  • Ability to repay the loan
  • Sound business purpose

SBA loan criteria require that businesses must also be for-profit and located within the U.S. or its territories. The owner must have invested equity and the business must be unable to access funding from other lenders.

SBA loan programs are specifically for small businesses, so prospective borrowers must meet the SBA’s small business size standards. Depending on the industry, size standards to qualify as a small business are measured by a firm’s number of employees or its average annual receipts. For example, a business that manufactures dog and cat food can have up to 1,000 employees, and an auto repair shop can earn up to $8 million in annual receipts.

Types of SBA Loans

The SBA provides a variety of small business loans. To help you find the best fit for your business needs, let's review some of the agency’s main offerings.

7(a) Loans

The 7(a) loan program is the SBA’s most common program. There are a handful of different types of 7(a) loans, each intended to meet different business needs. Terms and conditions vary, but the maximum 7(a) loan amount is $5 million. Among other uses, the finances from 7(a) loans can be put toward:

  • Purchasing real estate (including land and buildings)
  • Revolving funds, depending on the worth of inventory and receivables
  • Construction or renovation of buildings
  • Short- and long-term working capital
  • Debt refinancing, under certain conditions
  • Starting a business or expanding, acquiring, or operating an existing one
  • Buying equipment, machinery, furniture, fixtures, or supplies.

The SBA says a 7(a) loan is your best option when purchasing real estate for a business.

504 Loans

The 504 loan program offers long-term, fixed-rate financing for major fixed assets that help you grow your business and create new jobs. Potential uses include:

  • Buying land
  • Buying or building facilities
  • Purchasing long-term machinery or equipment
  • Renovation or updating existing facilities, property, roads, utilities, parking lots, or landscaping.

SBA 504 loans have repayment terms of 10, 20, or 25 years, and businesses can apply to receive up to $5 million. Loans are only handled through Certified Development Companies (CDCs), which are community-based SBA partners. In addition to the standard SBA loan requirements, 504 loans require your business to have a net worth of less than $15 million and less than $5 million in average net annual income.

Microloans

Microloans—smaller loans up to $50,000—are designed to ease the launch and expansion of small businesses and not-for-profit child care centers. Microloans can be used toward working capital, inventory, supplies, furniture, fixtures, machinery, or equipment. They can’t be used to pay current debts or to buy real estate.

Microloans are provided by SBA-designated intermediary lenders, each of which has its own requirements regarding lending and credit. Microloans have a maximum repayment term of six years, and interest rates are typically 8%-13%. The average microloan is for approximately $13,000. Collateral and a personal guarantee are usually needed to secure this type of SBA loan.

The SBA’s Lender Match tool connects businesses with potential lenders in their communities. Answer questions about your business to see which loans might fit your needs and which lenders might offer you financing.

How To Get an SBA Loan

The application process for SBA loans depends on the type of loan.

7(a) Loans

The SBA provides an application checklist for 7(a) loans that lists the required documents, such as business and personal financial statements, tax returns, and your loan application history. After you complete the loan package, your lender will submit it to the SBA. According to the SBA, most 7(a) loans have a turnaround time of 5-10 business days. The SBA Express program has a turnaround time of 36 hours, and the SBA Export Express loan has a 24-hour SBA response time.

504 Loans

To apply for an SBA 504 loan, you’ll need to work with your local CDC. The SBA provides a 504 authorization file library to help you put together your loan application package.

Microloans

If you’re looking for a microloan, you’ll need to connect with your local SBA District Office to find a verified microlender in your area. The individual requirements for microloans differ, since the lenders make credit decisions and set their own loan terms. You may need to attend training or meet planning requirements to ensure your application is eligible.

Watch out for predatory lenders. Warning signs include very high interest rates, fees that exceed 5% of the loan value, or unclear information about annual percentage rate or the full payment schedule. A reputable lender will never tell you to lie on documents or leave a signature space blank.

Frequently Asked Questions (FAQs)

How long does it take for an SBA disaster loan to be approved?

After you apply for a disaster loan, the SBA will review your application and contact you with a decision after two to three weeks. After the loan closing documents have been signed and received, the first loan disbursement may be made within five days.

How do you cancel an SBA loan application?

If you need to cancel an SBA loan application, speak with your lender as soon as possible. If you applied for an SBA 7(a) loan, the lender will need to cancel the SBA guaranty.

How do you check SBA loan status?

To monitor SBA loan status, borrowers can create an account in the Capital Access Finance System. The SBA provides account enrollment instructions to guide you through setting up and accessing an account.