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How to Get an SBA Startup Loan to Fund Your Small Business?

How to Get an SBA Startup Loan to Fund Your Small Business

Getting an SBA loan can provide critical funding to start or grow a small business. SBA loans are government-backed loans aimed at helping small businesses succeed. The SBA's 7(a) loan program is their primary loan program used to fund startups and existing small businesses. This comprehensive guide explains SBA loans, the different types available, eligibility requirements, and step-by-step instructions for applying. Read on to learn everything you need to get an SBA startup loan to fund your entrepreneurial aspirations!

Article Outline

  1. What is an SBA Loan, and why should you consider one for your startup business?

  2. Types of SBA Loan Programs for Startups and Small Businesses 

  3. What Are the Eligibility Requirements to Get an SBA Loan? 

  4. Step-by-Step Process for Applying for an SBA Loan 

  5. Tips for Getting Approved for an SBA Loan

  6. Key Takeaways

What is an SBA Loan, and why should you consider one for your startup business?

An SBA loan is a business loan partially backed by the U.S. Small Business Administration (SBA). Because the SBA guarantees a portion of the loan, lenders are more willing to approve financing for startups and small businesses that may not otherwise qualify for traditional lending.

As a business owner, SBA loans offer favorable long-term repayment options, making them an attractive funding source for entrepreneurs. Here are some key advantages:

  • Lower down payments - SBA loans require less money down than conventional bank loans. Usually 10-20%.

  • Larger loan amounts - You can borrow up to $5 million with an SBA loan. Loan maximums vary by program.   

  • Longer repayment terms - Take 5-25 years to repay your loan, which is longer than most conventional loans. Allows you to keep payments affordable.

  • Competitive interest rates - Interest rates on SBA loans compare favorably to other financing options.

For these reasons, SBA loans are ideal for loans for startups when you may have limited savings or access to capital. The rest of this guide breaks down the different SBA loan programs, eligibility criteria, and step-by-step application instructions.

Types of SBA Loan Programs for Startups and Small Businesses

The SBA offers various loan programs tailored to different financing needs. The main types of SBA loans available are:

SBA 7(a) Loans

The SBA 7(a) loan program is the SBA's primary loan program. It's used to fund startups and existing small businesses. 7(a) loans are provided by approved lenders and guaranteed by the SBA.

As the primary loan program, 7(a) loans offer small business owners the most flexible loan options.

Key 7(a) Loan Benefits:

  • Up to $5 million maximum loan amount

  • 10-year loan term for working capital, up to 25 years for real estate  

  • Competitive variable and fixed interest rates

7(a) loans can be used for most business purposes, including working capital, machinery and equipment, furniture and fixtures, leasehold improvements, and debt refinancing.

SBA Express Loans

SBA Express loans offer a streamlined application process with a faster turnaround time. Borrow up to $500,000 with an SBA Express loan.

Key SBA Express Loan Benefits:

  • Lower documentation requirements

  • Fast application turnaround - 36 hours for approval or denial

  • Can qualify based on credit score alone

  • Can used for working capital, equipment, and more

SBA Community Advantage Loans

The SBA Community Advantage loan pilot program helps finance startups and businesses in underserved communities. These loans range from $50,000 to $250,000.

As a relatively new loan program, Community Advantage loans help business owners who couldn't get approved for an SBA 7(a) or 504 loans. Lenders can be more flexible with credit scores and time in business requirements.

SBA Microloans

SBA microloans provide small, short-term loans of up to $50,000. The application process is handled through community-based non-profit lenders.

Microloans work well for financing working capital, supplies, furniture, fixtures, machinery and equipment—no real estate financing.

SBA 504 Loans

SBA 504 loans provide long-term, fixed-rate financing for purchasing major fixed assets like real estate or heavy equipment. 504 loans offer low down payments and 20-year fixed interest rates.

What Are the Eligibility Requirements to Get an SBA Loan?

To qualify for an SBA loan as a startup or small business, you must meet these primary criteria:

  • Operate for-profit

  • Be based in the U.S.

  • Qualify as a small business under SBA size standards for your industry

  • Have invested equity in the business  

  • Have sufficient funds and a business plan for repayment

  • Have an acceptable personal and business credit history

Requirements vary depending on the specific SBA loan program. For instance, requirements focus heavily on personal credit scores over other criteria to be eligible for an SBA Express loan.

Meanwhile, the SBA Microloan program works exclusively with new startups and early-stage businesses that may not qualify for other financing options.

When working with an SBA lender to get approved for SBA loans, you can evaluate which loan programs best match your eligibility status, experience level, credit history, and funding needs.

Step-by-Step Process for Applying for an SBA Loan

Step-by-Step Process for Applying for an SBA Loan

Follow these key steps when preparing to apply for an SBA loan:

  1. Choose an SBA Lender - Connect with an SBA-approved lender that offers SBA loans. Developing a relationship with your lender increases the chances your application gets approved.   

  2. Select Loan Type - With guidance from your lender, decide which SBA loan program is best suited for your financing situation. Consider the loan purpose, the amount needed, and the timeline for repayment.

  3. Prepare Required Documents - Compile the necessary documents for your SBA loan application, including a comprehensive business plan with financial projections, personal financial statements, details on business debt, and other required information that varies by loan type. 

  4. Submit Your Application - Complete the SBA loan application in coordination with your lender, who will actually submit and facilitate the application for you. Be prepared to clarify any questions about your business.

  5. Get Approved and Fund Your Business! - If approved, you will complete the final loan documents and receive your financing. Remember, loans can only be used for approved business purposes.

Tips for Getting Approved for an SBA Loan

Tips for Getting Approved for an SBA Loan

Beyond the standard eligibility criteria, here are some key things lenders and SBA loan programs look for to approve financing:

  • Business Plan - Provide a detailed business plan covering how you will use the funding, your operations, financial projections, and growth runway. 

  • Time in Business - Each loan type has different requirements, but most require at least 1-2 years of operating history. For startups, focus on SBA Microloans.  

  • Credit Score - SBA loans weigh your personal credit score heavily in the approval decision. Scores above 680 will improve your chances.

  • Collateral - Putting up business or personal assets for collateral can get you better loan terms and make approval more likely.

  • Equity Investment - Put at least 10-30% of your own "skin in the game" by investing personal equity into the venture.

Key Takeaways

The bottom line is that SBA loans provide critical funding for thousands of startups and small business owners annually. Take advantage of SBA loan programs to get the capital you need with favorable long repayment terms and competitive interest rates.

Connect with an SBA lender to evaluate your options. Make sure to choose the loan program that best matches your eligibility status, experience level, credit history, and funding needs. With the right SBA loan, you can get your startup or existing small business off the ground and set up for lasting success, business growth, and job creation!

Consider having your loan with Lendtek and get matched with different lenders to increase your chances of approval! Click here to apply.

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