How to Apply for An SBA Loan
In this blog post, we’ll explain how to apply for an SBA loan and detail what the process typically requires. While some of the steps mentioned below are specific to the 7(a) Regular term loan (the most popular SBA loan available), the 504-loan program follows a similar process.
Keep reading to find out what the steps are for applying for this popular financing option!
What You Need When Applying for an SBA Loan:
1. Meet the SBA Loan Requirements
There are a few qualifications that a business must meet to qualify for an SBA loan.
To qualify, you must…
- Be an officially registered small business, as defined by the SBA.
- Be a for-profit establishment (not a non-profit).
- Conduct business within the U.S. or its territories.
- Use funds for “sound” business uses.
- Have no past-due payments on federal government loans, such as student loans and taxes.
- Have a fair amount of business equity.
- Have exhausted other financing options (such as bank loans or loans from outside lenders).
- Demonstrate need for loan proceeds. For example, prove that your business requires this financing to purchase equipment, real estate, inventory, or afford other business expenses.
The SBA’s Credit Requirements:
When applying for an SBA loan, your credit history will be a very important factor that could affect your ability to qualify. In fact, both your personal and business credit scores are considered by the SBA.
Still, if your credit isn’t great, but also isn’t poor, don’t rule out an SBA loan. Many other factors go into the approval process (as we detailed above).
While there isn’t a strict number to follow, very poor credit is likely to disqualify you. Unfortunately, even if your business generates sales and has favorable cash flow, this won’t distract from your cash flow. Bankers will be concerned that even though you have enough cash flow, you’re still failing to meet payment deadlines.
2. Start the SBA Loan Application Process
The SBA loan application requires extensive paperwork because the SBA partners with traditional banks to supply financing. These banks want to reduce their risk as much as possible and do it by analyzing many forms of documentation.
These documents include both personal and business information, because they want to ensure that you’re financially responsible in all areas of your life.
Here are some of the documents you’ll need to complete the application process:
- Driver’s license photo
- Personal and business tax returns
- Business financial statements
- Personal and business bank statements
- Commercial/business lease documentation
- Documentation of management experience
- Financial projections
- Business plan
- Articles of incorporation
The above documentation will take some time to gather. In addition, if you already have financial projections and a business plan, you’ll probably need to update them.
Your business plan is very important and should be thorough. Have someone review it with you, so that you can take their feedback into account. Ask them to point out any issues, because if they don’t, the bank likely will. If you’re well-prepared, you might be able to correct certain issues prior to submitting it.
SBA loan risk is split between the SBA and a bank, so you’ll be working with a bank as you go through the process. It’s best to work with an SBA Preferred Lender to get the best terms and an overall smoother application experience.
3. Complete All SBA Loan Paperwork
When completing the loan application you’ll find a list of required paperwork:
- 7(a) LGPC – Submission Cover Sheet
- SBA Form 1919 – Borrower Information Form
- SBA Form 1920 – Lender Application
- Lender’s Credit Memo
- Business Debt Schedule (for long-term debt)
- Draft Loan Authorization
- Personal Financial Statement
- SBA Form 912 “Statement of Personal History”
- Business Valuation
- Copies of all Notes & Leases to be Refinanced
- FYE Income Statements and Balance Sheets or Federal Income Tax Returns
- Cash Flow Projection
- Current Income Statement and Balance Sheet
- FYE Income Statements and Balance Sheets, or complete Business Tax Returns
- Up to 8 different sets of supporting documentation
If you have any questions about these documents, be sure to contact the SBA prior to submitting your application.
Conclusion: Be Prepared When Applying for a SBA Small Business Loan
An SBA loan is one of the most sought-after loans by business owners. Although they can be difficult to get approved for, don’t let this deter you from applying. Now that you know what the requirements are and how the process works, you should be prepared to apply for an SBA loan.
If you don’t have time to wait for an SBA loan approval, or don’t think you meet their requisites, consider applying for a business loan through an alternative or online lender. This way, you’ll be able to receive additional working capital that you can put towards growing your business!
If you’ve already successfully applied for an SBA loan, share your tips with our audience in the comment section below!
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2019.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.