How to Apply for an SBA Express Loan in 4 Steps
Before starting the loan process, it’s important to understand how SBA loans work. First, you should note that the Small Business Administration doesn’t directly provide small business loans. Instead, the SBA guarantees a certain portion of the loan. For SBA Express Loans, the SBA will guarantee 50 percent of the loan, but percentages vary for their other loan programming.
By guaranteeing the business loan, the SBA lowers the risks for lenders, which encourages them to lend. Lower risk also results in more affordable interest rates for business owners. For instance, SBA Express Loan interest rates are set at a maximum interest rate of between 4.5 to 6.5 percent above prime.
To qualify for this type of loan, the business must operate in the U.S. and be a for-profit enterprise. In addition, there are other qualifications that small business owners must meet, which we’ll detail in this blog post.
How to Apply for an SBA Express Loan:
1. Show that You’ve Invested Time and Money Into Your Business
The SBA strives to support entrepreneurs who have invested in their own business venture. This shows the SBA that the business owner is committed to their company and its success.
Ultimately, by having skin in the game, you reduce risk for the lenders as the likelihood of default will be lower. Thus, you should document every dollar spent and every hour worked. The more documentation and financial statements, the better.
Specifically, we suggest documenting the following information prior to pursuing an SBA Express Loan:
- The amount of money that you personally invested into your business and its products or services.
- The amount of money invested in your business by other people, such as business partners, donors, investors, or other outside funding sources.
- How long your business has been operational.
- How many hours per week you work for your business
- Equity structures and stakeholders.
2. Prove That You’ve Exhausted Other Lending Opportunities
The SBA considers itself a last resort option, as they guarantee express loans for businesses that can’t qualify for other financing options.
Due to this, you’ll need to provide thorough documentation to the SBA that proves that you’ve been unable to secure a loan through traditional lenders. Therefore, before you apply for a SBA Express Loan, apply for traditional options, and detail all declines.
Although this will be time consuming, it will help you increase your chances of qualifying for an SBA loan.
3. Know Your Business Lending C’s
When evaluating express loan applicants, the SBA uses the “three C’s” of business lending: credit, cash flow, and collateral.
This simplified model refers to the most common factors that lenders consider when assessing loan applications. To improve your chances of getting approved, review the “three C’s” as they relate to your business.
Credit – This refers to your history of taking out loans and paying your debts off in full. Lenders want to see that you make your weekly or monthly payments on time. Check your credit score prior to applying for an SBA loan, so that you can find out if you meet the credit score requirements.
Cash flow – When determining your cash flow, you’ll need to calculate your monthly income minus monthly expenses. Basically, this is a snapshot of your business’s financial health. Again, determine your monthly cash flow prior to submitting your application.
Collateral – The collateral assets you have available could be used to back your small business loan amount. If you have significant collateral, this can help you get approved if other areas of your business aren’t strong, such as your credit history.
4. Connect with A Partnering SBA Lender
To obtain an SBA loan, you’ll work with an approved partner lender.
First, you’ll be required to fill out the business financing lender’s loan application. Usually, the application process and documentation will vary from lender to lender. However, the SBA does offer an online Lender Match tool to help you get started.
How to Find an SBA Approved Lender
- Fill out the required loan forms: You’ll have to provide contact information and briefly describe your business’s industry, operations, and overall strategies.
- Share planned use of funds: Detail what you plan to use the business financing for and confirm that it is an approved SBA use of funds. For example, if you’re seeking an Export Express Loan, you must operate in the export market and use the financing for those types of expenses.
You’ll also be asked to check which of the following statements apply to your business:
- I have written a business plan
- I have financial projections
- I’m generating revenue
- I have fixed assets to put forth as collateral
- I am a Veteran
The more of the above boxes you check, the stronger your express loan application will be, so you’ll be more likely to qualify for funding. In addition, you should include a business plan and financial projections. In some cases, it may be helpful to provide tax return information. These details will help the lender see how you run your business, which can allow them to better assess your needs.
After completing the above forms, you’ll be matched with potential SBA lenders. Remember, the SBA doesn’t guarantee the full business loan amount, but instead a portion of it. As such, you’ll have to make a strong impression on potential lenders.
Conclusion: Be Thorough When Applying for an SBA Express Loan
Like applying for a personal loan, the SBA Express Loan application process can be quite intensive. Both the SBA and the business financing lender want to reduce risks and maximize returns. To get approved for this loan type, it’s crucial that you complete the loan application correctly and supply the necessary documentation.
Once the lender approves your application, the SBA will generally provide a guarantee within 24 to 36 hours. However, you should be prepared to wait longer in some cases, especially if you don’t provide accurate or complete information on your application.
However, while SBA loans are an excellent resource, there are many other business lending options available. These funding options include loans from alternative lenders, merchant cash advances, business lines of credit, business credit cards, and industry specific loans.
Therefore, if your SBA express loan application is denied or you need additional working capital as soon as possible, consider other financial options. Although the loan application process can be daunting and your need for financing might be time sensitive, don’t be afraid to take time to weigh your options!
Editor’s Note: This post was updated for accuracy and comprehensiveness in August 2021
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.