How to Get an SBA Loan

Find out about small-business loans backed by the government.

Securing funds to get a small business started or keep a floundering small business afloat can be a challenge if you turn to traditional lenders — especially if you don’t have a stellar credit report. Thankfully, the Small Business Association — an extension of the U.S. government — exists to help small-business owners get funds they need through its partnerships with public and private organizations.

Read on to find out what you need to know about getting an SBA loan to get your small business started.

What Is an SBA Loan?

An SBA loan is a small-business loan that you apply for through an authorized SBA lender to help pay for things such as new equipment or supplies, a commercial mortgage or existing debt. Although the lender is the one loaning you the money, the loan is backed by the SBA, which means that the SBA is guaranteeing the loan and reducing the risk for lenders. In addition, the SBA sets the loan terms and the interest rate, which will be lower than a rate you could get with a private loan.

Who Will Qualify for SBA Small-Business Loans?

Because the government backs SBA loans, lenders don’t have to assume the risk of a small-business owner defaulting. Therefore, it’s much easier to qualify for an SBA loan than for small-business financing through a traditional lender. To qualify, you will need to meet SBA loan requirements:

  • You must own a for-profit business that is located and operates in the U.S. or its territories.
  • Your business will need to meet SBA size standards.
  • You must have invested your own time and money into the business.
  • You must have exhausted other options for securing lending.

How to Get an SBA Small-Business Loan

When you’ve had trouble qualifying for a traditional small-business loan or you fear you might not qualify for a traditional small-business loan, a loan backed by the SBA is a good option. Here are the steps for getting an SBA loan:

1. Create a Business Plan

When you apply for funding for your small business, most lenders will expect you to have prepared a small-business plan. For help, you can use the SBA’s free, online business plan tool. After creating an account, you can get started.

Discover: 7 Surprising Costs That Come With Starting a Business

2. Know How Much You Need to Borrow and How You Will Use It

Before you apply for an SBA small-business loan, you need to know the amount of money you’ll need and how you’ll use the funds. Lenders need to know that the money will be used to directly benefit your business before your loan can be approved.

3. Check Your Credit Report

Lenders use credit reports to determine interest rates, so it’s always a good idea to check your personal — and business, if applicable — credit report for errors before you apply for a loan. You don’t want to be surprised by unexpected information in your credit report that could prevent or delay funding once your loan application is in process.

Find Out: How to Dispute Credit Report Errors

4. Complete Financial Projections

You’ll need to complete projected income and cash flow statements for at least a year or until the statements show positive cash flow, according to the SBA. You’ll also need to be prepared to discuss your game plan if your financial projections don’t pan out. The SBA recommends using the SCORE Financial Projections template if you need help.

5. Gather Other Paperwork

To be as prepared as possible, gather paperwork that might be requested by the lender. Here are some items to consider, according to the SBA:

  • Building lease or proposed lease
  • Franchise and purchase agreements
  • Articles of Incorporation, if applicable
  • Partnership agreements
  • Copies of business licenses and registrations
  • Copies of third-party contracts

6. Assess Your Property for Potential Collateral

Even though an SBA small-business loan is backed by the government, that doesn’t mean the lender doesn’t have any risk involved. The lender might ask you to provide collateral to further guarantee your loan. Some examples of collateral are inventory, property or a vehicle.

7. Know Your Industry

If you’re inexperienced in the industry in which you are planning to start a business, you’ll want to do plenty of research to reassure the lender that you have some helpful knowledge. Otherwise, the lender might be reluctant to loan you the funds.

8. Find a Lender for SBA Loans

The easiest way to find a lender for an SBA loan is to use Lender Match, which can connect you with SBA-approved lenders. All you have to do is answer a few questions and wait a couple days for interested, SBA-approved lenders to contact you with loan offers.

Note that using Lender Match doesn’t guarantee that you will find a lender that will approve you for a loan; it’s simply a tool to help you locate SBA-approved lenders in your area.

Related: How to Get a Business Loan With Bad Credit

9. Compare Rates and Terms — Then Apply

Once lenders reply to you with their offers, it’s time to compare the different rates and terms that are available to you. Ask lenders any questions you might have and then apply according to the lender’s instructions.

How Long Will It Take to Be Approved?

The SBA works with regular, certified and preferred lenders, and approval times vary. Once you prepare your loan package — consult with the SBA if you need help — you’ll submit to lenders. When a lender approves your loan, they will submit your loan package to the SBA.

You can expect applications submitted to the SBA by regular lenders to be approved in a couple of weeks, certified lenders in three days and an even faster approval time for preferred lenders, according to Entrepreneur magazine.

What to Do If You’re Not Approved

If you’re not approved for a small-business loan, find out why and then work toward correcting the issues. For example, if your credit needs improving, consider working with a reputable credit counseling agency. If your loan package wasn’t completed correctly, consult with the SBA for help. The key is to avoid becoming discouraged. With time and effort, you have a good chance of being approved.

Up Next: The Top 10 Free Resources and Tools for Small-Business Owners