Sign up for Funding Circle newsletter!
Get our latest news and information on business finance, management and growth.
Updated: December 3rd, 2020
If you’re looking for small business funding, then you’ve undoubtedly come across SBA loans. SBA loans are one of the most popular funding options currently available for small business owners. If you were wondering how to qualify for an SBA loan, this article will explain what they are and give you a step-by-step process for how to apply.
The term “SBA loan” is somewhat of a misnomer because the Small Business Administration (SBA) doesn’t do any lending. Instead, an SBA loan is a small business loan that’s partially guaranteed by the SBA.
If you qualify for an SBA loan, you can receive anywhere between $500 and $5.5 million to fund your business. The SBA backs up to 85% of small business loans for $150,000 or less, and 75% of loans higher than $150,000.
If, for some reason, you’re unable to repay the loan, the SBA covers the portion they guaranteed. This benefit eliminates most of the risk for the participating lenders issuing these loans.
Because the government backs SBA loans, the application process is notoriously tricky, and SBA loan requirements considered among the most strict. The application process can be lengthy and detailed, and you need to prepare for plenty of paperwork.
It’s still possible to qualify for an SBA loan in any case. You need to make sure you follow the correct procedure and have patience. Listed below are the five steps you’ll take to get an SBA loan.
SBA loans are highly competitive. As such, you need to meet the following SBA loan requirements:
The SBA offers multiple loan programs. The next step in qualifying for an SBA loan is deciding on the one that’s right for your business. The SBA does provide different programs; here is a quick overview:
Now that you know you meet the SBA loan requirements and you’ve chosen a program, it’s time to find an SBA lender. The lender will set the rates, credit requirements, and determine whether or not your business qualifies for a loan.
It’s crucial to find the right lender specifically for you and your business needs. Start researching banks, direct lenders, or loan brokers. Make sure you understand that lender’s small business loan terms before agreeing to anything.
It’s a good idea to gather your paperwork before you begin applying for the loan. The application process is extensive, so you want to make sure you have all your ducks in a row.
The following is a list of the documents you’ll need to have on hand when you apply to get an SBA loan:
Now you’re ready to take the final step. You know everything you need to know regarding how to qualify for an SBA loan, and now it’s time to fill out the application. The application itself will vary depending on the lender you choose. Several forms will also need to be completed, like a Personal Finance Statement, or an SBA 7(a) Borrower Information Form.
SBA loans are highly competitive and can be a challenge to get qualified. Additionally, SBA loan requirements are notoriously difficult to achieve. But if you can meet the criteria, they are worth the effort. Make sure you partner with a lender that is familiar with SBA lending and can walk you through the process.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.