How to Get SBA Startup Loan: Step by Step Guide

If you are planning to venture into business and you need financial help, then it is time to consider a business loan. This is why the SBA Startup loan is made available for every citizen in the United States to finance their business from the scratch until the business is established.

The United States Small Business Administration SBA offers several kinds of loans to entrepreneurs who are in need of startup funds. The types of loans include 7(a) loans, 504 loans, SBA microloans, and Community Advantage loans. However, the types of loan program you apply for determines the amount you get and in some cases you can get up to $5 million. Entrepreneurs who apply for SBA startup loan can get easily access funds especially those who find it difficult to qualify for other business loans. However, the SBA loan requirements may be the reason why some borrowers may not get. This is because the application procedures and eligibility requirements made by the SBA individual lenders can be challenging sometimes.

SBA loan has always been known for its competition and high demand but choosing the right SBA loan program gives you a better chance of qualifying and even getting approved. Let’s quickly dive into how you can apply and get the best SBA loans for startups.

Step by Step Guide on How to Get an SBA Startup Loan

Calculate Startup Costs:  

Before you consider applying for a SBA startup business loan, it is very important you know the total amount of money that will be enough to solve all the needs of the business. This will give you the clear picture of the total amount needed for your business. In your consideration, the first thing should be the startup costs and recurring expenses. The startup cost includes equipment purchases, licenses and company registration, and permits. While the recurring expenses entails office space rent, employees’ payroll, and other listed expenses enough to cater for the business at least for a year. 

Check if you Qualify using SBA loan requirements

To become eligible for any SBA loan program is determined by the type of loan you applying for and the individual lender. But on the contrary, there are some general requirements every business must meet to become eligible for SBA startup loan. For those who want to become eligible for SBA 7(a) program, your business must;

  • Must operate in the United States and the main goal must be for profit
  • Borrower must show interest in the SBA loan funds
  • Have a standard set by SBA for small business
  • Borrower must have other sources of income
  • Have reasonable equity
  • Make sure you are not owing any debt or delinquencies to the U.S. government
  • Have reasonable invested equity  
  • Use the revenue gotten from the loan for an acceptable business purpose

Write a Business Plan

One of the easiest ways to convince an SBA lender to become eligible for your startup loans is to prepare an excellent business plan. The business plan will show how you the lender the structure of your price, business challenges and competition and how you intend to overcome it, how the business will generate its money, target market, income needed to complete the project, and marketing costs. This is to show the lender the likely success of your business in the future which may however make you eligible.

Other features of the business plan should include the details of what the company does, company’s description and product and services description, how company intends to pay future and current debt, and the management structure.  

Choose an SBA Loan Program

For startup business, SBA offers several types of loans for startups depending on the one that meets your needs. Keep in mind that not all SBA loans are meant for startups. This is why it is best to check the loan that best suits your business.

SBA Microloan

If you are starting a business and you are not even sure of any money at all, then this loan is for you. SBA Microloan program offers business owners who are newly starting their business up to $50,000 and some can even get as low as $13,000 on the average. This loan type comes with repayment terms of six years to eight years and the interest rates ranges from 8% to 13%.  This loan can be used for purchase of machines and equipments, serves as working capital, furniture purchase, supplies and lots more.

SBA Mircoloan is open to borrowers with low stellar credit and the eligible requirements are less strict when compared to other SBA loan programs.

SBA Community Advantage Loans

SBA community Advantage loans offers loans to neglected or underprivileged communities. This loan is issued to entrepreneurs who want to borrow money but have been in business for less than three years and have difficulty getting funds.  Borrowers can get up to $250,000 and the loans come with 75% to 85% guarantee from SBA. Although, the interest rates can be between 7% and 9% and it is imposed by SBA. The repayment term is between 10 years and 25 years.

SBA 7(a) Loans

SBA 7(a) loan program offers loans to borrowers who are interested in growing their business. This loan amount ranges from $350,000 up to $5million. Borrowers who have qualified for SBA 7(a) loans can also apply for SBA Express loan. The type of SBA 7(a) loan you apply for and your individual lender determine your interest rates but the interest rate cannot exceed the maximum standard set by the SBA.

To qualify for SBA 7(a) loan, you will need to have a credit score of at least 690 and you must be able to show proofs of your business revenue for years at least for two years. SBA 7(a) are usually competitive.   

SBA 504 Loans

SBA 504 loan program also offers loans to borrowers who want to grow their business after some years of establishment. Borrowers who become eligible for this loan type can get up to $5 million or even up to $5.5 million and it comes with a repayment term of 10, 20, 25 years depending on the loan with 3% interest rate of the loan amount. SBA 504 loan is funded by private lenders which include Certified Development Company (CDC) and a bank or credit union.

Compare Individual Lenders

SBA loans are issued by private lenders which include CDC, bank, credit union and other financial institutions. Before you apply for any SBA loan, it is important you make proper findings about any individual lender especially their application procedures and other eligibility requirement. To choose the right lender with flexible requirements, you can make use of the loan Lender Match feature on the SBA website. Keep in mind that in choosing your lender, the below factors are meant to be put into consideration.

  • SBA loan offerings
  • Repayment terms
  • Prepayment penalties and other fees
  • Available amounts of loan
  • Interest rates
  • SBA Preferred Lender status
  • Minimum credit score and other qualification requirements
  • Application process
  • Loan funding speed

Prepare your loan application and Apply

If you have chosen your lender after thorough research, get to know more about the application procedures and other requirements needed for the application. Lenders have different application requirement but you will need some major documents apart from your business plan for your loan application.

  • Business overview and history
  • Personal and business tax returns for the past two years
  • Copies of business licenses and certificates
  • Current and projected financials for one to three years
  • Profit and loss statement and balance sheet
  • Loan application history
  • A list of collateral
  • Purchase agreement, quotes and contracts

If your business has already started operation, you will need to provide the following business financials.

  • List of current business assets
  • Business licenses and permits.
  • Business tax returns.
  • Balance sheet and income statement.

Once you provide the information and submit your application, the lender will submit all the documents to the SBA for review. This usually takes 30 to 90 days for your application qualification. Once you qualify and get approved, the lender will close the loan and send the funds to your registered bank account on the application.

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