How To Get An SBA Startup Loan

How To Get An SBA Startup Loan

The United States Small Business Administration – or SBA loans for businesses that are just starting out can assist entrepreneurs in getting the capital they require to get their venture up and running. The amount available is dependent on the loan program but a few range from 5 million dollars. They may also be more affordable to customers who have difficulty qualifying for other financing options for business.

How To Get An SBA Startup Loan

The process of applying for an SBA loan may be a daunting task due to the requirements for eligibility and the application process which are set by each different SBA lender. Follow these steps to obtain an SBA startup loan.

1. Calculate Your Startup Costs

Before you apply for an SBA startup loan, consider the requirements of your business. Before you do that, think about one-time startup costs as well as regular costs. These could include anything from leasing office space to purchasing equipment and paying the cost of payroll for the first employees. Every SBA loan program has different loan minimum and maximum amounts, so be sure to consider your borrowing requirements prior to choosing the type of loan you wish you’d like to apply for.

Also read: How to Choose a Name for Your Startup Business

2. Check Your Eligibility

Specific eligibility requirements differ by SBA loan type as well as by the individual lender. However, there are a few general requirements that businesses must satisfy to be eligible for an SBA startup loan. To be eligible for loans through the program of SBA 7(a) program the business must meet:

  • Profitably operate in the U.S. or its territories
  • Small businesses are small-sized enterprises as per SBA guidelines
  • Prove that you are in need of the money to be borrowed.
  • Have an adequate amount of equity
  • Have you already made use of alternative financial sources, such as personal assets
  • Utilize the proceeds of the loan for an appropriate business use
  • Have no outstanding obligations with the government of the U.S. government

3. Create A Business Plan

Startups do not have extensive financial records like established businesses. Because of this, it is harder to get an SBA loan when you are a startup rather than an established small business. Businesses can increase their chances of approval by creating an extensive business plan that clearly demonstrates how their business can earn profits and what timeframe it will take. This shows lenders that the company can pay for its future and current obligations, which reduces the chance of a loan being made to the lender.

Business plans differ by industry but they should contain an executive summary of the work the business does and how it is likely to succeed. The plan should also include a description of the company and a market analysis that includes market trends, the company’s organizational and legal structure, as well as a brief description of the products or services.

4. Select a Type of Loan

The SBA offers business owners a range of loan options to satisfy the various needs of their borrowing. However that not all loans are suitable for businesses that are just starting out. You should consider one of these loan kinds if you require additional cash to get your venture on the right track.

SBA Microloans

The SBA Microloan program allows for smaller amounts of loans to assist businesses in starting or growing their operations. Loan amounts are up to $50,000, with a median loan of $13,000. The terms for repayment can be as long as six years, and interest rates vary between 8% and 13 percent. As with similar SBA loans, the funds are available for use in a wide range of business needs, but can not be used to pay off existing debts or buy real property.

SBA Community Advantage Program

The SBA’s Community Advantage Program aims to provide business loans to disadvantaged business communities, including women, minorities, and veterans. The loans are from $250,000 to $500,000, with 75%-85 percent of the loan secured through the SBA. The SBA also has a minimum interest charge of 6% plus prime and this will result in rates ranging between 7 – 9%. Community Advantage loans are able to be utilized for a variety of business needs however, they are not offered as a line of credit.

SBA 7(a) Loans

SBA 7(a) loan provides several options, ranging from low-cost loans that max out at $350,000 and typical 7(a) loans that go up 5 million. The borrowers who are eligible can also apply to get the SBA Express loans which offer the option of a speedier review time–just 36 hours rather than the 5-10 business days needed for other alternatives. The interest rates are different based on the loan type and lender but are not able to exceed the maximum amount set in the SBA.

SBA 504 Loans

The 504 loan program offers the most qualified borrowers access to $5 million of financing to purchase large fixed assets. The average interest rate is 3 percent of the loan, with a minimum down payment of 10 percent and 30%. The repayment terms are offered for 10-20 or even 25 years.

In order to be eligible, purchases must help in employment creation and the growth of the company. The business must also be operating with a profit within the U.S., have a net worth of less than $15 million, and earn an average net profit of $5 million, after federal income tax over the past two years.

Also read: What is Loan Management System: A Complete Guide

5. Research and Compare Lenders

The SBA provides up to an amount of a certain percentage of every SBA loan, however, loans are granted by private lenders. The borrower is required to make an application to get the SBA loan through a bank that has been approved and meets the specific lender’s requirements for credit and application. To make it easier for borrowers to pick a lender, SBA gives small business owners with the Lender Match platform.

Take note that not all lenders approved by the SBA will support every loan program. Find a lender that has the program most compatible with your needs, by taking into consideration these aspects:

  • SBA loan offers
  • The number of available loans
  • Interest rates
  • Repayment conditions
  • Other fees and penalties for prepayment
  • Minimum credit score as well as other conditions
  • The application process
  • Speed of loan funding
  • SBA Preferred Lender status

6. Make and Submitting Your Application

When you have selected a lender, be familiar with the procedure for applying and the conditions. Get organized with the documentation needed in advance to simplify the application process and approval. Each lender has its own specifications for applicants, but there are certain items that are required by the majority of lenders. Alongside the business plan, you must prepare the following documents to accompany your loan application

  • Copies of business licenses as well as certificates
  • Overview of the business and its history
  • Tax returns for business and personal tax returns for the last two years
  • The projected and current financials are for up to three years
  • Statement of Profit and Loss and balance sheet
  • Loan application history

When you submit an application to the bank, it will submit its application to SBA to be reviewed by the SBA. In general, the process of qualifying takes between 30 and 90 days, however, SBA Express loans are evaluated within 24 to 36 hours following acceptance from the SBA. After approval, the lender will then close the loan and transfer money to the bank account specified during the process of applying.

Written by
Aiden Nathan

Aiden Nathan is vice growth manager of The Tech Trend. He is passionate about the applying cutting edge technology to operate the built environment more sustainably.

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