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How to Get an SBA Loan for a New Business

Written by Banks Editorial Team

Updated April 16, 2024​

4 min. read​

As a small business owner, it’s important to know all the financial options available to you from the start. SBA (Small Business Administration) loans are a desirable option if you seek funding to start or expand your business. Here’s what you should know.

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What is an SBA loan?

Securing a loan for startup businesses is risky for lenders, which is why many small businesses face funding problems right from the start. SBA loans for new businesses are designed to provide money to companies while mitigating risk for financial institutions.

SBA loans are backed by the government but provided by local banks and other approved lenders. This means that lenders that might not have initially approved such loans are more apt to if there’s SBA involvement because the government is backing a major portion of it, making it less risky for them.

The Benefits of an SBA Loan

Securing an SBA loan to start a business comes with a myriad of advantages. Here are just a few.

Lower Interest Rates

Small Business Administration start-up loans typically come with lower interest rates than conventional ones. That’s because the SBA sets the rates for lenders, which keeps costs low. The interest rate is based on the daily prime rate, which is dependent upon Federal Reserve actions.

Flexible Payment

Another benefit of using SBA loans for startup businesses is its flexible payment options. Unlike conventional loans, SBA loans are more lenient and adjustable in their repayment alternatives giving newer businesses the time to increase their bottom line and consistently produce payments.

Longer Repayment Terms

Depending on the type of SBA loan, longer repayment terms are another reason they’re so attractive. For example, some loans, specifically commercial real estate, can carry a 25-year repayment term.

Easier to Qualify

Qualifying for an SBA loan is much easier than a conventional one if you’re a new business. But it’s still an arduous task. SBA loans come with a fair amount of paperwork, including an application that requires significant documentation regarding your finances.

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Types of SBA Loans for a New Business

Depending on your type of business, there’s probably an SBA loan for you. Here’s what’s available, along with a basic overview of each.

SBA 7(a) Loans

One of the most common loans, the SBA 7(a), is a flexible, low-interest payment loan. But, in addition, the sky’s the limit when you qualify for this funding. It can be used for:

  • Commercial real estate purchases
  • Buying equipment
  • Refinancing debt
  • Working capital

Similar to conventional loans, repayment occurs monthly, consisting of regular principal and interest payments. However, the upper limit for an SBA 7(a) loan is $5 million, making it very attractive for startup funding or an existing business.

One of the best general-purpose loans, candidates for the funding need a solid personal credit score and a larger down payment.

The SBA guarantees

  • 85% of a loan up to $150,000
  • 75% of a loan greater than $150,000

SBA Microloans

These loans are not guaranteed by the SBA and only appeal to a select group.

  • The maximum loan amount is $50,000.
  • Interest rates tend to be higher since it’s not backed by the SBA.
  • No downpayment is necessary, but collateral and a personal guarantee are required.
  • Perfect for sole proprietors and ambitious startups.

SBA Community Advantage Loans

This program is used to manage and meet the needs of small businesses in underserved markets, namely nonprofits. Offered by mission-based lenders, a working capital loan is used for businesses looking to secure up to $250,000 in financing.

SBA 504 Loans

These types of loans are threefold. First, the preferred lender funds only 50% of the total loan value, with no maximum limit. Second, another 40% is disbursed from a Certified Development Company (CDC), with the borrower contributing a 10% downpayment. Similar to an SBA 7(a) with its application requirements, there are several noticeable differences for businesses looking for an SBA 504 loan, including:

  • Net worth less than $15 million.
  • Average net income of less than $5 million during the last two years.
  • For-profit business operating in the U.S.

These loans are used to purchase fixed assets. Unlike general term loans, they aren’t used for working capital, purchasing inventory, or refinancing debt.

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SBA Express Loan

Need funding quickly? That’s what the SBA Express Loan program is all about. Approved or denied within 36 hours, the funding is available within 90 days. Small businesses can receive up to $350,000 in either a term loan or line of credit. In addition, 50% of the loan is guaranteed, making it an attractive option for those requiring fast cash.

How to Get an SBA Loan for a New Business

It’s easy to feel confused and overwhelmed when securing funding for a new business start-up. SBA loans are a great resource to help your business prosper, but where do you even start?

Understand Where You Stand

Knowing your company’s financial health is essential in securing funding. Having a solid business plan, along with a thorough analysis of your financial needs, will help aid in your success. Lenders are also interested in your credit history, cash flow, and the collateral you’re willing to put up to get the loan.

Find an SBA Loan Lender for New Business

After figuring out where you stand and what your financial picture looks like, the next step is searching for a preferred lender. The U.S. Small Business Administration makes it easy to find a lender that fits your needs in as little as two days.

Prepare Your SBA Application

To achieve the greatest chance of loan approval, it’s imperative to highlight the following information in your loan application.

  • Your business plan, including strong management experience, current activity and results, and your understanding of the marketplace.
  • How much money you need. How you plan to use it, and your efforts to repay it.
  • Also, be prepared to look into your credit history, personal and business financials, requests about collateral, equity considerations, and usual business documents (articles of incorporation, partnership agreements, etc.).
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Get Approved for Your SBA Loan

Approval for an SBA can take some time. Depending on the lender, it usually ranges anywhere from 30 days to a few months. However, as highlighted earlier, SBA Express loans are available, typically responding to loan applicants within 36 hours.

FAQs About SBA Loans for Small Businesses

Who Qualifies for SBA Loans?

Requirements for each SBA loan differ depending on which type is best for your business. However, it’s safe to assume all lenders will look at credit, cash flow, and income, collateral, current debt, and industry.
Various SBA loans are made available to make it easier for all types of businesses to receive aid. That’s why it’s important to research each one and find one best suited for your needs.

Can You Get an SBA Loan to Start a Business?

Yes! The point of the Small Business Administration start-up loan program is to help both new and existing businesses get the funds they need to help their businesses prosper.

Do New Businesses Qualify for SBA?

Not all businesses will receive funding, but many startups will benefit from SBA loans for new businesses. At the close of the 2020 fiscal year, 17% of new businesses qualified for the 7(a) loan, while 45% qualified for the Community Advantage loan.

Are SBA Loans Difficult to Get?

It isn’t always easy to qualify for an SBA loan. With an extensive application, some new startups find it hard to meet certain credit and income requirements.

What Businesses Are Not Eligible for SBA Loans?

Many businesses qualify for SBA 7(a) loans as long as they’re for-profit and operate in the U.S.
Industries that are ineligible include consumer and marketing companies, rare coin and stamp dealers, gambling organizations, religious institutions and government-owned organizations.

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