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Updated July 22, 2024 Reviewed by Reviewed by Robert C. KellyRobert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.
If you’re exploring funding options for your small business, you can learn how to apply for an SBA loan. Rates and terms on SBA loans tend to be more favorable for borrowers than private business loans, and different types of SBA loans are designed to meet different business needs.
However, the application process is extensive, and can vary by lender. Applying for an SBA loan will require you to share documentation about your business finances and goals. If you can get through the tedious application process, an SBA loan can provide the funds to help you make improvements or scale your business.
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SBA loans are backed by the Small Business Administration (SBA), but facilitated through private lenders. Therefore, the process for applying can vary slightly depending on which financial institution you work with. In general, you can expect that the process of starting to apply will include:
If you’re considering applying for an SBA loan, you’ll need to identify your business goals, understand your finances and know how you’ll use the funds (and pay them back). You’ll also want to understand your credit status.
As part of the application process, SBA lenders will expect to see documentation or ask questions about all of those components. Some of the key documents you should expect to provide (for the 7(a) loan in particular) include:
If you are seeking a loan to buy an existing business, you may need:
Requirements for the 504 loan offered through Certified Development Companies (CDCs) and microloans offered by nonprofit, community-based organizations will vary by provider.
SBA loans are available to cover most business needs, from financing long-term fixed assets to getting a business loan that provides operating capital. Once you fill out the SBA’s brief questionnaire, it should match you with one of the three main types of SBA loans:
Use the SBA Lender Match tool to locate potential SBA-approved lenders near you. You’ll be asked to fill out a brief questionnaire and provide your ZIP code. You should expect an email with a list of potential lenders within two days.
About 800 financial institutions across the 50 states and U.S. territories are SBA-approved, so there will likely be options in your area.
When you're applying for business loans, shop around so you can get the best interest rates and the best match for your needs. Ask questions, get quotes, and compare loan terms and offers.
Once you decide to move forward, your SBA lender will explain exactly what it needs from you. The process may vary by institution, loan type, and loan amount, but you should expect to provide a good amount of documentation and answer questions about your business.
| Lender | Average 7(a) Loan Amount | Number of 7(a) Loans in 2022 | Maximum Repayment Terms |
|---|---|---|---|
| Huntington Bank | $175,818 | 5,675 | Not disclosed |
| Live Oak Bank | $1,466,291 | 1,157 | 25 years |
| Wells Fargo | $204,822 | 1,933 | 25 years |
| Funding Circle | Not disclosed | Not disclosed | 20 years |
| TD Bank | $116,356 | 2,093 | 25 years |
The application process may vary slightly depending on the type of SBA loan you are applying for. Here are more details about the process for applying for the three main types of SBA loans.
The most common type of SBA loan, 7(a) loans can be up to $5 million and can be used for a variety of reasons including to refinance business debt, for short- or long-term working capital, to purchase equipment or furnishings, and more. Your lender can help you decide which type of 7(a) loan best matches your needs.
The main qualifications for an SBA 7(a) loan are that you have a for-profit small business, you can explain how you plan to use the loan, you do not have any debt delinquencies with the U.S. government, and you can demonstrate creditworthiness and ability to repay.
Expect to provide a slew of financial documents to the lender during the application process.
A 504 loan is for long-term, fixed-rate financing up to $5.5 million to purchase assets. To qualify, your business must meet the size standards, have a tangible net worth of less than $15 million, and an average net income of less than $5 million for the last two years. You’ll also be evaluated on your credit history, expertise, business plan, and ability to pay back the loan.
Because 504 loans are provided by Certified Development Companies (CDCs), the application process will be unique to whichever CDC you work with.
The SBA’s microloan is designed for startups looking for smaller loans—up to $50,000. Individual requirements will vary. To qualify, you’ll have to work with an SBA-approved intermediary in your area. These lenders determine the credit qualifications and overall terms of the loan.
In general, you can expect that you’ll have to put up collateral and a personal guarantee as part of the loan agreement.
A personal guarantee is a promise that you’ll repay the business loan from your personal funds if the business is unable to fulfill its debt obligations.
If you don’t think you’ll qualify for an SBA loan or if you want to explore other financing options for your small business, here are some other opportunities for business financing.
With an SBA-approved lender that offers an online application, you start the application process on its website. In addition to answering questions about your business and why you need the loan, you will be asked to scan and upload digital versions of your documents. You may also be able to e-sign parts of the application.
SBA loans do have an extensive application process with a lot of requirements. You’ll need to have good credit, solid business financials, and a track record of business history. Plus, some aspects of the application are more subjective, such as the lender evaluating your business plan and how you plan to use the loan amount. Around 62,000 SBA loans were given in 2022.
Certain types of businesses are not eligible for an SBA loan, including firms involved in lending activities, gambling establishments, and charitable and religious organizations. In addition, not meeting the eligibility requirements will disqualify you from an SBA loan, such as not being a for-profit, U.S.-based business or not meeting the size definition of “small business.” Lastly, you might be disqualified if you don’t meet the lender’s standards for borrowing as it relates to your credit, business financials, or other factors.
In general, when applying for loans in smaller amounts, the qualifications will be less stringent since there is less risk to the lender. For example, a microloan under $50,000, which is offered via nonprofit organizations, will most likely be easier to get than a $3 million SBA loan.
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