Businesses – whether large or small – usually need external capital injection. These are funds that can be used for various needs, from purchasing inventory to expanding operations and everything in between. For small business owners, SBA loans offer a viable source of this type of financing.

In fact, the U.S. Small Business Administration (SBA) granted more than 61,000 loans to small business borrowers in 2021 alone¹. This amounted to $44.8 billion worth of loans. But while the administration has lots of funds to go around, the SBA loan application process is not exactly a walk in the park.

There are several organizations involved in the SBA loan program, including the federal government and private financial institutions. Plus, SBA loan amounts are usually large. These factors tend to make the process of applying for SBA loans a bit more complicated than is the case with other types of small business loans.

However, by understanding the steps, paperwork, eligibility requirements, and underwriting involved in SBA loan programs, you can increase your chances of getting approved for these small business loans. This article outlines everything that small business owners need to know when approaching lenders for SBA loans.

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Key takeaways

• An SBA loan is a loan that’s guaranteed by the U.S. Small Business Administration (SBA) and provided by private lenders.
• Some of the typical SBA loan eligibility requirements include a personal credit score of 690, business credit score of 155, annual revenue of $100,000, two years in business and at least 10% down payment.
• The most common types of SBA loans are SBA 7(a), SBA 504/CDC, SBA microloans, EIDL, CAPLines, and SBA Export Loans.
• Applying for SBA loans starts with finding a suitable lender, choosing a loan that meets your business needs, gathering all the required documentation, and finally submitting your loan application.

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What is an SBA loan?

An SBA loan is a small business loan that is backed by the U.S. Small Business Administration and granted by designated financial institutions – usually banks and credit unions. The SBA doesn’t actually create these loans, it simply guarantees them in part. The amount of federal guarantee varies depending on the type of SBA loan, but it’s generally up to 85% for loan amounts under $150,000 and 75% for amounts exceeding $150,000².

By backing these loans, the SBA reduces the amount of risk for lenders. This, in turn, makes it easier for the lenders to offer financing for covering small business needs. Whether it’s working capital, investment in real estate, or mitigation against disasters like the coronavirus pandemic, an SBA loan can be a lifesaver. More so to small business owners who can’t qualify for other types of business loans.

One of the biggest draws to federal-backed business financing is that you can qualify for a big loan amount. For example, SBA 7 and SBA 504 both offer up to $5 million for working capital and real estate purchases. The long repayment term of up to 10 years for working capital loans and 25 years for real estate loans makes SBA loans quite manageable for many borrowers.

Besides, they come with competitive interest rates that dip as low as 2.75%³. These low rates translate to lower monthly payments, which is good news for your cash flow. Plus, some SBA loan programs provide additional benefits like free counseling, reduced down payment, and continued support even after disbursement of loan proceeds. That’s to say, SBA loans generally offer unique benefits, especially to borrowers.

However, the long and tedious SBA loan application process is perhaps one of the downsides of this loan program. In addition to federal eligibility requirements, financial institutions often set their own lending standards as well. This tends to increase the paperwork and underwriting involved in SBA loan programs.

One way of simplifying the process is understanding the steps and requirements that SBA lenders typically expect.

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SBA loan requirements

The eligibility requirements of SBA loans vary depending on the lender as well as the loan program you’re applying for. For example, you can’t use SBA microloans to purchase real estate, and you can’t use the SBA 504 for working capital. Therefore, make sure to apply for the loan that matches your business needs.

Beyond that, the SBA has a set of requirements that borrowers must meet. These are standard, and every small business owner who is looking to qualify must satisfy them. Additionally, lenders who create SBA loans also have their own eligibility criteria. Knowing these loan requirements can help you determine whether or not you’re eligible for any particular SBA loan.

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Minimum eligibility requirements set by the SBA

• Your company must be a small business as defined by the Small Business Administration. This means it should be an independent business with fewer than 500 employees⁴. Annual revenue should be under $7.5 million for the past three years while net income should not exceed $5 million.
• It should be a for-profit business operating in an eligible industry⁵. Thus, nonprofit organizations are not eligible for traditional SBA loans like SBA 7 and SBA 504. However, the SBA does have some specific disaster loans and grants that are targeted for nonprofit organizations⁶.
• The business must operate in the U.S. or its territories. If it’s a startup, then it must plan to operate in the U.S. or its territories.
• You must have invested some of your own time and money into the business before applying for an SBA loan.
• Your business must be able to demonstrate a need for loan proceeds.
• You must have used and exhausted alternative financing options before seeking assistance from the SBA.
• You must not have current or previous delinquencies on any federal loans or federally assisted financing.
• No owner with 20% or more stake in the business can be currently a defendant, incarcerated, on parole or on probation in a criminal case.

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Typical minimum requirements set by SBA lenders

Although the SBA doesn’t set numerical minimums for loan underwriting, financial institutions do. These eligibility requirements differ from lender to lender. However, some common creditor expectations include:

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• Personal credit score: lenders generally require a good personal credit history. A score of 690 is typical, although some prefer 720 and above.
• Business credit score: just as you have your personal credit score, your business may have its own business credit score. SBA lenders typically use the FICO SBSS to qualify companies for these loans. Many of them prefer businesses with a score of 155 or higher⁷.
• Time in business: a minimum of two years in business is typical, but some lenders don’t mind extending SBA loans to startups.
• Annual revenue: strong financials make a solid case for your business. Many lenders require a minimum annual revenue of $100,000. Some may ask for cash flow projections, a clear business plan and your financial statements – including a balance sheet – in order to evaluate your ability to manage new business debt. The key here is to keep your debt service coverage ratio (DSCR) at 1.15 or higher.

• Down payment: you should be able to raise at least 10% down payment. Depending on your company’s credit profile, some lenders may ask for up to 30% down payment.

• Collateral: while you can’t be denied an SBA loan solely because of lack of collateral⁸, many lenders usually require that you obtain it anyway. In addition, you may be subjected to a blanket lien (also known as all business assets lien or ABA lien). This essentially means that your entire business acts as collateral for your SBA loan⁹. Make sure to thoroughly read the lender’s fine print before accepting their loan terms.

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How to apply for an SBA loan

While it may require some extensive paperwork, the process of applying for SBA loans doesn’t take many steps. You simply need to find a suitable lender, choose a loan type, gather your application documents and finally apply for the loan. Here’s a more detailed breakdown of each step.

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Step 1: Find a lender

To apply for an SBA loan, start by choosing a financial institution where you prefer to obtain the loan. Keep in mind that only SBA designated lenders offer SBA loans. Therefore, make sure that your lender of choice partners with the SBA for their loan programs.

If you already have a trusted bank or credit union for your business, you can check with them to see if they offer SBA loans. Otherwise, you can opt to use the SBA’s Lender Match. This free online tool connects SBA loan borrowers with SBA-approved financial institutions.

You will need to describe your business needs, after which Lender Match will generate a list of lenders who may want to offer SBA loans. compare their loan terms and interest rates, then choose one lender and apply.

If you’d much rather find a lender in person, then try contacting your local SBA district office. They may refer you to all the financial institutions that offer SBA loan programs.

Ideally, you want to go with an SBA lender who offers the lowest interest rate. That will reduce your monthly payments and have a lower impact on your business cash flow. While banks typically have low interest rates, they have very strict qualification requirements. Many require at least two years in business, a FICO score of 690 or higher, minimum annual revenue of $100,000 and a good DSCR.

If you can’t hit those marks, you can try applying for SBA loans from online lenders. These typically have relaxed lending terms, which makes them viable business financing options for borrowers with bad credit and less than two years in business. Besides, online lenders usually offer a streamlined SBA loan application process. For this reason, they are great creditors if you need financing in a hurry. The downside is that you’re likely to pay higher interest rates when you borrow from an online lender than from a traditional bank or credit union.

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Step 2: Choose a loan type

Although the SBA 7(a) is the most commonly known, there are several other types of SBA loans. Each loan is meant for a specific business purpose. For example, while the SBA 7 is ideal for working capital, the SBA 504 is designed for purchasing real estate and machinery. Again, understanding your business needs will help you choose the type of loan that’s most suitable. Below is a look at the various types of SBA loans:

• SBA 7 (a) loan

This is the SBA’s primary loan program, and by far the most popular. In 2021 alone, the SBA issued about 52,000 SBA 7 loans amounting to $36.5 billion¹. Part of the reason for this popularity is because you can use the loan proceeds for almost any business purpose, including startup and working capital.

SBA 7 (a) loan amounts range from $50,000 all through $5 million. Because of its sheer size, this loan is usually ideal for long-term financing. You can use it to start a new business, expand an existing business, for working capital or even purchasing commercial real estate.

If you use the SBA 7 for real estate, then you’ll get a repayment term of 25 years. On the other hand, if you use the loan proceeds for equipment, machinery or working capital, you may get a term of up to 10 years.

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• SBA 504/CDC

Ideal for acquiring fixed assets, the SBA 504 is a long-term financing that provides up to $5.5 million. You can use the loan proceeds to expand your business (like opening a new location or launching a new product), to purchase high-cost equipment and machinery, and to buy commercial real estate.

Whatever the case, the SBA 504 has a maturity period of 20 years for real estate uses and 10 years for equipment purchase. In addition to traditional banks and credit unions, you can apply for an SBA 504 through a Certified Development Company (CDC). A CDC is basically a company that partners with the SBA to regulate nonprofit organizations and promote economic development within communities¹⁰.

Because of this grassroot partnership, the SBA 504 is the second most used among all SBA loan programs. 9,600 of these loans were granted in 2021, accounting for $8.2 billion worth of financing¹.

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• SBA microloans

While the SBA 7 and SBA 504 offer larger loan amounts, the SBA microloan program provides smaller financing of up to $50,000. For many small business owners, this may be all they need to bridge a cash flow gap. But the microloan is not just for commercial borrowers; it’s also available for nonprofit childcare centers.

One advantage of getting an SBA microloan is that you can use the loan amount for almost any business purpose. That includes working capital and purchase of assets. This is why it’s up there with other popular loan options for businesses with smaller financial needs.

The SBA grants borrowers up to six years to repay the microloan. A total of 4,400 small businesses used this facility in 2021, bringing the SBA’s total microloan funding to $71.8 million.

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• SBA Economic Injury Disaster Loans (EIDL)

Along with the Paycheck Protection Program (PPP), the government created Economic Injury Disaster Loans (EIDL) to specifically help small businesses cover operating expenses during the COVID-19 pandemic. And although the SBA is no longer accepting new applications for the disaster loan, entrepreneurs who qualified the first time out can request for reconsideration, appeal or increment in loan amount¹¹.

A big selling point of Economic Injury Disaster Loans is their repayment terms. The SBA provides up to six months of working capital, which you have to repay over a period of 30 years. You can defer the first payment for up to one year. These terms make the disaster loans some of the best, particularly if your business is struggling to stay afloat during the coronavirus pandemic.

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• SBA CAPLines

The SBA CAPLine is a fixed or revolving line of credit that provides small business entrepreneurs with financing of up to $5 million. There are four different types of SBA CAPLines. The first is a contract loan, which you can use to cover the costs of contracts and subcontracts. Secondly, the SBA seasonal line of credit is a CAPLine loan that offers short-term financing for seasonal businesses. It’s particularly helpful during the low season.

Thirdly, the SBA offers a builder’s line of credit, which caters for construction costs. The final CAPLine is a working capital line of credit that provides small business owners with a short-term working capital loan.

Except for builder’s CAPLines which have a maturity of five years, all other SBA CAPLines have a repayment period of 10 years.

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• SBA export loans

If you’re in the export business, you may qualify for SBA export financing. There are two loan options in this program. The first is the SBA Export Working Capital loan which maxes out at $5 million. You can get it either as a one-off loan, or a revolving line of credit. Whatever the case, the loan proceeds are meant to fund export transactions, including processing of purchase orders to shipping fees and everything in between.

The second SBA export loan is the Export Express Loan. This one comes with a smaller loan amount of $500,000, which you can use to finance all the expenses of your export business. One big distinguishing factor of the SBA Export Express Loan is that lenders are completely free to set their own underwriting procedures and eligibility requirements. The SBA simply guarantees the loan but doesn’t involve itself that much in setting standards to borrowers. For this reason, you may find it easy to qualify, more so if you have a good relationship with the lender.

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Step 3: Gather your application documents

Once you’ve found an SBA lender and have identified a loan that meets your business needs, you can proceed to collect your application materials. SBA loans require comparatively more paperwork than traditional and alternative loans.

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The exact documentation to avail will vary between financial institutions and depending on the various types of SBA loans. Your lender will likely tell you the exact documents to present. However, you can generally expect the following information to be requested:

• Basic information. This includes business and personal information such as your name, address, company name, date of formation, number of employees and so on. Lenders typically use these details to determine if you and your business meet the basic eligibility requirements set by the SBA. You may also need to explain your personal background, including criminal records (if you have any).
• Loan request letter. This is a letter that expresses your formal interest in getting an SBA loan. Among other things, it generally describes your business needs, the loan amount you’re requesting for, your plans for the loan proceeds and how you plan to repay the loan.
• Resumes. While not all lenders request for resumes, some do. Those who ask for them usually want to see how industrious you and your team are when it comes to business experience.
• Business plan. Again, not all lenders will ask you to prepare a business plan. However, it’s always a good idea to prepare and submit one anyway. It will show the lender that your business is worthy of the SBA loan because it has a clear need and a solid growth plan. Make sure to capture highlights of your past, current and projected financials to show how your business is improving.
• Credit reports. SBA lenders prefer to work with creditworthy business owners who are less risky. That’s why many of them usually pull personal and business credit reports. Basically, your credit score is a reflection of your diligence in debt management. Therefore, try to access the report even before the lender runs their own check. If possible, build both your personal and business credit before applying for SBA loans. A personal credit score of 690 is typical, but aim for 720 to increase your chances of approval. As far as business credit score, a FICO SBSS of 155 will give you an edge.
• Tax returns. Your SBA loan lender may ask for your personal income tax as well as business tax returns. Both of these tax returns verify your personal income as well as your business revenue. The lender may use this information to determine whether you generate sufficient income to meet the monthly payments that come with a new loan.
• Financial statements. Apart from business tax returns, the lender may also use your company’s financial statements to verify income and annual revenue. The most common financial documents that SBA lenders typically ask for are balance sheet, statement of cash flow, profit and loss statement, business debt schedule and bank statements.
• Collateral. Some SBA lenders don’t require collateral, especially if you have a strong credit profile. However, others do ask for collateral. In some cases, you may be subjected to an all-business-assets (ABA) lien, which means that your entire business acts as collateral for the SBA loan. Whatever the case, it’s advisable that you do an independent appraisal of the asset(s) that you’re planning to present as security for the loan. Your lender may request for appraisal documentation, or they may run an appraisal of their own.
• Business documents. Some types of SBA loans require that you provide the lender with your company’s legal documents. These include business licenses, articles of incorporation, corporate bylaws, commercial leases, certificate of good standing and any important contracts that you may have.

The above documents generally provide the lender with more information about you and your business. Some lenders may ask for all of them (and more), while others might only ask for a few. Either way, you will want to closely liaise with the loan provider so that you promptly avail all the documents that they may need during the SBA loan application process.

If you are applying for the SBA 504, there’s a chance that your lender will further ask for proof that the real estate property you’re planning to buy is at least 51% owner-occupied. They may also require you to provide an environmental impact statement, property appraisal and evidence that your business meets job creation or public policy goals.

Finally, you will also likely fill SBA-specific forms when applying for any type of SBA loan. Some of the most common SBA forms include:

• SBA form 148 – Unconditional Guarantee
• SBA form 159 – Fee Disclosure and Compensation Agreement
• SBA form 413 – Personal Financial Statement
• SBA form 912 – Statement of Personal History
• SBA form 1919 – Borrower Information Form

Once you’ve collected all the documents and filled all the necessary forms, consider asking someone to look over them. This is particularly important for documents that are open to subjective interpretation – like your business plan. A second opinion, especially from a professional, can help you sound convincing enough to the lender.

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Step 4: Apply for the SBA loan

At this point, you can go ahead and actually apply for the SBA loan of your choice from your preferred lender. The exact process varies between financial institutions. For example, virtually all online lenders (like Fundbox) will let you complete the entire application process online.

On the other hand, brick-and-mortar lenders like banks and credit unions typically require in-person applications for SBA loans. Bank of America is a good example. While it accepts online applications for its other loan products, you must apply in person or via phone when it’s an SBA loan.

Consider contacting the lender beforehand to find out how to apply for an SBA loan at their lending institution. While at it, you can also ask them how long it takes for the loan proceeds to reach your business bank account. Some have a long turnaround time while others have a shorter one. But the entire process from start to funding generally takes between 60 and 90 days.