Small business owners are always looking for new and innovative ways to get their businesses off the ground. One option that is becoming increasingly popular is the use of SBA loans. However, many borrowers don’t know the requirements for obtaining an SBA loan. This article will discuss all of your requirements to meet to qualify for an SBA loan. We will also provide a few tips on how to increase your chances of being approved for a loan.
What is an SBA loan?
An SBA loan is a small business loan backed by the Small Business Administration. It is a small-business loan offered by banks and online lenders and partly guaranteed by the government.
However, the SBA isn’t doing the actual lending—they partially guarantee the loans. The SBA will guarantee up to 85% of the loan’s total amount, but an SBA-approved lender will be doing the financial lending. This SBA guarantee lowers the risk for traditional banks and alternative lenders to offer large loan amounts with low-interest rates.
What are the requirements for an SBA loan?
To qualify for an SBA loan, you must:
Be a for-profit business.
You have to make sure that your business is organized as a for-profit entity. This means that your business can be either a sole proprietorship, partnership, limited liability company (LLC), or corporation.
Have a credit score of 640 or higher.
Your personal and business credit scores are important factors that lenders will consider when determining whether or not to approve your loan. So, to increase your chances of getting approved, make sure to keep your personal and business credit score high.
Your business must have less than 500 employees.
The SBA has size standards that businesses must meet to be eligible for their loans. For example, the maximum number of employees your business can have for most industries is 500.
Your business must operate in the United States.
Your business must be based in and operating within the United States to qualify for an SBA loan. This includes companies located in Puerto Rico, Guam, and the U.S. Virgin Islands.
Be in business for at least two years.
Lenders will want to see that you have a history of running a successful business before they approve you for a loan. If you’ve been in business for at least two years, this will give you a better chance of getting approved.
Have annual revenues of $50,000 or more.
Your business must also generate a certain amount of revenue to qualify for an SBA loan. Lenders will typically want to see that your business has annual revenues of at least $50,000.
Show that you have tried to get financing from other sources.
Lenders will also want to see that you have tried to get financing from other sources before applying for an SBA loan. This shows that you are serious about your business and are willing to work hard to get the funding you need.
Demonstrate a need for the loan proceeds.
When you apply for an SBA loan, you must show your legitimate need for the loan proceeds. This means that you will need to provide documentation on how you plan to use the money.
Have a repayment plan.
Lenders will also want to see a solid repayment plan in place. This shows that you are confident in your ability to repay the loan and helps to reduce the risk for the lender.
As you can see, there are a few requirements that you need to meet to qualify for an SBA loan. But if you do qualify, it can be a great source of funding for your business. So make sure to check it out if you need a loan.
If you meet these requirements, you may be eligible for an SBA loan. To learn more about SBA loans and how they can benefit your business, contact us today. We’re here to help you find the right financing solution for your business needs.
What are the different types of SBA loans?
The SBA offers several different loan programs, each specific purpose and requirement. The most common types of SBA loans are:
- SBA 504 loans: used to purchase fixed assets, such as real estate or equipment, with a long-term repayment plan.
- SBA microloans: smaller loans, typically under $50,000, used for start-up costs or working capital.
- SBA disaster loans: low-interest loans available to businesses and homeowners in areas affected by declared disasters.
To learn more about each type of loan and see if you meet the requirements, visit the SBA website. You can also contact a Small Business Development Center (SBDC) near you for assistance.
How much money can you borrow through an SBA loan program?
The answer to this question depends on the specific loan program you are interested in. For example, the SBA 504 Loan Program allows for up to $20 million in loans, while the SBA Express Loan Program has a maximum loan limit of $350,000.
Your business can use an SBA 7(a) loan to cover various business expenses. For example, the 7(a) program can get you a working capital loan for uses like purchasing inventory or refinancing debt, or they can get you loans for significant fixed assets like real estate or equipment.
If you think an SBA loan might be right for your business, the first step is to contact an SBA-approved lender. They will help you determine if you meet the requirements and help you through the application process.
Are there any restrictions on what the money can be used for?
The SBA does not restrict how you can use the loan proceeds, but they do have guidelines on what types of expenses are considered allowable. Allowable expenses for small business loans include:
- Working capital.
- Inventory or business acquisition costs.
- Debt refinancing.
- Business expansion or new construction.
- Machinery or equipment purchases.
- Furniture or fixture purchases.
- Real estate purchase or improvement costs.
- Leasehold improvements.
If you’re unsure whether a particular expense is allowed, you can always reach out to your lender for clarification.
What’s the process for applying for an SBA loan?
The first step is to fill out an SBA loan application. You can find this online or at your local SBA office. Once you’ve submitted your application, a loan officer will review it and determine if you’re eligible for an SBA loan.
If you are eligible, the next step is to complete a formal loan application and submit it to the lender. The lender will then decide whether or not to approve your loan.
How long does it take to get approved?
Getting approved for an SBA loan can vary depending on a few factors. The most crucial factor is how prepared you are when you apply. Your application will likely be processed more quickly if you have all the required documentation.
Borrowing money from a bank, credit union, or online lender is much faster, and when you apply online, some lenders can approve your application in minutes.
Are there any fees associated with getting an SBA loan?
There are some fees associated with SBA loans, but they are generally much lower than the fees for other loans. The specific fees will depend on the type of loan you get and your creditworthiness.
Interest rates for SBA loans are generally lower than those for other loans, making them a good option for small businesses. However, the specific interest rate will depend on the type of loan you get and your creditworthiness.
Note that the APR on loan is different from the interest rate. The APR is a percentage that includes all loan fees in addition to the interest rate. As a result, APRs can vary substantially between SBA and non-SBA lenders. For example, an online lender that specializes in SBA loans may cap its APR around 10%, while major online small-business lenders that don’t offer SBA loans have loans with APRs as high as 99%.
What is the repayment period?
Typically, business debt schedules are broken down into monthly payments and show your interest and payment dates. Along with being an SBA loan requirement, creating a business debt schedule will be personally helpful as well.
A business loan from the SBA typically has a repayment period of five to seven years, but it can vary depending on the type of loan you get.
What are some other things I should know about SBA loans?
Here are a few other things to keep in mind when considering an SBA loan:
- You will likely need to provide collateral for the loan.
- Your personal credit score will be a factor in determining whether you qualify for the loan.
- You may be required to make a down payment.
- You will need to have a good business plan and financial statements to be eligible for the loan.
The bottom line
SBA loans are a good option for small businesses because they have low-interest rates and flexible repayment terms. However, there are some fees associated with these loans. Be
The repayment period for SBA loans can vary depending on the type of loan you get. For example, some loans have a repayment period of up to 25 years, while others have a shorter repayment period.
