So, you’ve decided you want the holy grail of small business loans: an SBA loan. If you’ve considered this decision, chances are you’re well aware that the U.S. Small Business Administration sponsors several types of loans, all of which vary according to their sizes, terms, use cases, eligibility standards, and more. The government agency’s most common loan is the SBA 7(a) loan.
If this loan’s low interest rates, high capital amounts, and generous repayment terms seem too good to be true, it’s because they come with a caveat: The SBA application process is a long and rigorous one.
First, you’ll have to determine whether the SBA actually approves of how you plan to use your loan funds.
Although the agency allows borrowers to use 7(a) funds for most purposes—such as expanding, acquiring land, buying inventory, improving a site, or using as general working capital—you won’t be able to use the funds for things like paying delinquent taxes or for certain refinancing situations. This is not an exhaustive list, though, so be sure to check the official guidelines to make sure your intentions are eligible.
Because of all the required documentation, it can take time to put together your SBA loan application. Then, once it’s submitted, the underwriting and approval process can take up to a month or longer to complete. Some business owners just can’t wait that long for funds.
If you’re in a time crunch, go for an SBA Express loan, or look into other financing options such as lines of credit from online lenders.
If you’re not sure how much money you’ll actually use or just need some quick funds for a one-time emergency, then a long-term loan is likely not your best move. Look into obtaining a line of credit instead. That way, you only pay interest on the money you spend.
The minimum FICO SBSS score that the SBA will consider is 140 (recall that SBSS is out of 300). Our SBA experts say that 160+ is a good score, 180+ is great, and 200+ is excellent. If you don’t meet these requirements, try lowering your credit utilization for a month or two, and make sure you’re repaying both your personal and business loans in full and on time. This should help you make up the extra points.
The SBA expects to see at least two consecutive years of profitability and prefers a general upward trend. There are some exceptions, such as when a dip in profits is due to a big investment or expansion, but in general, the SBA needs evidence that borrowers are financially solvent enough to repay their debt.
If you meet all of the above requirements, then you’ll move on to actually filling out and submitting your documents. This is your fair warning that there are a lot of them, but they’re largely administrative documents that most business owners should have fairly easy access to.
The basics are your business and personal financial statements, tax returns from the last two years, and a business debt schedule. Personal financial statements must be submitted for anyone with 20% or more ownership in the company, and must be signed off by spouses.
Beyond those basics, be prepared to provide a business plan, and if you rent your business’s space, your landlord will have to sign off on a subordination agreement.
For an even more comprehensive look at the required documents, check out our list of essential SBA forms that every borrower should have prepared before they apply.
Once you’ve finally compiled all your documents, both your lender and the SBA will look at your application to determine if you qualify for funding. If you do, then they’ll also decide how much money they’re willing to extend you based on your financial statements. And after all that, you should be able to pull your funds and grow your business.
Want more clarity? Check out our visual roadmap to the SBA 7(a) loan: