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Be Your Own Boss: How to Get an SBA Loan to Fund Your Startup

As an entrepreneur, you probably hear a lot about failure. You’ve probably heard that the majority of businesses fail, and you likely know that one of the main reasons they fail is a lack of cash flow.

It’s easy to get discouraged by information like this. Don’t let it stop you, though.

There are many ways to get around the problems that plague business owners, especially the problem of insufficient cash. One way to avoid this issue is to apply for an SBA (or Small Business Administration) loan.

If you’re not sure how to get an SBA loan, keep reading. Everything you need to know is explained down below.

What Is an SBA Loan?

An SBA loan is a type of small business loan guaranteed, in part, by the federal government.

The Small Business Administration does not actually loan you money to get your business up and running. It does, however, work with banks and credit unions throughout the country to guarantee a portion of the loan.

By doing this, the Small Business Administration helps to minimize the risk for the lending institution.

This, in turn, increases your likelihood of having your loan application approved since the lender knows that, if you default, they’ll still get at least a portion of their money back.

Benefits of an SBA Loan

There are lots of reasons why you might want to apply for an SBA loan. Some of the greatest benefits of these loans include the following:

Lower Interest Rates

The interest rates for SBA loans are quite a bit lower than the interest rates for other types of small business loans.

Because lenders consider them to be lower-risk loans, they’re more generous when it comes to setting interest rates. This is especially true if you have other things working in your favor, such as a high credit score.

More Available Capital

You can often get much more money with an SBA loan than you can with other small business loans, too.

As a result, there’s less of a chance that you’ll have to borrow more in the near future, and you’ll have an easier time getting your business afloat or taking care of issues that may arise after you open your doors.

Longer Repayment Terms

With many small business loans, you have to deal with relatively short (sometimes as little as five years) repayment terms. This can put a strain on your business and really eat into your ability to be profitable.

With SBA loans, you have much longer to repay your loans. This means you get to enjoy smaller monthly pains and less financial stress.

Lower Down Payment

Often, small business loans, including SBA loans, require a downpayment. With SBA loans, the minimum downpayment is quite a bit smaller. Even if you don’t have a ton of cash to spare, there’s still a better chance that you will qualify for your loan. 

Greater Flexibility

There are very few limits on how you spend the money you get from your SBA loan as well. You can use the money to buy land, buy inventory, update your store—the options are pretty much endless.

Access to More Resources

When you get an SBA loan, you also gain access to a lot of valuable resources from the SBA. The SBA has lots of free resources available that can teach you more about running a business and help you to increase your chances of being successful long-term.

How to Get an SBA Loan

SBA loans sound pretty great, don’t they? They can be very beneficial to new business owners who need a leg up. The problem, though, is that it can also be difficult to qualify for them.

The following tips will help you increase your chances of having your application approved and getting your hands on the money you need.

Make Sure You’re Eligible

Start by making sure you meet the minimum eligibility requirements. To qualify for an SBA loan, you have to be able to check the following boxes:

  • Have a credit score of at least 620 (although 680+ is preferable)
  • Have been in business for at least two years (start-ups can qualify, too, but it’s much harder)
  • Have at least $100,000 in annual revenue
  • Be able to put down a downpayment of at least 10 percent of the total loan amount
  • Be in good standing with no government debts
  • Be profitable

This last bullet point is not an absolute requirement. However, businesses that are profitable are much more likely to get funding than businesses that aren’t.

Find the Right Lender

Next, it’s time to do some research and find the right SBA lender in your area.

Reach out to your current lender or talk to your accountant to see if they have any lenders in mind who offer SBA loans. Bonsai Finance also recommends looking into online lenders, which sometimes offer better terms and interest rates.

Gather Documentation

There’s a lot of documentation required when you apply for an SBA loan. Some basic documents you’ll need to have handy include the following:

  • SBA Borrower’s forms
  • Driver’s license
  • A voided business check
  • Bank statements
  • Your business’s balance sheet
  • Your business’s profit & loss statements
  • Your business’s tax returns
  • Your personal tax returns
  • A copy of your business plan
  • A copy of your business’s debt schedule
  • A copy of your business lease

Your lender may also have additional documents that they want you to present before they’ll begin processing your loan application.

Prepare for the Post-Application Process

It takes several weeks for an SBA loan application to get approved. Within one or two weeks, though, you’ll receive notice of whether or not the SBA wants to move forward with your application.

If they do, you’ll receive a letter of intent. This letter will show how much money you qualify for and the rates and terms you’ll likely have to work with.

If you accept these terms, you’ll sign a copy of the letter and send it back to continue moving forward with the underwriting process.

Apply for a Loan Today

Now that you know more about what an SBA loan is and how to get an SBA loan, does it seem like a good option for you?

If you’re ready to move forward and apply for this type of loan, be sure to follow these guidelines. They’ll help you increase your chances of having your loan application approved.

Are you interested in learning about other types of business loans or funding options?

If so, there are lots of other finance-related articles on our site that can help you out. Check them out today for more advice.