Are SBA Loans Hard to Get?

By Kieran Daly, 18 January, 2023

Are SBA Loans Hard to Get?

As a small business owner, you know that there can be circumstances where you need a little extra capital to get you through a difficult season or an expansion process. If you’ve looked into small business loans for that extra capital, then you have likely discovered a Small Business Administration(SBA) loan that might work for you.

An SBA loan is one offered through an SBA-approved lender that is backed by the U.S. government. Because they are backed, you may find acquiring one of these loans easier compared to a commercial loan. With that being said, the SBA approval processes can take up to two or three months, which leaves many small business owners to question whether applying now is really worth it. Understanding the ins and outs of SBA loan requirements can help you make an informed decision and determine what is really in the best course of action for your business. 

What Disqualifies You From Getting an SBA Loan?

The two main disqualifications of all SBA loans are:

  • Your business is not a for-profit organization

  • You do not conduct business in the U.S.

Other disqualifications will vary depending on the type of SBA loan you apply for. The SBA offers three types with the following requirements:

  • 7(a) loan

    • You own a small business based on the SBA’s Size Standards.

    • You have not fallen behind on debt repayments you owe to the U.S. government.

    • You have invested your own money in the business before applying for an SBA loan.

    • You prove that you need the loan.

    • You will use the loan for business purposes only.

  • 504 loan

    • You own a small business based on the SBA’s Size Standards.

    • Your tangible net worth (calculated by subtracting your liabilities and intangible assets from your assets) is less than $15 million.

    • Your average net income after federal taxes is less than $5 million for the two years before you apply for this loan.

    • You have management experience.

    • You have a sound business plan.

    • You have proven that you can repay the loan.

  • Microloan

    • Requirements vary from lender to lender, but most will need some kind of collateral and the business owner’s personal guarantee.

If you do not meet these requirements set by the SBA, then you are disqualified from getting an SBA loan. Other requirements, such as credit score and down payment amount, will vary depending on which lender you choose to take the loan from.

What Credit Score Do You Need for an SBA Loan?

While the credit score you need to get an SBA loan will vary from lender to lender. However, that score can be lower than required for non-SBA loans because SBA loans are backed by the U.S. government. That means the government will cover a guaranteed amount for you if you can’t pay your loan back to the lender. Because you have that backing, you pose less risk to lenders. That’s not to say that you don’t have to pay that amount back. It just means once you can pay off that guaranteed amount, you’ll give it to the SBA as opposed to the lender.

Can I Get a Business Loan if I Just Started My Business?

Whether you can get a loan for your new business depends on the type of SBA loan you apply for. If you want a 7(a) or 504 loan, you typically need to be in business for two years first. You usually can get an SBA microloan with a new business, however, as they are designed for start-ups and expansions.

Can I Get an SBA Loan With No Money?

It is very difficult, if not impossible, to get an SBA loan with no money. That’s because both the SBA and lender want to ensure that you are invested in your business and that you are or will be able to pay back the loan. For the SBA 7(a) loan, for example, you have to apply your own assets towards your business before applying for a loan. Most approved SBA lenders will also require a down payment of 10-30% the amount of the loan.

What Percentage of SBA Loans Get Approved?

The SBA loan approval rate will vary based on the type of lender. For example, if you choose to get an SBA loan through a small lender, you can expect an approval rate of 49%. Large institutions, on the other hand, only approve about 25% of SBA loans.

To improve your chances of approval, make sure to:

  • Boost both your business and personal credit score.

  • Pay off any debts you can.

  • Avoid taking out any additional loans around the same time.

  • Build up your business’s profitability.

Also, note that both the lender and the SBA may review your SBA loan application. Although this may not make it more difficult to receive an SBA loan, it can certainly lengthen the approval process to two or three months. When you need working capital immediately, an SBA loan may not meet your needs in time. In those situations, you can rely on alternative lenders like Backd.

Receive Working Capital Quickly Through Backd

With Backd, you can receive anywhere between $25K-$2M in working capital just 24 hours after applying. The application process itself is also quick and easy, taking three minutes or less and having no impact on your credit score. The only requirements are that you have:

  • Been in business for one year

  • $50K minimum in revenue per month

  • A business bank account

  • A business based in the U.S.

Ready to receive working capital with less hassle? Apply for it here.