How to Apply for an SBA Loan: The 5 Steps You Need to Know

by Kieran Daly
February 14, 2023
How to Apply for an SBA Loan: The 5 Steps You Need to Know

If you want to start a new business or have a small business you want to expand, you’ll likely need some capital. While there are many loan options out there, sometimes you might find it difficult to obtain financing. This is where the U.S. Small Business Administration (SBA) might be able to help.

The SBA provides several resources for small business owners, including financing options. While the process can be difficult, an SBA loan is considered one of the best programs to help entrepreneurs thrive.  

Looking for a small business loan? Here is a detailed guide on how to apply for an SBA loan and the qualifications your small business will need.

What Is an SBA Loan?

The SBA is an independent agency of the federal government established in 1953 to help business owners connect with lenders and to assist them with all of their business needs. One way they do that is to offer small businesses and entrepreneurs an SBA loan.

An SBA loan is made through private financial institutions but is backed by the government agency. In other words, the SBA guarantees the loan will be paid back. With the aid of government backing, a lender is more likely to offer a loan to a small business that wouldn’t otherwise qualify for business financing. 

The SBA has several guidelines for lenders and a rather rigorous application process for borrowers. It can be a rather time-consuming process. However, an SBA loan can be a lifeline for businesses that need working capital. That, coupled with their competitive interest rates and low fees, can make the tedious process worth it.

How to Apply for an SBA Loan in 5 Steps

Wondering how to apply for an SBA loan? Here’s a detailed step-by-step list of what a small business owner needs to do to get a loan.

1. Figure Out if You Qualify

The SBA has strict eligibility requirements for any business applying for a loan. Ensure your business meets all the criteria, such as being a for-profit business and operating for a certain amount of time.

To qualify you’ll need to:

  • Be in operation for at least two years in the U.S.

  • Be a small business according to SBA size standards

  • Have tried to use alternative financing options before applying

  • Demonstrate the need for a loan

  • Have a feasible business plan

  • Have invested equity or time into the company or startup as the business owner

  • Have a minimum business credit score of 640

Some of the SBA loan requirements might differ for each type of loan, so check the different SBA loan options to determine which one works for your business needs. For example, you can’t use the SBA 504 loans for working capital or debt, while microloans can’t be used to purchase real estate or pay off any business debt.

2. Decide Which Type of SBA Loan to Apply For

Before applying for an SBA loan, you should figure out which one to apply for. The most common SBA loans are SBA 7(a) loans, 504 loans, and microloans. Most people think of the SBA 7(a) loan when they refer to SBA loans, as they are the agency’s primary loan program. 

The agency also facilitated the SBA disaster loan for businesses impacted by the pandemic, but that program ended in 2021.

Here is a quick breakdown of the different SBA loan programs you can apply for as a small business owner:

  • SBA 7(a) loans: The maximum loan amount with this type of SBA loan is $5 million. It can be used for several business purposes, including working capital, for purchasing assets, and refinancing debt. There are other types of loans under the SBA 7(a) loans programs, such as the SBA express loan, an accelerated loan program, and a working capital loan for businesses that need more money to generate export sales.

  • SBA 504 loans: The 504 loan is usually used for real estate and to expand or modernize a company, including purchasing or building new facilities or long-term machinery. This type of SBA loan is usually made through a Certified Development Company, a type of economic development nonprofit.

  • SBA microloans: A microloan is a loan of up to $50,000 for small businesses and some childcare nonprofit organizations. The average loan amount is $13,000. Microloans can be used for several financing options, such as buying supplies, equipment, and more.

3. Gather Your Documents

Once you’ve figured out which type of SBA loan to apply for, it's time to start preparing your dossier to send to potential lenders. You'll need to gather important documents, such as your business plan, personal financial statement, business balance sheet, personal and business tax returns, and credit history. 

You should also know how much funding you want to ask for and demonstrate how you will use the funds. You also need to be of good character and have the ability to pay back the loan amount. And of course, make sure you have any requested SBA forms filled out correctly.

A properly prepared SBA loan application with all the requested documents can increase your chances of getting accepted by both a lender and the SBA. The application requirements vary by the type of SBA loan you are applying for. An SBA 7 (a) loan application, for example, will ask for a personal history statement, any certificates or business licenses, a list of your business principles, an overview of your business history, and more.

4. Find an SBA Lender

Once you have your paperwork in order, it’s time to send it off to a potential lender. The SBA works with intermediary lenders, so your application needs to be approved by both the lender and the SBA.

Most SBA lenders are banks, but there are also other types of financial institutions that lend money, depending on the type of SBA loan you apply for. Knowing what type of loan you want beforehand can help you narrow down your search. Each lender may have different requirements in addition to the SBA loan application requirements. 

You can use the SBA’s lender match tool to find an institution that works for you.

5. Submit Your Application

Once you figure out who to apply with, you’ll need to submit your application to the lender and the SBA. Go over your application thoroughly to ensure you aren’t missing anything. Once the lender you want to work with decides if they want to make the loan, they will send it to the SBA.

The SBA will review your documents to decide whether they want to guarantee the loan terms. Once approved, you can start the underwriting process, which may mean putting up collateral or personal assets, getting a personal guarantee, and reviewing the repayment terms.

Expand Your Business With an SBA Loan

Applying for an SBA loan takes a lot of time but may offer more competitive rates than other loans. You may qualify for an SBA loan if you’ve exhausted all other financing options. Because of the number of steps involved, it can take weeks or sometimes months to get approved for an SBA loan.

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