How to get SBA loan for a Startup

SBA loans are one of the most competitive types of business funding. When you have a startup business, finding the right funding is essential. SBA loans may offer financing for your business.

To qualify for an SBA loan, you will need to meet a series of specific requirements. The process of getting SBA loan is hard for any business. The process can be even more complicated for a startup business. 

The SBA helps many types of businesses including startups to get small business loans. Having a solid business plan and a good credit score, can improve your chances of getting the funding you need for your startup business.

The SBA offers different loan programs and funding is not distributed directly through the SBA. The SBA has established several loan programs targeted at small businesses and startups.

The loans are given through intermediaries such as banks, private lenders, and even non-profit organizations. The SBA has outlined a set of standards for each loan program. The organization backs these loans, and the lenders assume less risk.

SBA loan standards keep interest rates low and terms flexible. The loans are designed to help businesses operate and grow. SBA loan programs are not free money, government grants, or no-interest loans. If you have trouble obtaining a business loan, try SBA-guaranteed loans.

The U.S. Small Business Administration (SBA) can simply guarantee a percentage of a loan made through a regular bank, credit union, or other lending institution.

You have to show a lender that you need the funds. Have a reasonable and sound business plan. When you meet all the requirements, the lender will process your loan, and give you the funding.  

What businesses qualify for an SBA loan?

Most for-profit businesses that operate in the U.S. are eligible for an SBA loan. The SBA measures loan amount based on business revenue, net worth and number of employees relative to the industry.

Some SBA loans have tough requirements than others. To qualify for an SBA 7(a) loan, you need to have a good personal credit of 690 or more, and have at least two years in business.

SBA microloans and community advantage loans are available to small-business owners with no credit history.

You need to be in business a few years to get approved for a business loan. The SBA microloans and community advantage loans programs are best suited for new businesses.

Both programs are available to startups. They cater to business owners with bad credit score of 629 or lower, and have low income. 


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SBA loan process – How to apply

Before applying for a loan for your business, you need to identify which SBA loan program best fits your business needs.

Search for an SBA-approved lender, prepare all necessary documents, and apply for your SBA loan. 

Calculate business costs

You need to know how much your startup business needs before you borrow funds. Include one-time costs such as business permits, licenses and equipment purchases.

Also include recurring expenses like payroll, rent and inventory for at least the first business year. 

This will give you a more realistic outlook of how much money you will need to get your startup business running. 

Check your credit

Credit scores and reports show your history of repaying your debts. Your personal credit score and report will be evaluated by a lender.

You want to have a credit score that is considered good or excellent before applying for SBA loans. 

Write a business plan

Having a solid business plan shows lenders you have a good plan with regards to your target market, pricing structure, marketing costs, potential challenges, and industry competition.

Include your startup cost calculations, a detailed funding request, and projected income. The goal is to show lenders your startup business will be a success. 


Choose an SBA approved lender

Choose the SBA loan that is best for your business. Then, find an SBA-approved lender that operates in your area and works with startups.

The SBA backs the loan, but it is the lender that processes your application and approves your loan.

Your lender will evaluate your personal credit, business plan, and ability to repay the loan.

When the SBA startup loan application process is completed and all paperwork has been submitted, you will simply need to wait for final approval.

Loan approval process can take weeks or even months. When approved, the lender will close your loan and give you the funding. 

Prepare your loan application

The documents needed to complete your SBA loan application depends on the loan program, and the lender. 

The lender will need the following documents:

  • Personal income tax returns for the last three years
  • Personal financial statement
  • Resumes for each principal of the business
  • Cash-flow projections for startups.
  • Business plans
  • List of collateral.
  • Your business certificate and licenses
  • Contracts, quotes or purchase agreements.
For an established business, you will need to provide:
  • Updated business tax returns.
  • Balance sheet and financial income statement.
  • Business licenses and permits.
  • List of current assets. 

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Because startups do not have a history, you can provide a solid business plan that includes details about the current status of your business, as well as future plans.

You will also need business projections of at least one year. You must also be prepared to prove that you have at least two years of experience in the industry.

The full loan process, from application to funding can take 30 to 90 days, depending on the type of SBA loan chosen.

Startups can qualify for SBA loan programs. Entrepreneurs need good personal credit, or a few years of solid business revenues to qualify for loans. 

The SBA microloan program is designed for startups and early-stage businesses.  


Types of SBA loans for startups


SBA microloans

These loans are targeted specifically to startups. The SBA microloan program provides loans of up to $50,000 to help you start or grow your business.

The maximum loan term length is 8 years. The loan program is administered by a network of community-based lenders. The lenders set their own rates and eligibility requirements.

Requirements for SBA microloans are less stringent than other SBA loans. Small-business owners with poor credit or lower incomes can still qualify.

You will need to be able to prove that you are a responsible borrower. You also need to have a great and solid business idea.

Having experience in the industry of your business and a vision for the future can increase your approval rates. 

SBA startup loan requirements will vary based on the community lender choose.

Eligibility: All startup businesses are eligible to apply. The maximum loan amount is $50,000, the average loan is approximately $10,000.

Microloan borrowers have to enroll in technical assistance classes administered by the micro-lender intermediaries.

Small businesses can receive up to $50,000 from a non-profit intermediary. Typical amount funded through the Microloan program is $13,500.

SBA microloans are available to startups provided that they are for-profit businesses and have a solid business plan. Interest rates vary by lender.

The loan intermediary can also charge fees such as packaging fees, collateral appraisals, closing fees, and more.

The SBA limits how the funds from microloans are used by the borrower. 

Loan disbursements can be used for working capital, inventory, supplies, furniture, fixtures, machinery, or equipment.

The loan can also be used as working capital. The SBA microloans are offered in amounts between $500 and $50,000, with interest rates ranging from 8% to 13%.

The SBA sets the maximum term on these loans at 6 years. If you have a new business with a low capital requirements, this type of SBA loan may be suited for your startup. 

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SBA community advantage loans

SBA community advantage loans are federally guaranteed term loans administered by community-based lenders who have a history of helping small businesses start in disenfranchised communities.

SBA community advantage loans are available to new businesses in underprivileged communities such as low income areas.

It is suited for startups and businesses that have been operating for 2 years or less, and have been disqualified from other loans.

You can borrow up to $250,000 with an SBA community advantage loan. The loan mature after 10 years or 25 years. 

SBA community advantage loans are offered by mission-focused, community-based lenders.

The funds from the SBA community advantage program can be used to purchase another business, finance equipment, and normal business purposes, including inventory and working capital.

The loans range in amounts from $50,000 to $250,000. Terms last from 7 years to 10 years, and interest rates range from 7% to 9%. 


SBA 7(a) loans

The SBA 7(a) loan program is made up of several loan types, each with its own terms and caps. You can borrow up to $5 million with a standard 7(a) loan.

You need to have a personal credit score of at least 690. You must also be able to show several years of annual revenue.

Most 7(a) borrowers have been in business for at least 2 years. The borrowers will have more flexibility in how they can use the funds. 

SBA 7(a) loans can be used for equipment or inventory financing, real estate property purchase, debt refinancing, renovations, business acquisitions, or other purposes.

Payment terms vary depending on how the loan proceeds are used and the borrower’s repayment ability. The maximum repayment term is 25 years for real estate purchases.

If the loan proceeds are used for equipment financing, inventory, or working capital, repayment terms are set for a maximum of 10 years.

Interest rates vary but remain very competitive. Borrowers pay a percentage of the loan amount for fees charged by the SBA and its lending partners.

A down payment may be required with the purchase of real estate or equipment financing. The loan has long repayment terms, low interest rates, and very flexible.

Potential borrowers can expect to wait a minimum of 30 to 90 days to get through the entire loan process from application to funding.

Interest rates will range from 8% to 13% depending on the lender and your credit profile. The SBA sets the maximum interest limits charged on the loan.

Eligibility: The SBA loan program is targeted at small companies with less than $7 million in tangible net worth, and less than $2.5 million in net income.  

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SBA 504 loans

Businesses can use an SBA 504 loan to fund large equipment purchases or to upgrade existing business facilities to promote business growth and job creation.

Small-business owners need to put up 10% to 20% of the loan as down payment. SBA 504 loan is funded through a certified development company, SBA approved bank, or credit union.

SBA 504/CDC loans are designed for the purchase of real estate, equipment, and other fixed assets. 

The loans are funded in part by SBA lending partners, certified development companies (CDCs), and by a down payment from the borrower.

Loans can range as high as $5.5 million with terms of up to 25 years. Interest rates range from 5% to 6%. The loans require at least a few years in business to qualify.

They are most suited for more-established startups looking to finance fixed asset acquisitions. 

This loan provides funding for the purchase or upgrade of commercial real estate, machinery and equipment financing, or refinancing debt related to business upgrading, or expansion of the business.

This loan program requires the borrower to work with two partners to finance 90% of the costs of the project.

A bank or another lender will loan a maximum of 50% toward the project cost. 

A certified development company will provide up to 40% of the cost of the project.

The borrower is responsible for paying the remaining 10% of the project cost. 

This loan program has fixed interest rates, longer terms, up to 90% financing, and is very competitive loan product.

This financing structure helps the primary lender to reduce its exposure by relying on the CDC and the SBA to shoulder much of the risk.

Eligibility: The 504 loan program is restricted to small businesses with less than $7 million in tangible net worth, and less than $2.5 million in net income. 

This program tends to exclude most service businesses that need to purchase land or equipment. Personal guarantees are also required for the loans. 


SBA Express Loans

SBA express loans offers benefits including low interest rates and long repayment terms. The express loan is a type of 7(a) loan.

Applicants for the SBA express loan can receive up to $350,000 through the program.

Loan approval decision from the SBA is guaranteed within 36 hours as opposed to the 5-10 days for a regular 7(a) loan.

The Express program only guarantees a maximum of 50% of the loan. Interest rates may be higher than the standard 7(a) loans.

The SBA express loan program is for lenders with a good SBA-lending track record. It is aimed at lending as much as $350,000 quickly to small businesses.  

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SBA 7(a) Loan Terms 

The SBA 7(a) loans are a great product for many small businesses. Before you sign for a SBA 7(a) loan, you need to know:

Loan amount. Loans of up to $5 million can be advanced.

Guarantee percentage. Loans under $150K are guaranteed by the SBA for up to 85%. You provide the extra 15%. 

Loans over $150K are only guaranteed for up to 75%, so you need to provide 25% down payment.

Interest rate. SBA loans are subject to SBA interest rate maximums and tied to the prime rate (LIBOR), or another optional peg rate. 

If a loan is under $25,000 and matures in under 7 years, you will pay base plus 4.25%. A $50,000 loan maturing in more than 7 years will attract base plus 2.75%. Interest rates can be fixed and variable.

Maturity term. Loan maturity rate for real estate loans are capped at 25 years. Equipment loans and loans for working capital or inventory are capped at maximum 10 years.

Fees. Loans may be subject to a guaranty and a servicing fee. Loans under $150,000 have no guaranty fee, loans between $150,000 and $700,000 will be subject to a 3% guaranty fee.

Loans greater than $700,000 will require a 3.5% fee. Any loan amounts greater than $1 million include an additional 0.25% guaranty fee for any amount over the $1 million.

All loans are charged an ongoing service fee of 0.520% of the outstanding amount for the life of the loan.

Prepayment penalties. Loans with a maturity of 15 years or more are subject to a prepayment penalty when the borrower prepays 25% or more of the loan within the first 3 years of loan disbursement. 

In the first year 5% of the prepayment amount, second 3%, and third year 1%. 


SBA startup loan requirements

Some of the SBA loan requirements you need to meet will vary based on the program and the lender. 

SBA loans for businesses have a lengthy application process, and funding can take from 60 to 90 days.

If approved for an SBA loan, you need to review the terms and conditions carefully before signing any agreement.

You may also need to consult with a business attorney before agreeing to the terms of the loan. 

Most businesses meet the SBA’s borrower requirements to qualify for a business loan.

However, to get a SBA loan for your new business, you will need to find an intermediary that works with your particular business in case it is a startup.

You will also need to have the right experience, credit score, and documentation in order to qualify for financing.

To qualify for an SBA loan as a startup, most lenders will require a good credit history. 

Your credit reports should reflect a good payment history, and not contain any recent bankruptcies, foreclosures, or tax liens.

To qualify for an SBA loan for a startup business, your startup must:

  • Be for-profit.
  • Do business in the United States.
  • Have an adequate amount of owner equity.
  • Have exhausted all other means of funding.
  • Demonstrate a reasonable need for requesting a loan. 


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Uses of SBA loans

SBA loans can be used for business undertakings such as:

  • Acquiring a business or franchise
  • Hiring new employees
  • Funding equipment purchases
  • Purchasing real estate or other fixed assets
  • Accessing working capital
  • Refinancing debts 


We can fund diverse projects such as;

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Residential and housing developments financing

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