How to Apply for a SBA Loan
Businesses need money to operate. When money is tight or its time to expand, companies may seek a loan to cover payroll, expand an office or invest in new inventory. One way the Small Business Administration (SBA) supports small businesses is through loan programs. If you're thinking of applying for a SBA loan, you should understand how their programs work and the requirements for qualifying for them.
How SBA Loans Work
The SBA is not a bank and does not directly lend money to businesses. When business owners apply for a SBA loan, they actually apply for a loan from an approved SBA lender. The SBA has an agreement with these lenders to pay back part of the loan if the borrower stops making payments.
This guarantee gives the lender an incentive to extend loans to companies that may not usually qualify for one. SBA-backed loans tend to have lower interest rates and higher loan amounts that appeal to borrowers. They also have strict requirements and an extensive application process.
SBA Loan Requirements
Applicants have to meet multiple requirements for a SBA loan. Businesses that qualify for SBA loan programs must meet the organization's definition of a small business. This definition varies by industry, but companies with up to 1500 employees or $38.5 million in annual revenue may qualify. Check directly with the SBA to find out the most current criteria.
The SBA only works with companies that operate for a profit within the United States or its territories. It requires business owners to personally invest money in the company and seek other forms of financing before applying for a SBA loan. These businesses must also meet the requirements of the lender they choose. For example, they may need to have an acceptable credit score and demonstrate the ability to pay back the loan.
Choose the Loan Program That Best Fits Your Needs
There are three types of SBA loan programs. The 7(a) loan program covers general purpose loans that companies can use for working capital, equipment purchases, debt refinance and business expansion. On the other hand, 504 loans are available for companies that want to purchase or renovate company-occupied commercial buildings. Microloans have caps of $50,000 and provide financing for capital, inventory and equipment.
Find a Lender
Since the SBA doesn’t lend money to borrowers, those seeking a loan have to find an approved lender. The SBA has a tool on its website to match borrowers with lenders. You can also speak to someone at a local SBA office or community groups like the Women's Business Center or Veterans Business Outreach Center. They are likely to direct you to lenders who can help.
Submit Loan Application
After you choose a lender, follow their instructions to submit an application and apply for a SBA loan. Gather all the necessary documents to support your loan application. A loan officer can guide you through this process, so be prepared to work with this person. As soon as the lender approves the loan, you can close it and wait for it to fund the loan.
SBA Disaster Assistance Loans
Homeowners and business owners who experience natural or manmade disasters can turn to FEMA for a SBA loan. These loans provide necessary funds to replace inventory, repair buildings and houses and replace damaged or destroyed personal property. Unlike the loan programs for small businesses, these loans get processed by the SBA. Applicants must prove they live in a federally declared disaster area and meet certain credit requirements.
To apply for disaster loans, applicants must first contact FEMA for assistance and file a claim with their insurance companies. They then complete an application through mail, the SBA website or at a local service center. The SBA approves close to half of the applications it receives for each declared disaster area. Loan terms vary based on the applicant's ability to get credit from other sources. The best interest rates go to those who have no other places to turn.