How to Get an SBA Startup Loan
How to Get an SBA Startup Loan

Entrepreneurs hoping to secure seed funding with a SBA loan can turn to the following programs supported (and, in some cases, funded) by the US Small Business Administration: SBA microloans, Community Advantage loans, 504 loans, and 7(a) loans.

Startups are a risky bet for lenders — you don’t have a track record of success yet — and SBA loans are competitive. Targeting the right SBA loan program will improve your chances of success.

SBA 7(a) and 504 loan programs generally require good personal credit (a FICO score of 690 or higher), strong business finances, and at least two years in business.

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SBA microloans and Community Advantage loans, on the other hand, are designed for true startups. Both programs are available to new businesses and are aimed at business owners with bad credit (a FICO score of 629 or less) and low income.

Best SBA loans for startups

SBA microloans

Best for: start a business

Can be used for: Working capital, inventory, supplies, furniture, fixtures, machinery or equipment

Aimed specifically at startups, the SBA microloan program offers loans of up to $50,000 to help you start or grow your business. The maximum term of office is eight years.

The SBA microcredit program is administered by a network of community lenders, who can set their own rates and eligibility requirements. These requirements are less stringent than other SBA loans, however, and small business owners with poor credit or lower incomes may qualify.

SBA Community Advantage Loans

Best for: start a business

Can be used for: Normal business purposes, including inventory and working capital

SBA Community Advantage loans are available for startups in underserved communities. Borrowers have generally been in business for less than three years and are not eligible for financing elsewhere. Collateral and profits are not deciding factors for Community Advantage loans, making them a great option for new businesses.

You can borrow up to $250,000 and the loans mature after 10 years (working capital) or 25 years (fixed assets). SBA Community Advantage loans are offered by mission-driven community lenders.

SBA 7(a) Loans

How much: Up to $5 million

Best for: Grow your business

Can be used for: Working capital, equipment, supplies and real estate

the SBA 7(a) Loan Program is actually made up of several types of loans, each with its own conditions and limits. You can borrow up to $5 million with a standard 7(a) loan, for example, or up to $1 million with a SBA express loan.

SBA 7(a) loans are the most popular and competitive type of SBA loan. You generally need a personal credit score of at least 690 or must be able to show several years of annual income. Most 7(a) borrowers have been in business for at least two years.

SBA 504 Loans

How much: Up to $5 million

Best for: Grow your business

Can be used for: Real estate, machinery and other major business purchases or upgrades

Startups can use a SBA 504 loan to fund major equipment purchases or facility upgrades to “promote business growth and job creation”. You can borrow up to $5 million (some projects may qualify for up to $5.5 million) with a term of 10, 20, or 25 years, depending on the loan.

Small business owners must pay 10% of the loan (up to 20% in some cases), which is a significant hurdle for many startups to clear. Each SBA 504 loan is funded by a certified development company and a bank or credit union.

How to get an SBA loan for a startup

1. Calculate startup costs. You cannot request a business start-up loan until you know how much you need to borrow. Consider one-time costs, such as permits, licenses, and equipment purchases, as well as recurring expenses such as payroll, rent, and inventory for at least the first year. This will give you a realistic picture of how much money you need to start your business.

2. Write a business plan. A solid business plan shows lenders that you’ve thought about things like your target market, pricing structure, marketing costs, potential challenges, and industry competition. Include your start-up cost calculation and a detailed funding request, as well as projected income. The goal is to show lenders that your business will be a success, especially if you don’t have several years of profits to back you up.

3. Choose a loan and a lender. Determine which SBA start-up loan option is right for your business, then find a participating lender.

You can use SBAs Lender Match tool to find a bank, credit union or community lender that participates in the loan program you have chosen. Remember that the SBA guarantees the loan, but it is the lender who processes your application and ultimately decides whether or not to approve your loan.

4. Prepare your loan application and apply. The documents needed to complete your SBA startup loan application will depend on the loan program and the lender.

In addition to your business plan and loan application, you will likely need to provide the following documents:

  • Contracts, quotes or purchase agreements.

If your business is already operational, you will also need to provide financial information, including:

  • Balance sheet and income statement.

  • Operating licenses and permits.

  • List of current company assets.

The entire loan process, from application to funds in your bank account, can take 30 to 90 days, depending on the type of loan.

Frequently Asked Questions

Can startups get SBA loans?

Yes, startups can benefit from SBA loans. The SBA microloan program is designed for startups and start-ups, with startups receiving 30% of all SBA microloans issued in fiscal year 2020, according to the Congressional Research Service. Startups can qualify for other SBA loan programs, provided they have good personal credit or a few years of solid business income.

How to get an SBA loan for a new business?

First, identify the SBA loan program that best suits your business needs. Next, find an SBA-approved lender (you can use the SBA’s Lender Match tool). Finally, prepare all the necessary documents, including a detailed business plan, and apply for your SBA start-up loan.

Who is eligible for an SBA loan?

Most for-profit businesses that operate in the United States are eligible for an SBA loan, provided they meet the agency’s size standards. The SBA measures size based on company revenue, net worth, and number of employees relative to your industry.

Some SBA loans have stricter requirements than others. To qualify for an SBA 7(a) loan, for example, you generally need good personal credit (690 or more) and at least two years in business. SBA microloans and Community Advantage loans, on the other hand, are available to small business owners with no credit history.

Find and compare small business loans

If an SBA startup loan isn’t right for your business or you want to compare loan options, NerdWallet has a list of small business loans that are best for business owners. All of our recommendations are based on market scope and lender track record and business owner needs, as well as rates and other factors, so you can make the right financing decision.

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