How SBA loans work: the basic path

An SBA loan is not money the Small Business Administration hands you directly. Instead, the SBA guarantees a portion of a loan that a bank or other lender makes to your business. You borrow from the lender, the SBA backs part of it, and the lender takes on less risk because of that may provide. This is why SBA loans often have lower interest rates and longer repayment terms than conventional business loans.

The process starts with you finding a lender — usually a bank, credit union, or non-bank lender — that offers SBA loans. You submit an process to that lender, not to the SBA. The lender reviews your business financials, credit history, and how you plan to use the money. If the lender approves you, they send the paperwork to the SBA for the may provide. Once the SBA approves the may provide, the lender funds the loan.

The whole timeline typically runs 6 to 8 weeks from process to funding, though it can be faster or slower depending on how complete your paperwork is and how busy the lender and SBA are at that moment.

Key Takeaways

  • You explore to a bank or lender, not directly to the SBA, and the lender submits the may provide request to the SBA after reviewing your process.
  • You will need business tax returns, personal tax returns, a business plan or description of how you will use the loan, and details about your business ownership and finances.
  • The SBA has different loan programs — 7(a) loans are the most common, while 504 loans are for real estate and equipment, and microloans are for smaller amounts.
  • Your personal credit score, business credit history, and ability to repay all factor into whether a lender will approve you.
  • If a bank declines you, you can explore to other lenders or explore SBA microloan programs, which have different requirements.

What documents you need before you start

Lenders ask for the same core set of documents regardless of which SBA program you are pursuing. Have these ready before you contact a lender: your personal tax returns for the past two years, your business tax returns for the past two years (if your business has been operating that long), a current business balance sheet, a profit-and-loss statement for the current year, and a personal financial statement that lists your assets and debts.

You will also need to describe how you plan to use the loan money. This can be a formal business plan or a simpler written explanation — the lender wants to know whether you are buying equipment, paying off existing debt, expanding a location, or funding working capital. If you are buying real estate or equipment, bring documentation of what you are buying and its cost.

Bring proof of your business ownership: articles of incorporation, a partnership agreement, or sole proprietorship documentation. If you own less than 20 percent of the business, the SBA may not may provide the loan, so be clear about your stake. Finally, have your business license, any professional licenses you hold, and a list of any other debts your business currently owes.

The difference between SBA loan programs

The 7(a) loan program is the most common SBA loan. It covers a wide range of uses — working capital, equipment, inventory, real estate, or refinancing existing debt. Loan amounts range from a few thousand dollars up to $5 million. Interest rates and terms vary by lender and by how the lender structures the loan, but the SBA guarantees up to 90 percent of the loan amount for loans under $350,000 and up to 85 percent for larger loans.

The 504 loan program is designed specifically for buying real estate or equipment. It works differently: a Certified Development Company (a non-profit partner of the SBA) arranges the loan, and you typically put down 10 percent of the cost yourself. The 504 loan covers up to 40 percent, and a conventional lender covers the rest. This program is useful if you are buying a building for your business or making a large equipment purchase, because the terms are often longer and the down payment requirement is lower than a 7(a) loan.

The microloan program offers loans up to $50,000 through non-profit intermediaries. These lenders often work with businesses that have weaker credit or less established track records than traditional banks require. Microloans have higher interest rates than 7(a) loans, but the process process is usually faster and the documentation requirements are less formal.

Where to find SBA lenders

The SBA maintains a searchable database of lenders on its website at sba.gov. You can filter by location and by which SBA programs they offer. Not every bank offers SBA loans, so using this database saves you time — you know the lender you are calling actually does this work.

Your local Small Business Development Center (SBDC) or SCORE chapter can also point you to lenders in your area and sometimes help you prepare your process. These are free resources funded by the SBA. An SBDC counselor or SCORE mentor can review your business plan, help you organize your financial documents, and explain what lenders typically look for.

Credit unions sometimes offer SBA loans and may have looser credit requirements than banks. If you are a member of a credit union, ask whether they participate in SBA lending. Community banks are often more willing to work with newer or smaller businesses than large national banks.

What lenders look at when they review your process

Lenders use the acronym FICO to describe what they evaluate: Financial performance, Industry experience, Character (your credit history and payment record), and Owners' equity (how much of your own money you are putting into the business).

Your personal credit score matters. Most lenders want to see a score of at least 680, though some will work with lower scores. They pull your credit report and look at whether you have paid bills on time, how much debt you currently carry, and whether you have any collections, judgments, or bankruptcies. A recent bankruptcy does not automatically disqualify you, but it will make approval harder.

Your business financials tell the lender whether your business is profitable or at least stable. If you are a new business with no history, the lender will look at your personal income and assets to assess your ability to repay. If your business has been operating, the lender wants to see that revenue is stable or growing and that you are not losing money.

The lender also wants to know how much of your own money you are putting into the project the loan is funding. If you are buying equipment for $100,000 and the SBA loan covers $80,000, the lender wants to see that you have $20,000 of your own cash to put in. This shows you have skin in the game and are less likely to walk away if the business struggles.

What happens after a lender approves you

Once a lender decides to approve you, they prepare the SBA may provide request and send it to the SBA along with your process materials. The SBA reviews the file to make sure the lender followed the rules and that your business and use of funds meet SBA requirements. The SBA does not re-evaluate your creditworthiness — they trust the lender's underwriting — but they do check that the loan fits within their program guidelines.

If the SBA approves the may provide, they issue a may provide certificate. The lender then prepares the loan documents for you to sign. You will sign a promissory note (your promise to repay), a security agreement (what collateral backs the loan), and possibly a personal may provide (your personal commitment to repay if the business cannot). The lender may also require you to pledge business assets or personal assets as collateral.

After you sign, the lender funds the loan. Depending on what the money is for, it may go directly to you, directly to a vendor or seller, or into an escrow account that releases funds as milestones are met. For example, if you are using the loan to build out a retail space, the lender might release funds as construction progresses rather than handing you all the money at once.

If a lender declines you

A decline from one lender does not mean you cannot get an SBA loan. Different lenders have different risk tolerances and different strengths. A bank that declines you because your business is too new might approve you if you have strong personal credit and assets. A lender focused on manufacturing might decline a service business but refer you to a lender who specializes in services.

Ask the lender why they declined you. If it is a credit score issue, you might spend a few months paying down debt and rebuilding your score before explore elsewhere. If it is a business profitability issue, you might need to show more months of financial statements or adjust your business plan. If it is a collateral issue, you might be able to pledge additional personal assets.

The microloan program is often a better fit if you have been declined by traditional lenders. Microloans are designed for businesses that do not fit the standard bank profile. You can also explore whether a non-bank SBA lender in your area might work with you — these lenders sometimes have more flexibility than banks.

Frequently Asked Questions

How long does it take to get an SBA loan from start to funding?

Most SBA loans take 6 to 8 weeks from the time you submit your process to a lender until you receive the funds. This assumes your paperwork is complete and there are no complications. If the lender asks for additional documents or the SBA needs clarification, it can stretch to 10 to 12 weeks. Some lenders offer expedited processing that can shorten this to 4 to 6 weeks.

Do I need collateral to get an SBA loan?

Most SBA loans require some form of collateral — business equipment, inventory, real estate, or personal assets. The lender uses collateral as a backup if you cannot repay the loan. However, the SBA does not require collateral for loans under $25,000, and some lenders will make loans with minimal collateral if your credit and business financials are strong enough.

Can I get an SBA loan if I have bad credit?

Bad credit makes approval harder but not impossible. Microloans and some community lenders work with credit scores below 680. You may face a higher interest rate, be required to put down more of your own money, or need to pledge additional collateral. Showing that you have improved your payment habits recently or explaining what caused past credit problems can help your case.

What if my business is brand new and has no financial history?

New businesses can get SBA loans, but the lender will focus on your personal credit, your personal income, and your business plan instead of business financials. You will need to show that you have experience in the industry or business skills that make success likely. The lender may also require a larger personal down payment or personal may provide.

Can I use an SBA loan to pay off credit card debt or personal loans?

SBA loans are for business purposes, not personal debt. However, if your business has taken on debt — a business line of credit, a business loan, or business credit card charges — you can use an SBA loan to refinance that debt. The lender will want to see that the debt was used for legitimate business purposes and that refinancing it makes financial sense for your business.