The basic path: SBA loans go through banks, not the SBA directly
You do not borrow money from the Small Business Administration itself. Instead, you borrow from a bank or credit union, and the SBA guarantees part of the loan — usually 75 to 90 percent — so the lender takes less risk. This may provide is what makes the loan possible for many small business owners who would not otherwise meet a bank's usual standards.
The process has three main steps: prepare your paperwork, find a lender that offers SBA loans, and submit your process through that lender. The SBA does not review your process first — the bank does. If the bank approves you, it then requests the SBA's may provide. The whole timeline typically runs 4 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 is.
You will need to show the bank that you have a real business plan, that you can repay the loan, and that you are putting some of your own money into the business. The bank wants to see that you are serious and that the loan is for a legitimate business purpose — not to pay off personal debt or to speculate on investments.
Key Takeaways
- SBA loans are made by banks and credit unions, not by the SBA, but the SBA guarantees most of the loan amount so lenders will take the risk.
- You will need a business plan, personal financial statements, tax returns, and proof that you are putting your own money into the business.
- The most common SBA loan is the 7(a) loan, which can be used for equipment, inventory, working capital, or real estate, up to $5 million.
- Finding a bank that actively makes SBA loans matters more than finding the "best" bank — not all banks offer them, and those that do have different speed and requirements.
- The SBA does not make the decision to lend to you; the bank does, and the SBA only guarantees the loan after the bank approves it.
What documents you need before you approach a lender
Banks will ask for the same core set of documents no matter which SBA loan program you are pursuing. Start gathering these before you contact any lender, because having them ready will speed up the process and show the bank you are organized.
You will need your personal tax returns for the last two years, your business tax returns for the last two years (if your business has been operating that long), a current personal financial statement showing what you own and owe, and a business plan that describes what you do, who your customers are, and how you will use the loan money. The business plan does not need to be long — three to five pages is typical — but it should be specific about how the loan will help your business grow or operate.
You will also need to show proof that you have skin in the game: a bank statement or other document showing that you are putting your own money into the business, usually at least 20 percent of the total project cost. The bank wants to know that if things go wrong, you lose money too. Finally, bring a personal resume or summary of your work history and any relevant experience running a business or in your industry.
The 7(a) loan: the most common SBA loan type
The 7(a) loan is the standard SBA loan program and covers most business needs. You can borrow up to $5 million, though most loans are much smaller. You can use the money for equipment, inventory, working capital, real estate, or to refinance existing debt under certain conditions. The interest rate is set by the bank but is capped by the SBA — it is usually a few percentage points above the prime rate, so if prime is 8 percent, you might pay 10 to 11 percent.
The loan term depends on what you are buying. Equipment loans typically run 5 to 10 years. Real estate loans can run up to 25 years. Working capital loans are usually 5 to 7 years. The longer the term, the lower your monthly payment but the more interest you pay overall.
You will pay a may provide fee to the SBA (usually 2 to 3 percent of the loan amount) and possibly a small origination fee to the bank. These are typically rolled into the loan amount, so you do not pay them upfront out of pocket.
Finding a bank that makes SBA loans
Not every bank makes SBA loans, and those that do may have different requirements and timelines. Start by asking your current bank whether it offers SBA loans. If it does not, ask for a referral to a bank that does. You can also search the SBA's lender directory online, which lists banks and credit unions by state that have made SBA loans in the past year.
When you contact a lender, ask three things: whether they actively make 7(a) loans (some banks make only microloans or other programs), what the typical timeline is from process to funding, and whether they have a preferred lender status with the SBA. Preferred lenders can approve and close loans faster because the SBA has already vetted them. This can cut weeks off the process.
Community banks and credit unions often move faster than large national banks and may be more willing to work with newer businesses or those in specific industries. If you belong to a credit union, start there — many credit unions make SBA loans and may give preference to members.
What happens after you submit your process
The bank will review your process and documents. If something is missing or unclear, they will ask you for more information. This is normal and does not mean you will be rejected — it just means the underwriter needs to verify something. Respond quickly to these requests, because delays here add weeks to the timeline.
The bank will order a personal credit report and may order a business credit report. They will verify your tax returns with the IRS and may contact your landlord or customers to confirm your business is real and operating. They will also do a background check and may ask about any criminal history or past bankruptcies.
If the bank approves you, it will send your process to the SBA for the may provide. The SBA does a final review, but at this stage they are mostly checking that the bank followed the rules, not re-evaluating whether you should get the loan. Once the SBA approves the may provide, the bank will schedule a closing, where you sign the loan documents and the money is transferred to your account.
Reasons a bank might decline your process
Banks decline SBA loan applications most often because the applicant does not have enough personal money in the business, has poor personal credit, or cannot clearly explain how the loan will be repaid. If your credit score is below 650, most banks will decline you. If you have recent bankruptcies, foreclosures, or judgments against you, the bank will look very carefully at whether you can repay.
A weak business plan is another common reason. If you cannot explain what your business does, who will buy from you, or how the loan money will generate revenue, the bank will not lend to you. The plan does not need to be perfect, but it needs to be realistic and specific.
If your business is in an industry the bank considers too risky — such as gambling, firearms, or speculative real estate — they may decline even if your finances are strong. Different banks have different industry restrictions, so if one declines you, another might not.
Alternatives if a traditional 7(a) loan is not a fit
If you cannot meet the requirements for a 7(a) loan, the SBA offers other programs. The microloan program lends up to $50,000 through nonprofit lenders and is designed for very small businesses or startups. The requirements are less strict than 7(a) loans, but the loan amount is much smaller. The 504 loan is designed specifically for real estate and equipment and is made through certified development companies; it often requires less personal money down than a 7(a) loan.
If you are a veteran, woman, or member of an underrepresented group, some lenders offer SBA loans with slightly relaxed requirements. Ask the bank whether they have programs for your background.
If you cannot get an SBA loan, you might explore a conventional bank loan (which has stricter requirements but no SBA fees), a line of credit from your bank, or a business credit card for smaller amounts. These are not SBA loans, but they are other ways to borrow.
Frequently Asked Questions
How much of my own money do I need to put into the business?
Most SBA lenders require you to contribute at least 20 percent of the total project cost from your own funds. If you are borrowing $80,000, you should have $20,000 of your own money going into the business. Some lenders will accept less if you have strong credit and a solid business plan, but 20 percent is the standard.
Can I use an SBA loan to pay off credit card debt?
No. SBA loans must be used for a legitimate business purpose — equipment, inventory, real estate, working capital, or to refinance existing business debt. You cannot use an SBA loan to pay off personal credit cards or consumer debt. If the bank suspects the money will be used for personal purposes, they will decline the process.
What is the difference between a 7(a) loan and a microloan?
A 7(a) loan can be up to $5 million and is made by banks. A microloan is up to $50,000 and is made by nonprofit lenders. Microloans have less strict credit requirements and are faster to process, but the loan amount is much smaller. If you need more than $50,000, you need a 7(a) loan.
How long does it take to get the money after I am approved?
After the bank approves you and the SBA guarantees the loan, closing typically happens within one to two weeks. The money is usually transferred to your business account within a few days of closing. From initial process to funding, plan for 4 to 8 weeks total, though it can be faster if your paperwork is complete and the lender is not busy.
Do I have to pay the SBA back, or just the bank?
You pay the bank back. The SBA does not collect payments — it only guarantees the loan. If you default, the bank tries to collect from you first. If the bank cannot collect, it can claim the SBA may provide, and the SBA pays the bank. You are responsible to the bank for the full loan amount.