Wednesday, May 29, 2024

How Hard Is It To Get An Sba Loan

Don't Miss

What Can I Use My Sba Loan For


According to the SBA, you can use these loans for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or real-estate purchases. SBA loans are secured, meaning, SBA agencies guarantee a percentage of the loan amount to the lender, reducing their risk.

How To Get A Small Business Loan

Getting a small business loan is done by applying with a business lender, typically your bank or another lending institution, with the right documentation and your business plan.

A business loan can help to resolve cash flow problems, leverage growth opportunities, and even increase the value of a business. Making sure to plan for a loan ahead of time is extremely important, as is knowing the documentation needed by your lender when you do apply.

We cover this information and more in our small business loan guide:

How to Get a Business Loan in 6 Steps:


Can I Get An Sba Loan With Bad Credit

As mentioned, its up to the lender to approve you for an SBA 7 loan. If youre applying for an SBA loan with bad credit, your chances of getting approved can still be relatively good if youve been in business for several years. If youre a startup whose credit score is low because of a lack of a track record, you might need to wait until youve established a payment history or your credit score improves.

Also, there may be extenuating circumstances that caused your credit score to lower, representing a one-time event or business crisis. In this case, its not because you were habitually late on your payments. In a situation like this, the answer to Can I get an SBA loan with bad credit? isnt so straightforward, and the lender might be more willing to bend.

Based on anecdotal evidence, the consensus is that getting an SBA loan with bad credit is contingent on the lender. Whether its a bank, credit union, or alternative lender, some companies are more conservative than others. Your best bet in getting an SBA loan with bad credit might be finding a lender that checks all of your boxes and adjust your expectations to fit their standards. Once you have the loan, youll be in that relationship for a while, so its best not to settle.

Recommended Reading: What Kind Of Car Loan With 600 Credit Score

Just Exactly How Difficult Is It To Qualify For An Sba 7 Loan

There are some different sorts of SBA loans that are offered to smaller organizations, brand brand new businesses, and disadvantaged businesses. They are the SBA Microloan and SBA Community Advantage Loan.

You might be eligible for an SBA loan even without meeting the typically strict qualification standards if you fit into one of those categories.

The SBA 7 loan to give you a better understanding of how hard it is to get an SBA loan, lets take a look at the eligibility requirements for the SBAs most popular loan program

Check And Build Your Business Credit Score

How Hard Is It To Get An SBA 504 Loan?

Building business credit means establishing an identification number with companies like Dun & Bradstreet and deliberately taking action to increase your companys score. This score will help you secure lenders when applying for a loan because it acts as a good indicator of your businesss history in paying off debts and otherwise being fiscally responsible.

Good business credit scores take time to build, so here are some tips to help you monitor and grow your business credit profiles:

  • Know how to access the three main business credit bureaus. These arent the only business credit bureaus however, they are the most important because they directly affect your business FICO score.
  • Make sure to set up business credit profiles so that your credit gets reported. Youll need a Dun & Bradstreet, Experian Business, and Equifax Small Business credit profile established.
  • Go through your business credit profiles regularly. Youd be surprised how often creditors incorrectly report or misrepresent information. Most of the time, it isnt in your best interest. It is important to take your time and go through the entire business credit report to make sure you have everything accurate.
  • Read our free guide on how to build business credit. Learn about how to establish and grow your score through things like net-30 vendors, business credit cards, the importance of paying your bills on time, and more.

You May Like: Can I Refinance My Sofi Loan

Gather Your Application Documents

If you think you qualify, the best place to start is the SBA website, which includes a loan application checklist. Use this to gather your documents, including your tax returns and business records.

Here are some of the documents you will need before applying:

  • SBAs borrower information form.

  • Statement of personal history.

  • One-year cash flow projection.

Whats The Interest Rate

Interest rates for the Paycheck Protection Program were initially set at 0.5 percent but were increased to 1 percent after lenders raised concerns. The Cares Act caps PPP loans at 4 percent, so it is possible the rate could increase again. The interest you pay on a PPP loan can be forgiven if you are able to keep paying employees during the first 8 weeks after you receive the loan.

Interest rates on disaster-assistance loans are set at 3.75 percent for small businesses and 2.75 percent for nonprofit groups.

Recommended Reading: How Much Fha Loan Can I Get

How To Get An Sba Loan: 6 Steps To Follow

If youre asking yourself, how do I get an SBA loan, youre likely already aware of the benefits of SBA loans for small business owners. In short, SBA loans are some of the most affordable business loans on the marketâwith highly desirable rates, terms, and loan amounts.

As such desirable products, however, SBA loans are also very competitive, and the process to actually get an SBA loan is lengthy and involved.

Whether you opt to work with a loan expert or complete the process on your own, getting an SBA loan can be much more manageable when you break things down into individual steps. Plus, at the end of the day, the time and effort will be worth the long-term, low-interest financing you receive for your business.

Lets Get More Granular Shall We

SBA Loan | How To Get A Free $25k SBA Small Business Loan 2020?

Heres a little more info to better understand exactly why youd want an SBA loan over other loan productsand why youd want to work toward getting an SBA loan if youre not quite there yet!

Lets compare the terms of an SBA loan to a traditional term loan commonly available through banks or alternative online lenders:

Don’t Miss: How Do I Get My Student Loan Number

What Are The Benefits Of An Sba Loan

There are a number of major benefits that make SBA loans attractive to businesses:

  • They are open to businesses that may not be able to receive a loan elsewhere. Because the SBA guarantees a portion of the loan amount, businesses that would not otherwise be able to qualify for a loan may be able to secure funding through an SBA program.
  • They offer lower interest rates. SBA loan rates are typically lower than conventional loans because the SBA provides a cap on interest rates.
  • They offer longer terms. SBA loans can offer terms as long as 25 years for loans used for real estate purchases, and 10 years for other loans. This can be helpful for businesses making major purchases. Longer repayment periods can make payments more manageable.
  • Fees are low. SBA loan program fees include a guarantee fee when you secure the loan and a yearly fee, but these costs are typically low. Loans for lower amounts may not have guarantee fees.
  • They are flexible. SBA loans can be used for a wide variety of different business purposes.

Use Of The Sba 7 Loan

In order to get approved for an SBA 7 loan, youll need to prove that your plans for the funds are appropriate. While the specific allowable uses depend on the amount you want to borrow, you can generally use SBA 7 funds for operational expenses, refinancing certain high-cost debts, hiring employees, purchasing new inventory or equipment, supporting marketing costs, or even purchasing land and commercial real estate. SBA 7 loans are never permitted to reimburse owners for equity, nor to repay delinquent taxes or funds that should be held in trust or escrow.

Don’t Miss: How To Pay Home Loan Faster

You Need To Ask For More

There are two reasons why asking for a larger loan may help you avoid having your application denied. First, banks and other lenders tend to prioritize larger loans when there is a large influx of applicants. Second, if a requested loan is below a certain amount, depending on the size of the lender, the cost to service that loan is too high to make it worth it for them. Now it wont be as simple as just asking for a larger sum, you need to be sure you have enough collateral and viable need represented within your financial statements that warrant the updated sum.

Where Can You Get A Small Business Loan

How Hard Is It To Get A Small Business Loan?  Flexibility ...

The local bank used to be the only option for business owners seeking funding. However, technology has opened those choices. Heres where business owners can apply for funding:

Direct Lenders

Banks, credit unions, online lenders, and investors are considered direct lenders. You wont go through a third-party to complete your loan application, receive funds, or make payments.

Lending marketplaces

This option helps you find lenders based on your qualifications. When you apply with SmartBiz Loans, we match you to the lender most likely to fund based on your unique business. A variety of marketplaces are available online and applications are relatively quick compared to more traditional lending situations.

Short for peer-to-peer, the P2P lending space has become popular and can be a good option if turned down by a traditional lender. Crowdfunding is an example of P2P lending. However, this is not the easiest route to take. Read our comprehensive article about this type of lender here: Reasons to Avoid Small Business Crowdfunding.

Don’t Miss: Is It Easy To Get Loan From Credit Union

Disadvantages Of Sba Loans

While SBA loans have benefits for borrowers, they come with certain drawbacks as well.

“The SBA standard operating procedure is if a borrower has personal assets to help secure the loan, the lender is required to put a lien on them as additional security,” Randy says. “If I have a home worth $500,000 and owe $300,000, the bank has to put a lien on that house because it has collateral value. You’re pledging personal assets to secure the loan.”

This can interfere with both your personal and professional goals. For instance, beyond the threat of losing personal assets, a lien on your current home would follow you to your next residence if you decide to move and purchase a new house. Additionally, if you pledge securities or cash as collateral, it would negatively impact your liquidity and may make it more difficult to to open your next franchise location, inhibiting your business growth.

Working with a lender that is not SBA-preferred can also slow down the loan approval process.

“Preferred lenders can make a decision on behalf of the SBA they don’t have to submit directly to the SBA,” Randy says. “Standard process lenders can approve internally, but then have to submit to an SBA office to approve the transaction. You have an additional approval step that slows things down.”

Find The Right Sba Lender

After youve determined which SBA loan program is best for your business, the next step to getting an SBA loan is finding the right lender.

As you might imagine, the right SBA lender for you will largely depend on the loan program youve chosen.

For a 7 loan, for example, youll be looking for an SBA lending partner in that program, likely a commercial bank, local bank, or credit union. If youre trying to get a 504/CDC loan, on the other hand, youll need to find a local CDC, as well as a participating SBA lending partner.

Overall, there are a variety of avenues you can take to find your SBA lender.

You can start by going to your local bank, or the bank you currently use for your business, and asking them what kind of SBA loans they offer. Generally, most of the big-name banks in the U.S. offer some form of SBA fundingâlike Chase, Wells Fargo, Capital One, Celtic Bank, and First Home Bank.

You can also connect to an SBA lender using the SBAâs website.

Another common way to find an SBA lender is to use a broker to facilitate the search. As long as youre careful about the broker youre working with, this can be a very efficient way to find a lender, however, it will also be one of the most expensive ways.

Finally, you might also browse online loan marketplaces, like Fundera, that work with small business lenders who offer SBA loans.

You May Like: Who Can Loan Me Money

Sba Loan Minimum Requirements

Qualifying for an SBA loan is generally easier than a standard secured bank loan. The SBA is slightly more lenient on certain criteria than a bank or a credit union. However, the SBA maintains a few broad standards that all applicants must meet if they want to get approved for a loan. Weve listed them below:

  • Eligible businesses must be legally incorporated and for-profit
  • Eligible businesses cannot receive funding by other means
  • Eligible businesses must be operated by an owner with equity in the business
  • Eligible businesses must be located and operated in the US

Regarding your credit score, its likely that you will need a minimum score of about 600 to have your application approved. In some cases, FICO scores in the high 500s can also get green-lit if other aspects of your application are strong. Generally, the higher your credit rating the more likely your application will get approved.

Source: Windsor Advantage

In the chart above, youll notice that the number of active lenders in the United States has been in sharp decline since FY2014. Due to several issues, such as limited liquidity, the number of lenders to small businesses is becoming increasingly concentrated. Therefore, the SBA provides an invaluable service to business owners who otherwise may be shut out from accessing startup capital.

Temporary Sba Loan Changes

How to Get a SBA Small Business Loan to Fund Your New Business

The latest coronavirus relief bill has temporarily changed some SBA loan features to promote lending and assist borrowers.

The following changes are on top of additional relief programs for small businesses, such as the Paycheck Protection Program and Economic Injury Disaster Loans, and went into effect Feb. 1:

  • Loan limits increased. As of Jan. 1, 2021, the borrowing limit for SBA Express loans was increased from $350,000 to $1 million. That maximum will permanently drop to $500,000 on Oct. 1, 2021.

  • Fees waived. For 7 and 504 loans, the SBA will eliminate fees for both lenders and borrowers.

  • Loan guarantees increased. Until Oct. 1, 2021, the SBA will guarantee 90% of loans from its 7 program and 75% for SBA Express loans of more than $350,000. The maximum SBA guarantee is usually 85% for loans up to $150,000, 75% for loans greater than $150,000 and 50% for Express loans.

  • Payments covered. The government will make monthly payments of up to $9,000 on eligible SBA loans. The number of payments you can receive will depend on when your loan was approved, issued or disbursed.

The SBA provided updated guidance on Feb. 16, 2021, regarding payment relief options for eligible 7 and 504 loans:

Payments are subject to the availability of funds, so the number covered may change in the future.

Don’t Miss: How To Check If Loan Is Fannie Or Freddie

Who Is A Good Candidate For An Sba Loan

How hard is it to get one of these SBA loans, then? Although some of the SBA loan products are intended to make low-interest loan products more accessible to small business owners than they otherwise would be, it wont come as a surprise that you still have to meet strict requirements to be considered a good candidate for an SBA loan.

Since every business owner dreams of getting an SBA loan, the SBA and their lending partners can be choosy about who they approve to receive a loan.

What If The Money Runs Out Again

Some banking-industry officials have warned that this could happen.

After the initial $349 billion was exhausted, many banks continued to process applications that they plan to submit once the program receives more funding. Industry officials have said they expect the money to be spent faster this time, potentially in just a few days, since so many applications will be submitted at once. Also, kinks in the program that slowed the application process initially have largely been worked out, which banking officials say should also speed the process.

If that happens, it will be up to Congress to decide whether to provide the Paycheck Protection Program even more funding.

Economists at Bank of America have said the program may ultimately need close to $1 trillion to help all eligible small businesses.

Don’t Miss: Do Pawn Shops Loan Money

Boost Your Business Cash Flow And Ability To Repay An Sba Loan

The finances of your business are critical to lenders understanding if you will repay your debt. Stronger financial management lowers the lenders risk and means youre more likely to be approved. In particular, focus on these steps:

  • Pay down your existing personal and business debt.
  • Increase the revenue coming into your small business.

Have A More Mature Business

FAQ: Is it hard to get an SBA Loan?

Startups and new businesses are less likely to be approved for loans. Theyre unproven and dont have established credit histories, plus getting that early revenue and cash flow can be tricky. Established businesses that have a track record of at least two years are about twice as likely to get approved for an SBA loan.

Don’t Miss: What To Do If Lender Rejects Your Loan Application

More articles

Popular Articles