Small company loans from the United States Small Business Administration (SBA) can help new business owners acquire the funding they need to get started. The sums available vary for each lending program, but some go up to $5 million. Some borrowers who struggle to qualify for other types of company financing may have easier access to funds.
However, applying for an SBA loan might be intimidating because of the qualifying rules and application procedures imposed by specific SBA lenders. Here we present you with the complete guidelines as to how to get SBA startup loans.
Before qualifying for a Small Business Association (SBA) starting loan, you must complete many processes and do some research. Due to historically high failure rates of up to 50% within five years, startup enterprises are considered at higher risk. As a result, obtaining SBA startup loans may necessitate a bigger down payment and more collateral.
The six steps on how to get SBA startup loans are as follows:
1. Determine your startup expenses.
Assess your company’s needs before applying for an SBA startup loan. Consider one-time setup fees and recurrent expenses first. This might be anything from hiring office space to purchasing equipment and handling wages for your first staff, there’s a lot to consider. Each SBA loan program has a distinct minimum and maximum loan amount, so think about your borrowing needs before applying for one.
2. Make Sure You’re Eligible
SBA loan types and individual lenders have different eligibility restrictions. However, to qualify for an SBA startup loan, a company must meet a few standard requirements. A company must meet the following criteria to be eligible for SBA 7(a) loans:
- Should have a profitable business in the United States or its territories.
- Show that you require the loan in cash.
- Should have sufficient invested capital.
- Should look into other financial options, such as personal assets?
- Use the borrowed funds for a legitimate business purpose.
- There are no outstanding debts owed to the US government.
3. Develop a business strategy
Unlike established businesses, startups do not have significant financial records. As a result, qualifying for an SBA loan for a startup can be more difficult than qualifying as an existing small firm. A comprehensive business plan that demonstrates how the business will make money and on what schedule will boost the chances of approval. This proves to lenders that the company can meet current and future debt payments, lowering the lender’s risk.
Industry-specific business plans should include an executive description of what the company does and why it will succeed. A company description, a market analysis including industry prospects, the company’s legal and managerial structure, and a description of any products and services should all be included in the report.
4. Decide on a loan type.
The Small Business Administration (SBA) offers a variety of loan programs to fulfil a variety of borrowing needs. However, not all the loans are suitable for start-ups. If you require more funds to launch your firm, consider one of these financing options.
Microloans from SBA
The SBA Microloan program provides smaller loans to assist firms to get started or expanding. The average loan is around $13,000, with loan amounts ranging up to $50,000. Repayment durations can last up to six years, with interest rates ranging from 8% to 13%. Funds can be used for a variety of company activities, but they cannot be used to repay current obligations or to purchase real estate, as with other SBA loans.
Community Advantage Program (SBA)
The Small Business Administration’s Community Advantage program aims to provide loans to underprivileged business communities, such as women, minorities, and veterans. Loans of up to $250,000 are available, with the SBA guaranteeing 75 per cent to 85 per cent of the loan. The SBA also sets a maximum interest rate of prime plus 6%, resulting in rates of around 7% to 9%. Community Advantage loans can be utilised for a variety of commercial objectives, but they do not come with a line of credit.
7(a) SBA Loans
SBA 7(a) loans come in a variety of sizes, from modest to large. Standard 7(a) loans up to $5 million have a cap of $350,000. Eligible borrowers can also apply for an SBA Express loan, which has a 36-hour review procedure rather than the five to ten business days required by other choices. Interest rates vary by loan type and lender, but they cannot exceed the SBA’s maximum limit.
Loans under SBA 504
The 504 loan program provides up to $5 million in funding to qualified borrowers for the purchase of significant fixed assets. Interest rates are typically approximately 3% of the loan amount, with a down payment ranging from 10% to 30%. Repayment terms of 10, 20, or 25 years are offered.
5. Compare and research lenders.
Individual lenders provide SBA loans, which the SBA guarantees up to a certain proportion of. Borrowers must apply for an SBA loan for a startup through an approved financial institution and meet the application and credit conditions of that lender. The SBA offers small company owners the Lender Match platform to make finding a lender easier.
Not all SBA-approved lenders, however, support all loan programs. Consider the following aspects while choosing a lender that delivers the best package for your needs:
- Business licences and certificates copies
- Overview and history of the company
- Personal and corporate tax returns for the last two years.
- Financials for the next one to three years, both current and forecast
- Balance sheet and profit and loss statement.
6. Complete your application and submit it.
After you’ve decided on a lender, learn about their application procedure and requirements. To make the application and approval process go more smoothly, start gathering the relevant papers ahead of time. Although different lenders have varying application requirements, most lenders demand the same materials. Prepare the following documents as part of your loan application, in addition to a business plan:
- Business licences and certified copies.
- An overview and history of the company.
- Last two years’ personal and corporate tax returns.
- Financials for the next one to three years, both current and forecast.
- Balance sheet and profit and loss statement.
- History of loan applications.
The lender submits your application to the SBA for review once you submit it. Qualification takes 30 to 90 days on average, but SBA Express loan applications are considered within 24 to 36 hours of receiving them. Following your lender’s approval, the loan will be closed and the money will be disbursed to the bank account you specified throughout the application process.
Despite what you may see on late-night infomercials or some websites, the SBA’s loan programs do not entail free money, government subsidies, or no-interest loans. In truth, the SBA does not lend money directly to entrepreneurs; instead, you must establish a relationship with a loan officer at a local bank, credit union, or nonprofit financial intermediary.
However, if you do, there are a variety of tools available to help you receive the funding you need to start or expand your small business. Small firms in the United States received more than $50 million in SBA loans every day last year.