How to Apply for an SBA Loan: Timeline and Steps Explained

How to Apply for an SBA Loan: Timeline and Steps Explained
How to Apply for an SBA Loan: Timeline and Steps Explained

Figuring out how to apply for an SBA loan can be a daunting process - especially for those planning to go through with the application without the help of a consultant or other third-party support.

Getting familiar with the general time frame, loan application process, and types of loans the SBA offers will be the first important step in navigating the SBA loan application process. 

SBA Loan Timeline in Review

Deciding on the Type of Loan
and Applying with the SBA

Days or Weeks

Check out the steps below to figure out the type of loan that’s best for your business. Analyze the requirements to determine your eligibility and increase your chances of prequalifying for an SBA loan.

Fill out the required forms to have the full set of paperwork ready to send to the lender.

Receiving and Reviewing
the SBA Letter of Intent

Up to 14 Days

You can expect to hear back from your lender within two weeks of submitting your full loan application. If the lender agrees to provide financing, they will forward you a Letter of Intent (LOI) that outlines the initial amount of the loan along with its terms and rates.

If you agree with the terms that the lender has set forth, you will be required to return a signed copy of the LOI along with an agreed-upon refundable initial deposit to secure the agreement.

SBA Loan Underwriting Process

Up to 90 Days

The formal underwriting will happen after the lender receives the LOI with the deposit. During the underwriting, you may be asked to provide additional documentation and answer any questions about your financials and business plans. The lender will do a hard credit pull on your personal and business credit history, examine your other debts and revenue projections.

If the underwriting is a success, you will be sent a commitment letter with the finalized terms and conditions of your loan and will be expected to make an additional deposit of about 5% of the loan.

SBA Loan Approval and Loan Commitment

This stage - also known as the Loan Closing - will generally take up to two weeks. The bank will make sure that everything is in order and that all necessary documents are signed. The SBA will assign a file number to the loan and authorize the government guarantee. Finally, you will sign the loan agreement, pay the closing costs and receive the funds to your business bank account.

The funds can be used immediately to cover all eligible business expenses.

 

Since no one can be sure how long the process will take, we suggest applying for an SBA loan when your business is not hard-pressed for cash. Try to avoid national holidays when sending in your financial documents. With the lenders short-staffed and most institutions closed, the time it takes for them to review your application may increase significantly.

The process will go faster the more organized you are with your paperwork. Be sure that your application package contains the necessary forms (specified below and in the application itself).

Step-by-Step SBA Loan Application Process

Getting an SBA loan requires four steps in total. Here are the things you’ll need to go through to get your business ready to apply for an SBA loan:

Step 1: Determine if your Business Fits the Requirements for an SBA Loan

Make sure your business is eligible to potentially receive financing the before moving forward with the application. The SBA has been known to be open to some businesses that don’t typically qualify for traditional loans, but it still has strict acceptability standards set forth to all potential borrowers. The general SBA loan qualifications include the following:

  1. A credit score of at least 680 for all primary business owners.
  2. A down payment of anywhere from 10 to 30% of the final amount of the loan.
  3. Some amount of business or personal collateral. Even though SBA loans don’t need to be 100% collateralized, lenders will scrutinize your personal and business finances to see if they’re willing to lend you the money.
  4. A cash flow sufficient to cover your expenses and pay off your loan. A business debt service coverage ratio (DSCR) of 1.25x is typically sufficient to qualify for an SBA loan.
  5. More than two years in operation with proof of profit. Even though startups have been known to receive SBA 7(a) financing, it may prove to be difficult.
  6. No history of defaults, delinquencies or unfulfilled debt obligations - both business and personal - to the U.S. government. 

SBA Loan Types and Eligibility Requirements

The SBA offers seven main types of loans to small business applicants. Review the different programs to determine SBA loan with the best terms and decide on the one for which you are best qualified. Selecting the right program that meets your needs will determine the paperwork you will be expected to collect and submit to the lender.

SBA 7(a) Program

SBA’s 7(a) loans are the most common and versatile of the loans offered by the agency. The 7(a) is excellent for borrowers who need access to long-term financing to cover debts or make business-related purchases.

The borrower must be a small business as defined by the SBA, which includes having no more than 500 employees or less than $7.5 million in annual sales.

The business must be for-profit and operating in any eligible active, non-speculative industry in the United States or its territories. The business must be able to retain or create jobs and be in line with the goals set forth by the SBA.

The borrower is required to prove the inability to procure alternative financial resource before seeking assistance through the program and demonstrate that the financing will go towards covering actual business expenses.

$5 million max.

Terms of up to 25 years, interest rates vary, down payment as low as 5%.0.5% to 3.5% origination fee, $2,000 to $4,000 loan packaging fee, 2% to 3.5% SBA guarantee fee.

SBA 8(a) Business Development Program

The 8(a) is an assistance program for businesses controlled at least 51% by socially and economically disadvantaged individuals.

Besides providing access to sole-source contracts for goods, services, and manufacturing, the program also gives disadvantaged businesses the chance to obtain surplus government property and supplies, SBA-guaranteed loans, and bonding assistance.

The small business must be at least two years old and be primarily owned and run by one or more socially and economically disadvantaged individuals.

The firm must be organized as a for-profit, fit the SBA-proposed small business size standards and provide the financial statements and tax returns and that show its growth and potential to succeed in its industry.

Depends on the specific loan.

CDC/504 Loan Program

This low-interest loan provides long-term financing for the purchase of equipment, commercial real estate, and other fixed assets.

The business must be a prime borrower (credit score of at least 680) within the SBA small business size standards, have a tangible net worth of less than $15 million, and an average net income of no more than $5 million for two years prior to the application.

$20 million max.Terms of up to 25 years, low interest and a down payment of up to 15%.

SBA CAPLine Program

This program is perfect for borrowers who require financing for a particular contract or a recurring seasonal activity.

Borrowers must prove to have a credit score of no less than 680, have no recent bankruptcies, foreclosures, or tax liens.

If applying for the Seasonal Line (financing for seasonal increases in accounts receivable or inventory needs), the business must demonstrate a pattern of seasonal activity.

Contract Line and Builders Line applicants will need to prove experience, profitability, and the ability to successfully finish the contract, subcontract, or project.

$5 million max.

Terms of up to 10 years, 10% down payment, 0.5% to 3.5% origination fee, $2,000 to $4,000 loan packaging fee, 2% to 3.5% SBA guarantee fee.

SBA Export Loan Program

This program helps borrowers support new exporting operations and offer better and more flexible terms to their international clients.

Applicants must have a credit score of 680 or more.

The small business applicant must be older than one year and provide their products or services to international customers. The financing must be used strictly for supporting or expanding the firm’s exporting and international trade endeavors.

From $500,000 to $5 million.

Terms of up to 25 years, interest rates form 6% to 11.75%, 0.5% to 3.5% origination fee, $2,000 to $4,000 loan packaging fee, 2% to 3.5% SBA guarantee fee.

SBA Microloan Program

SBA Microloans are great for for-profit small businesses and nonprofit child care centers.

Some microlenders also provide training and technical assistance to these small business owners.

Borrowers must have a credit score of no less than 640 and provide a personal guarantee. The program is ideal for home-based businesses and self-employed entrepreneurs.

Up to $50,000.

Terms of up to 6 years, interest rates of up to 13%.

SBA Disaster Loans

This program provides financing to businesses that have suffered property damage or economic losses as a result of a declared national disaster.

Applicants must have a credit score of at least 660.

The small business must be located in a government-declared disaster area and must have suffered some damage from the event.

SBA Disaster Loans also apply to businesses financially affected by having an essential called to active duty.

Up to $2 million.Terms of up to 30 years, interest rates of no more than 8%.

 

After you decide on the SBA loan program that best fit your financing goals, you will need to find a lender to complete the application. Different types of lenders offer different SBA loans.

Step 2: Select an SBA Loan Lender

Once you decide on the program and figure out that you qualify for an SBA loan, it’s time to decide on a lender. We recommend working with a direct SBA lender that regularly works with these types of loans and is more likely to be familiar with the unique circumstances that go along with applying for these SBA-backed programs. 

Choose a lender that is part of the SBA Preferred Lender Program (PLP). PLP lenders are experienced SBA-selected loan providers that have the privilege of streamlining loan applications, expediting loan approval and utilizing their own underwriting and servicing policies. Working with a PLP lender is key in creating an efficient and successful transaction.

An additional option to consider is working with an SBA loan broker. Brokers have a better understanding of the inner processes of the loan underwriting, are familiar with the specific requirements and paperwork and can save borrowers a significant amount of time by coordinating the entire process.

These are some of the things you need to know about a potential lender regardless of whether you decide to apply for an SBA loan online or commit to visiting the lenders in person:

  1. The volume of their SBA loans and the average amount of these loans.
  2. Their overall familiarity with SBA’s borrowing and lending procedures.
  3. Their PLP status.
  4. The time it takes to get pre-approved and the time it takes to receive the funding.
  5. Their borrower support policies.
  6. Their specific conditions regarding down payment, interest rates, collateral, and pay-off period for the programs and loans you are considering.

It pays off to be prepared: be sure to have tax returns, projected business financials, resumes, leases, and business plans on hand when contacting potential lenders.

Step 3: Complete and Submit the SBA Loan Application

Once you confirm that you’re eligible for SBA financing, you will be required to submit a certain set of forms to support your application. The documents a potential borrower should bring to a lender or broker include the following:

1. Information About the Small Business Applicant.

2. Financial and Tax Documents.

  • Form 4506-T, Request for Transcript of Tax Return to request three years’ worth of personal and business tax returns.
  • Cash flow statements, business bank statements, and a personal financial statement.
  • A year-to-date profit and loss statement and balance sheet.
  • Business debt schedule show.

3. Entity-specific Legal Documents.

  • A business license for Sole Proprietorships;
  • Articles of Organization, Certificate of LLC members and member resolution, a signed LLC operating agreement for Limited Liability Companies (LLCs);
  • Articles of Incorporation, a Certificate of Corporate Secretary, board resolution and bylaws for Corporations;
  • A partnership agreement, certificate of partners and partner resolution for Partnerships.

4. Small Business Insurance Information.

  • Property Insurance.
  • General Liability Policy.
  • Worker’s Compensation Policy.

Step 4: Close Your Loan With the SBA Lender

Once you submit your SBA loan application forms and pay your closing fees, appraisal fees, lawyer fees, and underwriting fees, all that remains is to wait for the underwriting to be over. During this time, the lender may request additional documentation to support your application. If your application is rejected, you may try to re-apply after a certain lender-approved period of time.

After all is said and done, the bank will transfer the loan amount to your business bank account. These finances may be withdrawn and used immediately.

SBALOANFORMS

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