If a lack of funding is stopping you from hiring employees, investing in better technology or opening a new location, you’re not alone. Securing capital for business expansion is a problem that plagues many small business owners. Fortunately, an SBA loan can help you bridge the gap in your finances.

Read on to discover how to get an SBA loan and learn what the five easy steps are for those who qualify.

What Is an SBA Loan?

There are three main types of loans. We have bank loans, microloans and loans from online lenders.

SBA loans are a type of bank loan partially guaranteed by the federal Small Business Association. These loans are long term and meant for small businesses.

SBA loans have favorable interest rates and terms, which make them highly sought after. Small business owners can expect interest rates between 6 and 10 percent and repayment plans for up to 25 years. Some loans even come with counseling and education to support you throughout the early stages of your business.

Besides having great conditions, SBA loans are a good alternative for businesses that otherwise might not qualify for a bank loan due to strict criteria and high down payments.

What Kinds of SBA Loans Are There?

There are three kinds of SBA loans. It’s important to understand the basics of each loan type to know which one you should apply for.

7(a) Loan Program

The 7(a) loan program is the most common of the SBA loans. You can borrow up to $5 million to finance general business expenses, such as refinancing existing debt, acquiring an existing business or having some extra capital. Interest rates for this loan range from 5 to 9.5 percent.

504/CDC Loan Program

The 504/CDC loan program provides financing for major fixed asset purchases such as real estate, construction and equipment expenses. Loan amounts range from $125,000 up to $20 million.

504 loans require two lenders, a Certified Development Company (CDC) and a bank. Typically, a 504 loan is structured as follows: the CDC will lend 40 percent of the total project costs and this portion is backed by the SBA. A participating lender will then cover up to 50 percent of the total project costs, with the borrower contributing the final 10 percent.

Microloan Program

The microloan program provides loans of under $50,000 to small businesses whose needs are more modest in scale.

They can be used to start a business, as working capital, or to buy things like office furniture, equipment and inventory. Microloans don’t typically come from banks given that they’re so small—they generally come from nonprofits.

How Hard Is it to Get a Small Business Loan?

Many small business owners wonder just how hard is it to get an SBA loan. It’s important to know up front that the process involves a lot of paperwork and that there are many requirements needed to secure a small business loan.

If you plan to apply for an SBA loan, be aware that the process can be complicated and it may be hard for certain individuals and businesses to get one.

You may have trouble securing a small business loan if you have less than ideal credit, your business hasn’t been running for very long, your annual revenue is low or  you have no business plan.

These loans aren’t meant for struggling businesses either, and you may run into trouble if you (or a partner)  has defaulted on a student loan or has a criminal past.

But the good news is, if  you have excellent credit and your annual revenue is in good shape, you exhibit the characteristics of a strong candidate—as long as you meet some additional requirements, which we’ll get into below.

Does Getting an SBA Loan Take a Long Time?

The amount of time it takes to finalize an SBA loan varies. Expect the process to take a minimum of 60 to 90 days. Applications for larger amounts may take longer for the lender to evaluate.

We recommend that you take the time to thoroughly understand all the steps and requirements before you get started. It may be helpful to speak with a loan advisor to get a better picture of how long your timeline will be.

The 4 Steps to the SBA Loan Process

Now that we’ve covered the basics, it’s time for the most critical question: How do I get an SBA guaranteed  small business loan? Applying for SBA loans can be broken down into five steps.

1. Determine Your Eligibility

You shouldn’t apply if you’re ineligible, so pay close attention to the many requirements the SBA asks of its applicants.

As we mentioned above, sound finances and excellent credit (scores of 680+) are essential for those wondering how to obtain a small business loan. You will need to have collateral for your loan and be prepared to give a personal guarantee from every owner who owns at least 20 percent of the business.

Furthermore, SBA 7(a) loan requirements dictate that you have to:

  • Be a small business
  • Be a for-profit business
  • Do business in the United States
  • Have invested equity
  • Have exhausted financing options
  • Have been in business for more than two years

As there are many eligibility requirements, we recommend talking with a lender to get a full list before proceeding.

If you don’t meet the requirements, there are other options such as different small business loans or funding using other lenders.

2. Find the Right SBA Loan Provider

One common misconception is that the SBA provides loans, which is not the case. An SBA-approved lender actually finances the loan, and the SBA merely acts as a co-signer.

It’s important to look for a lender that has experience with this type of loan. There are some questions you should ask, such as:

  • Is this provider familiar with your industry?
  • Do they dedicate themselves exclusively to SBA loans?
  • Are they easy to communicate with?

3. Get Your Paperwork Together

Those that apply for SBA loans must be prepared to submit a great deal of paperwork. It’s advisable to start collecting these items as soon as you know you’re eligible for the loan:

  • Personal background statement
  • Resume
  • Business plan, which should build an argument for how you’ll repay the loan
  • Financial statements, including profit and loss statements
  • Detailed information about how you plan to use the loan
  • Credit reports, both personal and for the business
  • Income tax returns, both personal and for the company, for the past three years
  • Collateral
  • Legal documents as they relate to the business, such as leases, business licenses, articles of incorporation, etc.

While this may seem like a long list, in reality, this list is not exhaustive. As we mentioned before, the process is quite involved. If you have business partners, you need to make sure everyone is on board since you will all have to submit documentation.

4. Complete the SBA Application & Forms

Once you’ve gathered all paperwork, it’s time to send the SBA forms. The primary forms involved in SBA loan applications include:

  • SBA 7(a) applicants need to fill out SBA form 1919, the borrower information form. This form is used to check business eligibility.
  • SBA 7(a) and 504 applicants need to fill out SBA form 413, personal financial statement. This form asks for details about each owner’s household assets and liabilities. It can be complicated to fill out, so make sure you know what you need to complete it.
  • SBA form 159 protects borrowers from unnecessary fees. You may or may not need to complete this.
  • SBA form 912, the statement of personal history, which is to be filled out if criminal past exists. Having a criminal past doesn’t disqualify you automatically; instead, the SBA will decide your case individually.

5. Close Your Loan

Once the SBA has approved your loan, you’ll work with your SBA lender to get your money. The lender will underwrite the loan, approve the application and close on the loan. For

More Information

Applying for funding is an important moment in a company’s life, especially when it comes to an SBA loan—one of the best small business loans out there. Being approved can be a life-changing milestone for a business owner.

Given its importance, we recommend being as prepared as possible by following the steps we’ve outlined above and reading our complete guide to small business loan applications. We also recommend visiting the SBA website, another great resource that provides further information about how to get an SBA loan.

Good luck!