Starting a business takes capital, and many entrepreneurs look to small business loans to cover these startup costs in nascent days. SBA loans are among the most sought-after types of business loans for both new and established businesses alike because they offer favorable terms and high capital amounts.
The process to secure an SBA loan can be long and windy—especially for new businesses that don’t have the financial track record of other applicants. Here, we’ll walk you through how to get an SBA loan for a startup, including what types of SBA startup loans are available, how you can use them, how much they cost, and how to apply.
We’ll also look at a few alternatives to SBA startup loans in case you’re not in the best position to apply right now.
What to Know About SBA Startup Loans
Generally considered the gold standard of business loans, SBA loans offer some of the highest capital amounts, lowest interest rates, and longest repayment periods among business loans.
Because these loans are so favorable, many businesses are vying for them—which means the qualifying process is competitive. SBA lenders can be picky and approve only the most qualified, experienced candidates that pose the lowest risk for default.
Lenders look at things like your time in business, revenue and cash flow, credit history, and more to determine if you’re likely to pay back your loan. So, what does that mean for a startup that, by definition, doesn’t have the years of financial history to help prove that they’re not a risky candidate for an SBA loan?
In short: It’s harder for new businesses to get approved for SBA loans—but it’s not impossible.
How to Use an SBA Startup Loan
Another reason SBA loans are so desirable is because of how borrowers can use the capital. Here are some of the ways you might be able to use an SBA startup loan:
- Flexible working capital
- Real estate purchase
- Purchase of large fixed assets
- Building a new business location
- Upgrading or expanding your business
Types of SBA Startup Loans
Based on how much funding you need and what you plan to use it for, there are different types of SBA loan programs to consider.
The first two programs we’ll discuss are the best options for true SBA startup loans. The latter two options, on the other hand, are best suited for businesses that have a little bit of operating history.
Here are the four SBA programs to look into as a new business:
For very new businesses with low capital requirements, SBA microloans can be a strong option.
They’re also some of the easiest SBA loans for startup businesses to qualify for, and, unlike other SBA loans that require two years in business, the SBA microloan program doesn’t require a specific time in business as long as you can prove that you can repay the loan.
To apply, you’ll need to present a strong business plan and have good credit.
SBA Microloan Details
- Loan amount: Up to $50,000
- Terms: Maximum six years
- Rates: ~8% to 13%
- Uses: Flexible
SBA Community Advantage Loans
Like SBA microloans, the SBA Community Advantage loan program is friendlier to startups than other types of SBA loans.
The SBA Community Advantage program is meant to provide access to funds for business owners in disenfranchised communities that need larger amounts of capital—including startup businesses. You’ll want to have a strong business plan and a good financial track record as well as average credit to apply for this type of loan.
SBA Community Advantage Loan Details
- Loan amount: Up to $250,000
- Terms: Seven to 10 years
- Rates: ~7% to 9%
- Uses: Flexible
SBA 7(a) Loans
If your startup already has a couple of years in business, you may be able to qualify for an SBA 7(a) loan. This program is the most popular type of SBA loan due to its flexibility—you can use the money for nearly any type of business expense.
To apply, you’ll need to provide records of strong annual revenue generation (about $100,000) as well as good credit. As a startup, the better your credit is, the more likely the SBA is to forgive the fact that you don’t have several years of business financial history.
SBA 7(a) Loan Details
- Loan amount: Up to $5 million
- Terms: Up to 25 years
- Rates: ~8% to 13%
- Uses: Flexible
SBA 504/CDC Loans
For businesses that want to finance a fixed asset, such as real estate or equipment, the SBA 504/CDC loan is ideal.
Like the SBA 7(a) loan, this loan program isn’t a fit for brand-new businesses, but if you’ve been operational for a few years and have a track record of revenue generation, you might be able to secure this financing.
SBA 504/CDC Loan Details
- Loan amounts: Up to $5.5 million
- Terms: Up to 25 years
- Rates: ~5% to 6%
- Uses: Fixed asset financing
How to Apply for an SBA Startup Loan
The process for applying for an SBA loan—no matter how much business experience you have—is lengthy, especially compared to other types of business loans. The SBA requires a lot of documentation from entrepreneurs, regardless of how long applicants have been in business.
That said, here are the basic steps you’ll follow:
1. Make sure you qualify.
In addition to some of the requirements we’ve mentioned thus far—credit score, annual revenue, time in business, strong business plan, etc.—the SBA has general requirements that businesses must meet in order to qualify for their loan programs.
Before starting an application, you’ll want to make sure that you meet these qualifications, on top of the qualifications of the specific program you want to apply to. Some of these SBA loan requirements include:
- Be a for-profit business in an eligible industry operating in the U.S.
- Meet the SBA definition of a small business
- Have invested your own time and money into your business
- Have exhausted other financing options
2. Find an SBA lender.
Next, you’ll want to find an SBA lender that offers the type of SBA startup loan you’re looking for. Most SBA lenders are traditional banks and credit unions, including big-name institutions like Chase, Bank of America, and Wells Fargo.
However, if you’re applying for an SBA microloan, you’ll look for a participating intermediary lender—many of whom are nonprofit, community organizations.
3. Gather your documentation and complete an application.
To submit an SBA loan application, you’ll need documentation including but not limited to:
- Business bank account statements
- Personal and business tax returns
- Credit reports
- Profit and loss statement
- Balance sheet
- Strong business plan
- Specific forms for the SBA
Your SBA lender will be able to help you through the application process and work with you to make sure that you have any and all forms and documents that you need.
4. Submit your application and wait for a decision.
Although some business lenders can provide a decision on typical business loans in as little as a day or two, the timeline for SBA loan approval is significantly longer. Applicants should expect to wait a minimum of eight weeks to hear a decision—during which time you may be asked for more documentation to process your application.
For startups that need funding quickly, an SBA loan may not be the best option. That said, you can help speed up your approval timeline by gathering as much information as possible in advance and completing your application carefully and accurately.
What to Do If You Get Rejected for an SBA Startup Loan
Yes—it’s possible you might not get approved for an SBA loan for your startup. There are many reasons why this could happen, including a lack of sufficient financial history for your business, which is a common reason for startup loan rejections of many types.
You have a few different courses of action if this happens:
- Pursue a different type of business loan: You might opt for other types of startup business loans—such as equipment financing or business lines of credit, which are more likely to approve younger businesses.
- Wait until you’ve built up more history: If you aren’t in a rush to access financing, you can build up your time in business and revenue before reapplying.
- Improve your credit score: Many SBA loan applicants are denied due to their credit history. If yours could use some work, take the time to improve your score before deciding to reapply or seek out other financing.
Ultimately, you shouldn’t hesitate to have a conversation with your SBA loan packaging team to find out what you can do to improve your candidacy down the line.
The Bottom Line
When it comes down to it, getting an SBA startup loan is often a difficult process, no matter the details of your approach. SBA loans are some of the most desired financing products available, and, as a result, they mostly go to established businesses with excellent credit and strong revenue figures.
Don’t get discouraged, however—it’s possible you still might be able to access an SBA loan as a startup—if not now, at a later time down the road. And remember that the more diligent you are with your finances, and the harder you work to build your credit, the better chance you’ll have of scoring SBA financing.
Sally Lauckner is the editor-in-chief of JustBusiness and the editorial director at Fundera.
Sally joined Fundera in 2018 and has almost 15 years of experience in print and online journalism. Previously she was the senior editor at SmartAsset—a Y Combinator-backed fintech startup that provides personal finance advice. There, she edited articles and data reports on topics including taxes, mortgages, banking, credit cards, investing, insurance, and retirement planning. She has also held various editorial roles at AOL.com, Huffington Post, and Glamour magazine. Her work has also appeared in Marie Claire, Teen Vogue, Cosmopolitan, and ColoradoBiz magazines, as well as Yelp, SmallBizClub, and BizCrat.