As a small business owner, you’ve likely seen the many grants, loans, and financial support programs available to help grow your business. If the multitude of options and qualifications seems overwhelming, don’t be discouraged. If your business is physically located in the United States, you may qualify for an SBA loan of up to $5 million from the Small Business Administration.

To help you understand and navigate the three types of SBA loans, we’ve put together this guide to outline the basics of each loan, your qualification criteria, and how to apply for each one. With this guide and a comprehensive business plan, you will be on your way to securing your share of business funding from the Small Business Administration.

What is an SBA loan?

An SBA loan is a small business loan that is partially guaranteed by the Small Business Administration. This guarantee reduces the risk to the lender and allows them to lend money more freely to small business owners. These loans come with competitive terms, counselling and education, and unique benefits like lower down payments, flexible overhead requirements, and in some cases, no collateral needed.

To be successful in securing an SBA loan, you need to meet several specific criteria including having a comprehensive business plan. Your business plan demonstrates that you have a solid business concept, you know what you plan to spend the funds on, and have a business forecast that includes a plan to repay the loan while still growing your company. It’s evidence that you’ve got a viable, profitable business idea and that you will repay the loan. In addition to having a business plan, here’s what you need to know about qualifying for SBA loans.

SBA Loan Types

There are three SBA loan programs available, each with different loan amounts.

7(a) Loans

The 7(a) loan is the most common loan program offered by the Small Business Administration and includes financial help for small businesses with special requirements or when real estate is part of the purchase. It is also a great option when you need access to short- and long-term working capital, refinance your existing business debt, or buy furniture, fixtures, and supplies. You can borrow up to $5 million with a 7(a) SBA loan.

There are several types of 7(a) loans:

• Standard 7(a)
• 7(a) Small Loan
• SBA Express
• Export Express
• Export Working Capital
• International Trade
• Preferred Lenders
• Veterans Advantage

504 Loans

504 loans provide long-term, fixed-rate financing for major fixed assets for your business. These assets must contribute to business growth and job creation. This funding is accessible through Certified Development Companies (CDCs) and is regulated by the SBA. Small businesses can secure up to $5 million in funding through this type of loan.

SBA Microloans

Microloans provide up to $50,000 of funding to help start-up businesses or established businesses expand their operations. While you can’t use this loan for real estate or refinancing your debt, you can apply it towards working capital, inventory, supplies, furniture, fixtures, machinery, and equipment.

SBA microloans are administered through specifically designated intermediary lenders. Typically these are nonprofit community-based organizations with experience in lending and can also provide management and technical support for your business.

How to Qualify for an SBA Loan

The absolute maximum loan under this program is $1 million; however, no more than $350,000 can be used for the purchase of equipment or for improvements to leasehold property.

7(a) Loans Qualification Criteria

To be eligible for a 7(a) loan, you need to:

• operate a for-profit entity
• be a small business (as defined by the SBA)
• operate in the US
• have invested a reasonable amount of equity
• have put other resources, like your own assets, into the business already
• have a demonstrated specific need for funding
• have a sound business purpose for the money (your business plan will help here)
• not be delinquent to the US government already.

504 Loans Qualification Criteria

Businesses applying for 504 loans need to:

• operate as a for-profit company within the US
• be a small business (as defined by the SBA)
• have a tangible net worth of less than $15 million
• have an average net income of less than $5 million (in the last two years)
• be run by managers with qualified management expertise
• have good character
• have the ability to repay the loan (your business plan must prove this)

SBA Microloans Qualification Criteria

The individual lenders determine the criteria for SBA microloan eligibility. 504 loans and 7(a) loans have extensive parameters and standardized documents based on the loan type, but microloans do not. It’s up to the lender to decide what they need. In most cases, collateral or a personal guarantee is required to process your loan.

How to apply for an SBA loan

The process to apply and prove your qualifications to receive an SBA loan will vary depending on the loan you apply for:

Applying for 7(a) Loans

To apply for a 7(a) loan, the SBA has created a helpful application checklist that includes submitting the following:

• a Borrower Information Form (SBA Form 1919)
• personal background and financial statements
• a business financial statement
• a business certificate/license
• your loan application history
• income tax returns
• resumes for each principal
• a business overview and history
• your business lease.

If you’re purchasing an existing business, additional documents may be required. The majority of the loan documents and information needed are part of your business plan.

Applying for 504 Loans

To apply for a 504 loan, you need to put together a 504 loan authorization package. You will need to provide your company’s documents whether you have a corporation, partnership, LLC, LLP, any applicable trustee certifications and any trade name documentation. You’ll also need an EIN, flood hazard documentation, and documents that verify your financial information. You can find a complete list in the 504 Authorization Library on the SBA website.

Applying for SBA Microloans

Approved SBA intermediaries administer these loans. These intermediaries make all credit decisions and will set your loan terms. Contact your local SBA District Office to find a microlender in your area.

How long does an SBA loan take to get approved?

The typical SBA loan is approved within 60-90 days. It’s a lengthy process that depends on many factors, including submitting the correct supporting documentation and how many other people are in the queue to have their applications reviewed.

However, if you submit an express version of the 7(a) loan, you get an answer within 36 hours. Whether you’re applying for a 7(a) loan, a 504 loan or a microloan, having a business plan that communicates your intentions can make funding decisions easier and faster for the lender reviewing your application.

Additional SBA funding Options for COVID-19 Relief

In addition to the 7(a), 504, and microloan options, the Small Business Administration has created several other financing options to support businesses impacted by COVID-19. These include the Paycheck Protection Program, COVID-19 EIDL, Shuttered Venues Grant, Restaurant Revitalization Fund, and debt relief programs for existing borrowers. In some cases, your small business may qualify for and receive multiple COVID-19 relief funding.

If you’re looking for a small business loan, SBA loans can be a great option to help you get started or grow. With a wide range of programs that provide support and advice in addition to funding, the Small Business Administration gives lenders the guarantee they need to lend money to more business owners, stimulate the economy, create jobs, and support entrepreneurs to create the businesses of their dreams.

How a business plan can support your loan application

You may have noticed that much of the information lenders ask for is included in a professionally written business plan. That’s why it’s critical to have a detailed business plan then to update it based on the specific needs of each loan or lending program you apply for. When submitting your business plan as part of your loan application, the lender will pay particular attention to the financial section. This section is where you can prove your cash flow projections and the ability to repay the loan. No lender wants to give out money to a business that isn’t profitable or has a low likelihood to repay the loan.

Your business plan is also your business overview and summary; a loan requirement for many funding programs, including the SBA 7(a) loan. Your business plan shows the lender that you have a viable business plan and outlines how you intend to operate and grow your business, and hence, be profitable.

Writing your business plan to apply for business funding can be a time-consuming task when you also have to deal with the day-to-day operations of your business. With the help of a professional business plan writer, you can secure the professionally written business plan lenders like the SBA are looking for. It’s one step towards your successful application to the Small Business Administration loan program of your choice.