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Are SBA Loans Hard To Get?

The Small Business Administration offers loans to qualifying businesses to help finance certain expenditures. These loans are integral in securing lines of credit, equipment, or real estate that small businesses would otherwise not be able to get. Often, SBA loans have special rates and terms that are beneficial rather than detrimental to a business’s credit health. However, getting a loan from the SBA is no easy task. Learn more about the process of securing an SBA loan and how to ensure your business is eligible.

What Are SBA Loans?

The SBA is a part of the federal government, and its services are in place to help small businesses get started and stay grounded for years to come. Despite more than half of small businesses going under within the first five years, the SBA still wagers on their success with financing and loans with low rates and fees.

The Small Business Administration can offer low-cost financing because they partner with banks, and other non-bank entities that act as lenders, to reduce the overall risk of lending to start-ups and other small businesses. However, it is also important to remember that the SBA cannot lend alone, nor will a lender execute an SBA loan without the administration’s approval.

Types of SBA Loans

While the SBA works with many different small businesses, not all small business loans are the same. There are specific eligibility qualifications for each kind of loan on top of simply being a small business. You can expect to research more about the following loans:

7(a)

The most common type of SBA loan acquired is the 7(a) loan. It is versatile and has the most flexibility in application, and small business owners can draw working capital or finance.

Microloan

Non-profits are often ineligible for 7(a) loans because they are not-for-profit entities, despite their excellent mission. Non-profits and other social holdings can benefit from the low-cost benefits of working capital from microloans. Amounts are generally far smaller than other loans due to the risk of non-repayment.

CAPLine

CAP loans are used exclusively for construction financing for small businesses and are 85% secured by the SBA.

504

Used for high-dollar projects, 504 loans, also known as CDCs, help cover about 15% of the total cost of expenditures like building purchases or extensive renovations.

Disaster

Disaster loans are in place for qualifying businesses that meet a separate set of eligibility standards, including a state of emergency. Used to replace assets lost to natural causes, COVID-19 relief has also been added to disaster-type loans.

SBA Loan Minimum Requirements

Being a small business is step number one of being eligible for an SBA loan, but that isn’t enough. For companies to be qualified, they must meet a baseline of requirements and the specifics of the loan they apply for. Minimum requirements include being:

  • For-profit business
  • Legally registered and incorporated
  • Does not receive funding by any other means
  • Must be located within the United States
  • Must operate within the United States
  • SBA approved good character
  • SBA approved credit score

Applying for an SBA Loan

Preparation and communication are vital when applying for a small business loan. The process is lengthy, and there are often many applicants, so having everything in order the first time will help your application move faster.

Define Your Business’s Needs

Asking for money to help get your business started isn’t going to be enough of an explanation for either the lender or the SBA. Draft a detailed proposal for why you need the money and what exactly you will do with it. Bonus points if you include a projection of how you will repay it.

Research & Find an SBA Lender & SBA Loan Type

You and your business may not be eligible for every SBA loan, depending on your financial standing and your plan for the money. Learn more about the loans and compare lenders. Before beginning an application, be sure that the SBA loan is right for you.

Refine Your Credentials

When lenders make a hard inquiry on your credit, you can expect your score to drop by one to three points each time. For this reason, you should try to boost your score by making some payments on existing debt before applying. Remember that loan application after loan application is less likely to result in approval and more likely to damage your credit score.

Collect & Prepare All Necessary Documents

Each loan is different, and eligibility qualifiers may require additional documents for specific loans. However, most loans require a basic set of documents, no matter which one you are applying for, and having the correct records on hand will make the process smoother.

  • One to three years of tax returns
  • One year of bank statements
  • Business records for one year
  • Any permits or licenses
  • Government identification
  • Proof of ownership and legal operation
  • Articles of Incorporation
  • Business plan; projection for five and ten years

Apply and Pitch

Once you complete your application, you will present it to the lenders. They will most likely want a pitch that involves your ability to repay regardless of the success of your business. However, the success of your business is the risk they are banking on, so include a business model and a five and ten-year projection.

DCV Franchise Group Can Help Navigate the Challenging SBA Loan Process

SBA loans may indeed be hard to get, and not every business will benefit from an SBA loan at every stage of their business model. However, almost every small business would benefit from either SBA funding or other financing at some point. DCV Franchise Group can help with everything from clarifying the steps in the loan application process to comparing loan options.

Contact DCV Franchise Group today for more details on how financing can help your small business grow.

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