What an SBA loan is and who can get one

An SBA loan is money borrowed through a bank or lender, with the Small Business Administration backing part of the risk. You repay the lender, not the SBA. The SBA's role is to may provide a portion of the loan — usually 75 to 90 percent — so lenders are willing to lend to businesses that might not otherwise may have access to for a conventional bank loan.

You can get an SBA loan if you own a for-profit business, have been in operation for at least two years (with some exceptions for startups), and can show you have tried to get conventional financing first. The business must be located in the United States, and you must have a personal credit score of at least 620 to 640, depending on the lender. Nonprofits, passive investment businesses, and certain industries like gambling or lending are not may be able to access.

The most common type is the 7(a) loan program, which covers general business needs. Other programs exist for specific purposes: the 504 loan program for real estate and equipment, and microloans for businesses under $50,000. Each has different terms and requirements.

Key Takeaways

  • You apply through a bank or SBA-approved lender, not directly to the SBA, and the process typically takes 30 to 60 days from application to funding.
  • You must show the lender that you tried to get a conventional loan first, and you will need personal tax returns, business financial statements, and a personal credit report.
  • The SBA guarantees part of the loan so the lender takes less risk, but you are personally responsible for repaying the full amount to the lender.
  • Loan amounts range from $25,000 to $5 million depending on the program, and repayment terms are typically 5 to 10 years for working capital and up to 25 years for real estate.
  • The lender, not the SBA, decides whether to approve you, and different lenders have different credit score minimums and documentation standards.

Finding and choosing a lender

You do not apply to the SBA directly. Instead, you apply to a bank or SBA-approved lender. The SBA maintains a searchable database of lenders on its website (sba.gov) where you can filter by state and loan type. Community banks and credit unions often have SBA lending programs and may be more flexible with newer businesses than large national banks.

Before you approach a lender, contact two or three banks to ask whether they have active SBA lending programs and what their current credit score minimums are. Credit requirements vary: some lenders require 680 or higher, others will work with 620. Ask also whether they charge an SBA may provide fee (typically 2 to 3 percent of the loan amount) and what their timeline is. A lender that tells you they can fund in two weeks is likely not doing thorough underwriting.

If you have been turned down by conventional lenders, bring those rejection letters with you. They show the SBA lender that you have already tried the conventional route, which is a requirement for most SBA loans.

Documents you will need to gather

Lenders require the same core documents across most SBA programs. Have these ready before you call:

  • Personal tax returns for the last two years (yours and any co-owner's)
  • Business tax returns for the last two years (if the business has been operating that long)
  • Current business financial statements — a profit and loss statement and balance sheet, ideally prepared by an accountant
  • A personal credit report (you can pull this free at annualcreditreport.com)
  • A signed lease or proof of ownership if you are borrowing for real estate
  • A detailed business plan or description of how you will use the loan money
  • Proof of any collateral you are offering (equipment, inventory, real estate)
  • Personal financial statement showing your assets and liabilities

If your business is newer than two years, bring whatever financial records you have — bank statements, invoices, profit and loss projections. Some lenders will work with startups, but they will scrutinize your personal credit and assets more closely.

The application and underwriting process

Once you have chosen a lender, you will complete their SBA loan application. This is not a single form — it includes the SBA's Form 1919 (the application itself), personal financial statements, and the lender's own application. The process takes 30 to 60 days from the date you submit a complete application to the date you receive a decision.

The lender will order a personal credit report and may order a business credit report. They will verify your tax returns with the IRS and contact any banks where you have accounts. If you are borrowing for real estate, they will order an appraisal. If you are borrowing for equipment, they may require a quote from the vendor.

During underwriting, the lender is checking three things: whether you can repay the loan (your cash flow and income), whether you have skin in the game (your personal investment in the business), and whether the collateral is worth enough to cover the loan if you default. Be prepared to explain any gaps in your employment history, any late payments on your credit report, or any dips in your business income.

What happens if you are approved

If the lender approves the loan, they will send you a commitment letter stating the loan amount, interest rate, term, and any conditions you must meet before funding. Common conditions include obtaining a business license, providing proof of insurance, or paying down other debts.

Once you have met the conditions, the lender will prepare loan documents for you to sign. You will sign a promissory note (your promise to repay), a security agreement (giving the lender a claim to collateral), and possibly a personal may provide (your personal promise to repay if the business cannot). The lender will also collect the SBA may provide fee and any origination fees at closing.

Funding typically happens within a week of signing. The lender will deposit the money into a business account you designate. You are responsible for using the money for the stated purpose — if you borrowed for equipment, you cannot use it for payroll without lender approval.

Interest rates, fees, and repayment terms

SBA loan interest rates are not set by the SBA. The lender sets the rate, which is typically the prime rate plus 2.25 to 2.75 percent for a 7(a) loan. As of early 2024, this means rates are roughly 8 to 9 percent, but rates change with the prime rate and vary by lender and loan size.

Fees include the SBA may provide fee (2 to 3 percent of the loan amount, paid at closing), an origination fee (typically 1 percent, also paid at closing), and possibly a servicing fee if the lender sells the loan to another servicer. Ask the lender for a complete fee schedule before you sign.

Repayment terms depend on what you borrowed for. Working capital loans are typically repaid over 5 to 7 years. Equipment loans match the useful life of the equipment, usually 5 to 10 years. Real estate loans can be repaid over up to 25 years. Monthly payments are fixed, so you know exactly what you owe each month.

What to do if you are denied

If a lender denies your application, ask them in writing why. Common reasons include insufficient cash flow, too much existing debt, a credit score below their minimum, or insufficient collateral. Some of these you can fix: paying down debt, waiting a few months to rebuild credit, or offering additional collateral.

You can also try a different lender. SBA lending standards are set by the SBA, but individual lenders have discretion on credit scores, debt-to-income ratios, and how they weigh factors like industry risk. A lender that turns you down may be more conservative than another.

If conventional SBA lending is not working, ask the lender whether you may have access to for a microloan (up to $50,000) through an SBA microlender, which often has more flexible credit requirements. You can find microlenders through the SBA website.

Frequently Asked Questions

How long does it take to get an SBA loan from start to funding?

From the date you submit a complete application to the date the money is in your account is typically 30 to 60 days. The lender's underwriting takes 2 to 4 weeks, and closing and funding take another 1 to 2 weeks. If the lender asks for additional documents, the timeline extends.

Can I get an SBA loan if I have bad credit?

Most lenders require a credit score of at least 620 to 640. If your score is below that, you can try a microlender, which may work with scores as low as 600, or wait a few months while you pay down debt and dispute errors on your credit report. Some lenders will also approve you if you have a co-signer with stronger credit.

What if my business is less than two years old?

Some lenders will work with startups or businesses under two years old, but they will require stronger personal credit, more collateral, and a detailed business plan. You will also need to show personal financial strength — savings, investments, or other assets — to prove you can weather a slow start.

Do I have to put money into my business before I borrow?

Yes. Most lenders require you to invest at least 20 to 25 percent of the total project cost with your own money. If you are borrowing $100,000 for equipment, you typically need to put in $20,000 to $25,000 of your own funds. This shows the lender you have skin in the game.

What happens if I cannot make a payment?

Contact your lender immediately. Most lenders will work with you on a temporary deferment or forbearance if you are having a temporary hardship. If you do not contact them, they will report the late payment to credit bureaus, and after 90 days of nonpayment, they can begin collection or foreclosure on collateral. The SBA may provide does not protect you from these consequences — it only protects the lender.