How to Qualify for SBA Business Loans

SBA Business Loans Can Help With Expenses

The Small Business Administration, a government organization, offers training and other types of assistance to small business owners. The SBA also guarantees business loans provided by banks and private financial institutions. The SBA loan guarantee program is designed to help small businesses gain financing that would otherwise not qualify for traditional business loans. SBA-backed loans provide more flexible terms such as extended repayment periods and low, fixed interest rates.

Things You'll Need

• Company financial statements
• SBA Business Loan Application
• Business Plan

Instructions

1. Start-up loans. For long-term, start-up investments, such as commercial real estate purchase or equipment, small business owners may apply for the 504 loan program. Under this program, funds borrowed cannot be used to pay for debts, and the borrower must contribute a 10 percent down payment for consideration. Microloan 7(m) funds loans smaller than $35,000 and cannot be used for debt or real estate. Unlike the 504 loan program, no upfront investment is required from the borrower. Microloan program funds are provided by the SBA.

2. Operating loans. The SBA 7(a) loan program is the primary option for small businesses that may not qualify for the 504 or Microloan programs. Funds borrowed under a 7(a) loan can be used for any business expense, including debts and real estate. Business owners have 10 years to repay most loans, though terms up to 25 years are provided for funds used to buy fixed assets.

3. Eligibility. To be eligible, small business owners must apply for a loan less than $2 million. Most types of businesses are eligible, though those involved in real estate, speculative investment, lending, religion, gambling or illegal activities receive automatic rejection. SBA business loans can be used for any sound business purpose, but may not be used to refinance debt, repay delinquent taxes or help owners sell or transfer the business.

4. Business evaluation. SBA business loans are not available to owners who have other potential financial sources. This means that the owner, or any partners who control 20 percent or more of the company, must utilize savings and other assets to finance the business before applying for SBA loans. In addition, owners and partners must be willing to personally guarantee loan repayment, which puts personal assets at risk including homes, cars and financial accounts.

5. SBA loan application process. SBA requires owners to submit a solid business plan for loan consideration. The SBA and affiliated lenders review business plans and other application materials. Loans are evaluated based on a business's ability to repay a loan, character and credit history of owners, and the amount of owner investment in the business.

Tips & Warnings

• Don't be afraid to to apply for SBA business loans, even if you've been turned down by other lenders. SBA has a tremendous number of resources to help you qualify for a business loan.

References

• SBA.gov: SBA Loan Programs