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Is it Hard to Get an SBA Loan?

SBA Loan

Requirements for an SBA Loan

Small Business Administration (SBA) loans are highly sought after by small business owners because of their low-interest rates and long repayment terms. These loans are guaranteed by the federal government and are partially guaranteed by local intermediary lenders, which makes them more willing to offer loans to small businesses. This partial guarantee means that if the borrower fails to repay the loan, the lender is guaranteed repayment by the SBA, which lowers the lender’s risk and makes it possible to offer the borrower great terms.

SBA 7a loans can be up to $5 million with interest rates starting around 6.5% and repayment terms of five to 25 years. They are the most desired loan product on the market because of the accessibility and great terms they offer to business owners.

To qualify for an SBA loan, you will have to meet strict requirements set by the SBA and their lending partners. The SBA and its lending partners have the final say in who they approve for a loan.

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What Is an SBA Loan?

An SBA loan is a type of loan offered by the Small Business Administration (SBA), a federal government agency. These loans are highly sought after by small business owners because they offer low-interest rates and long repayment terms.

The SBA partners with local intermediary lenders to partially guarantee loans offered by these lenders, which makes them more willing to offer loans to small businesses. This partial guarantee means that if the borrower fails to repay the loan, the lender is guaranteed repayment by the SBA, which lowers the lender’s risk and makes it possible for them to offer great terms to the borrower.

SBA 7a Is The Gold Standard of Loans

As a borrower, taking out an SBA loan virtually ensures the best interest rates on the market, with a repayment period lasting over a long stretch, which eases the burden. For the lender, the partial guarantee offered by the SBA makes funding these loans less risky than it otherwise would be.

Why Are SBA Loans Such a Hot Commodity?

SBA loans are the most desired loan product on the market simply because they offer the best repayment terms and accessibility to business owners. And who wouldn’t want that?

SBA loans can be up to $5 million (yeah, really!), with interest rates starting around 6.5%. Repayment terms of five to 25 years.

Let’s Get More Granular, Shall We?

To give you an idea of how an SBA loan compares to other loan products, let’s compare the terms of an SBA 7(a) loan to a traditional term loan commonly available through banks or alternative online lenders:

SBA 7(a) Loan

  • Loan amount: $5,000 to $5 million
  • Term: 5 to 25 years
  • Interest: Starting at 6.5%

Traditional Term Loan

  • Loan amount: $25,000 to $500,000
  • Term: 1 to 5 years
  • Interest: 7% to 30%

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Who Is a Good Candidate for an SBA Loan?

How hard is it to get one of these Small Business Administrations, then? Although some of the SBA loan products are intended to make low-interest loan products more accessible to small business owners than they otherwise would be, it won’t come as a surprise that you still have to meet strict requirements to be considered a good candidate for an SBA loan.

The SBA and their lending partners can choose who they approve to receive a loan.

How Hard Is It to Qualify for an SBA 7(a) Loan?

There are a few different types of SBA loans that are available to smaller businesses, new businesses, and disadvantaged businesses. These are the SBA Micro-loan and SBA Community Advantage Loan. (Find out more about the three types of SBA loans here.)

Let’s take a look at the eligibility requirements for the SBA’s most popular loan program, the SBA 7(a) loan:

  1. Time in business

Most SBA loan programs require applicants to be in business for at least two years before applying. This means that an SBA 7(a) loan is not the ideal product for startup business owners, as you’ll need to show some revenue history and experience in your business before you’re able to qualify.

  1. Annual business revenue

Along those same lines, the SBA 7(a) loan program requires that businesses have annual revenue of $100,000 or higher for the most recent fiscal year. This requirement holds regardless of the size or term of the 7(a) loan you’re applying for.

  1. Personal credit history

When you apply for a loan, both the intermediary lender (aka the bank) and the US Small Business Administration will also look to your personal credit history as the borrower to determine your eligibility. It’s important to know that although there is no specific credit score for loan eligibility, you’ll need a strong personal credit score and no recent foreclosures, bankruptcies, or tax liens on your record.

  1. Down payment requirement

The SBA 7(a) loan may also require that you pay a 10% to 20% down payment and partially collateralize the loan. This requirement depends on the lender and the size of the loan. Whether or not a down payment is required also depends on how you intend to use the loaned funds.

  1. Other general eligibility requirements

In addition to these financial requirements for SBA loan eligibility, you must meet a few other legal or logistical requirements to be considered a qualified SBA loan candidate.

Before applying for an SBA loan, ensure you meet the following requirements:

  • Be a small business as defined by the SBA
  • Operate primarily within the US
  • Be a for-profit business
  • Show a need for the requested funds
  • Have used other financial resources, such as personal savings, before seeking a loan
  • Not delinquent on any debt payments to the US government.

So, How Hard Is it to Get an SBA Loan?

That depends on how closely you meet the eligibility requirements. As you can see, being a good candidate for an SBA loan means having solid cash flow and strong credit history.

What Documents Are Needed for an SBA Loan Application?

When you apply for an SBA loan, you need to provide the following documentation:

  • Driver’s license
  • Voided business check
  • Bank statements
  • Balance sheet
  • Profit & loss statements
  • Business tax return
  • Personal tax return
  • Business plan
  • Business debt schedule
  • Personal background and résumé
  • Business credit report
  • Personal credit report
  • Proof of collateral

The lender will review these documents to determine your eligibility and assess their risk in funding a loan for your business. They’ll also use this information to decide how much loan your business can afford. It’s important to note that each lender may have slightly different requirements.

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How Hard Is It to Get a Small Business Administration Loan?

Obtaining an SBA loan can be challenging for small business owners. The application process is more complex and time-consuming compared to other business loans. The process can take several weeks or even months to complete before finding out if you’re approved, which is longer than other loan options. Additionally, the eligibility requirements set forth by the SBA and their lending partners are high, which can make it difficult for some businesses to qualify.

Your business may struggle to qualify for an SBA loan if:

  • You’re a startup or young business
  • You have a poor credit score
  • You’re not willing to offer collateral or a personal guarantee
  • Your personal or business financial history has blemishes
  • You’re not a for-profit business
  • The funds are needed for an unauthorized purpose
  • Your business operates mostly outside the United States.

It’s worth noting that some disqualifying factors, such as a poor credit score or financial history, can improve over time with time and focus on growing your business. However, other disqualifying factors, such as not being a for-profit business, won’t change and you will never be eligible for an SBA loan if you don’t meet those requirements.

SBA Loan Alternatives to Fund Your Business

If you’re not eligible, since getting a Small Business Administration loan is hard, don’t worry! There are still options available to secure small business financing.

Many other small business loans have more flexible or different requirements for borrowers. With that in mind, you should consider these other loan types. These are all easier to get and can certainly help you reach your goals of financing:

These appear in rough order of ease to get, starting with the easiest:

  1. Merchant Cash Advance

This is a lump sum of capital you repay using a portion of your daily credit card transactions. It’s an expensive product, so although easy to qualify for. You should make sure it’s the right product for you first.

  1. Invoice Financing

Also called “accounts receivable financing,” this type of loan lets you get a fast advance of about 85% of the value of your invoice for a fee. It’s a great pick for small businesses whose capital is tied up in invoices—even large companies do this!

  1. A Business Line of Credit

Like a credit card, you’ll work with a lender to get the maximum amount of capital you’re able to draw on. And also like a credit card, you’ll only pay interest on the amount you use.

  1. Short-term loan

This is also a term loan, with a repayment period that only extends to 18 months max. On a daily or weekly repayment schedule.

  1. Equipment Financing

An equipment loan will help you buy business equipment right away by using that equipment as collateral. The lender will provide you with the money to secure your equipment, and you’ll pay back the total purchase amount, plus fees, for a set period.

  1. Term loan

There are other term loans, too, including medium-term loans from alternative lenders. They’ll still provide a traditional lump-sum structure with a longer repayment time that is not as hard to get as a Small Business Administration.

See Which Loans You Qualify For

Applying for a loan other than an SBA loan isn’t shameful. Especially since getting an SBA loan is hard, even for well-established and creditworthy businesses. It’ll be slightly more expensive for your business, but it still helps it get the funds it needs, grow, build a good credit history, and build rapport with a lender. And you might be able to work toward graduating with an SBA loan!

It’s Hard to Get an SBA Loan, So…

As you can see, SBA loans offer much higher loan amounts, longer terms, and lower interest rates compared to traditional term loans. However, it’s important to note that even this comparison is deceptive to some degree because qualifying for the lowest possible rate on a traditional term loan requires a perfect financial history, a high credit score, and high annual revenue—something most business owners simply don’t have.

Overall, SBA loans are a great option for small business owners, but they can be challenging to get. If you’re considering an SBA loan, it’s important to understand the requirements and the process to increase your chances of being approved.

BitX Funding is an online marketplace for small business owners looking to fund a project. We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and are passionate about helping your company reach its full potential.

You can reach a loan specialist by toll-free at 800-824-2407, email at [email protected], or apply online here and we can guide you on which loan is the best fit for your business.



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