If you are looking for a source of funding for a small business, you should consider applying for an SBA loan. Yet, not all SBA loans are designed for small businesses that are just starting off (like startups). Indeed, very few startups succeed in obtaining an SBA loan.
If you are looking to apply for an SBA loan, look no further. In this article, we explain everything you should know about how to apply for SBA loans for your startup. We will cover:
SBA loans are a great source of funding for startups. Yet, they aren't designed for any startup either.
Why? SBA loans are a form of debt like any other. Therefore, you will have to repay it in the future. If your business is too early-stage, there is a risk that you can’t afford to repay a loan in the first few months (or years).
So, before you apply for one of the different SBA loans out there for your startup, make sure you are eligible. First, you will need to show your business generates positive cash flows, or will do so soon in the future (so it can support debt repayment).
Among all the SBA loans available out there, the 7(m) Microloan Program is the most adequate for early-stage businesses. Indeed, all new businesses are eligible to apply, which makes it far more accessible than any other SBA loan.
The Microloan program loan is intended to provide "small" loans of up to $50,000 that can be used for a broad range of purposes to start and grow a business. Unlike most SBA loans, the Microloan isn't lent by financial institutions but the SBA itself.
Of course, the catch is that you'll be limited to $50,000 maximum (actually, the average amount is $10,000).
Luckily, you may be able to borrow far more than $50,000. As said earlier, you will have to demonstrate you will be able to repay the loan. Also, most lenders require you to provide 2 years of your financial accounts.
If you can provide these documents, you may be eligible for a number of SBA loans. Choose the one you need based on the expected use of funds. In other words, what are you going to do with this loan? This will determine the type of SBA loan you can apply for.
For example, if you plan to spend the funds on inventory and/or working capital, you can choose many options, for up to $5.5 million maximum.
Most lenders require at least:
Are you eligible? Great! Now it's time for you to review the loan application checklist to gather all the documents you need to apply. You will need at least:
See this article from SharpSheets for a complete guide on how to create a rock-solid business plan and financial projections for your SBA loan application.
You can have a look at the SBA's Lender Match in order to find a lender. Their platform allows you to find one in less than 2 days.
If you choose to go to your local bank branch, make sure they have experience with SBA loans, as otherwise, it can seriously delay your application. The more experienced the lender is with SBA loans, the more likely they will be able to guide you and offer you the best terms for your business.
Once you have submitted your application to a lender, you will need to wait for an answer (whether your application is approved or not). SBA loans are notorious for having long turnaround times: the entire process from application to loan disbursement can take anywhere from 30 days to a couple of months.
