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SBA Loans for Startup Businesses

If you’re about to launch a startup — or even if your business is already up and running — you might be in a position where you could use an influx of cash to upgrade your operations. And while there are several ways for entrepreneurs to gain access to the funds they seek, government-backed loans from the Small Business Association (SBA) are perhaps the best choice for borrowers. 

This following overview of SBA loans for startups will tell you everything you need to know about securing financing for your small business.

What Are SBA Loans for Startups?

SBA startup loans are funds that are temporarily made available to small businesses to help them grow. These loans are backed by the government, and they generally have lower interest rates compared to most other lending arrangements. Unlike some loans, though, SBA Loans have APRs based on variable rates, which can, therefore, fluctuate over time. It’s also important to note that the SBA doesn’t actually provide the loans itself. Rather, the organization facilitates loans from a multitude of its lending partners.  

Who Qualifies for SBA Startup Loans?

There are several different types of SBA startup loans, which, for the most part, are available to businesses that have been in operation for less than one year. Actually qualifying for one of these loans, however, depends on the business owner’s personal credit score and their overall creditworthiness. 

How Do You Get an SBA Loan for a Startup?

Applying for SBA startup business loans is a bit more involved than the application process for many other types of loans. Whereas some lenders offer streamlined applications and instant decisions, SBA loans typically require hopeful-borrowers to submit several documents and wait weeks — or even months — to hear back.

Tips for Applying

If you’re interested in SBA loans for startup businesses, here are a few tips to increase your likelihood of getting approved.

  • Make sure you have a fully fleshed-out business plan prior to applying.
  • Acquire a copy of your credit report to ensure there are no red flags that might disqualify you.
  • If your credit score isn’t that great, be prepared to offer some collateral to secure your loan. 
  • Demonstrate that you’re fully committed to your startup by investing your own resources.  

Documents Needed

As you prepare to submit your application, you’ll need to gather a few different documents. Here are  some of the SBA startup loan requirements you should have on hand before applying. 

  • A driver’s license
  • Your credit scores
  • A business bank account
  • A detailed business plan

SBA Startup Business Loans:

Loan Amount:$30,000 – $350,000
APR Range:9.7% – 11.04%
Time To Fund:Typically take several weeks to fund, but can fund as quickly as within seven days.
Loan Term:Maximum loan term is 10 years.
Origination Fee:4.00%
How To Qualify:675+ Personal credit score
$50,000+ Annual revenue
Great Option For:Borrowers with good credit
SBA loans
Funding real estate purchases
Refinancing debt
Credit Check?Soft credit check and hard pull
Co-Applicants Accepted?No cosigners
Direct Pay-Off To Creditors?No
Click “Check Rates” to apply to SmartBiz

» MORE: SmartBiz SBA Loan Review

Guide to SBA Loans

As previously mentioned, there are several types of SBA loans for startups. Here’s a closer look at a few of those loans and how they compare. 

SBA Microloans Program

Although the average amount of a small business loan is in the neighborhood of $130,000, some entrepreneurs require far less funding to get their ventures off the ground. That’s where SBA Microloans fit into the picture. These loans are for amounts of less than $50,000, which are perfect for businesses with lesser needs.  

Pros & Cons

There are many attractive aspects of SBA Microloans, but these lending arrangements have their drawbacks as well. With that in mind, here are a few pros and cons to consider before choosing this option to fund your startup.

Pros

  • SBA Microloans are typically paid out within one month.
  • Microloans can be awarded to some businesses that don’t qualify for traditional loans.
  • SBA Microloans can be used for a wide array of business needs.

Cons

  • For applicants with poor credit, SBA Microloans can be difficult to qualify for. 
  • Certain lenders might impose restrictions regarding what the funds can be used for.
  • With loans from the SBA, borrowers need to deal with the government as well as banks.

Possible Uses

SBA Microloans can be used for many purposes, but some applications are more common than others. Here are a few ways entrepreneurs frequently use these funds.

  • Working capital
  • Inventory and supplies
  • Machinery and equipment
  • Furniture and fixtures

How to Qualify

The specific qualifications for SBA Microloans vary depending on which lender actually provides the funds. To find out exactly what factors determine whether or not you can get approved for one of these loans, refer to the list of participating lenders on the SBA’s website.   

How to Apply

Applying for an SBA Microloan is a relatively straightforward process. Here’s an overview of the three steps.

  1. Using the SBA’s list of approved lenders, identify a microloan provider in your area.
  2. Requirements vary depending on the lender, so ensure you satisfy the specific criteria. 
  3. Fill out and submit the loan application, and prepare to wait up to four weeks for a response.

SBA Community Advantage

Although securing a loan can pose a challenge for many entrepreneurs, it’s especially difficult for aspiring business owners in underserved communities. If you’re attempting to launch a business in an area with limited resources, an SBA Community Advantage loan might be your smartest option. 

Pros & Cons

SBA Community Advantage loans are an excellent option for some entrepreneurs, but they’re not ideal for every business owner. Here are a few tradeoffs to keep in mind prior to applying for this type of loan.

Pros

  • Community Advantage loans have lower interest rates than many other business loans.
  • These loans allow borrowers more time for repayment compared to traditional loans.

Cons

  • Community Advantage loans aren’t available in all areas of the United States.
  • It can be difficult to qualify for a Community Advantage due to stricter requirements.

Possible Uses

SBA Community Advantage loans can be used for a variety of purposes, but some lenders may impose restrictions regarding how the funds can be spent. Regardless, these loans cannot be used as revolving lines of credit, although in certain situations, they can be used to refinance existing loans.

How to Qualify

In order to qualify for an SBA Community Advantage loan, your business must satisfy several criteria including:

  • A debt service coverage ratio (DSCR) of at least 1.25
  • A form of collateral for loans that exceed $25,000
  • A personal guarantee from all interested parties who own more than 20% of the business

How to Apply

Compared to other SBA loans, Community Advantage loans are easier to apply for. There is a bit of paperwork involved, however. Here are the forms you’ll need to have filled out.

  • Borrower Information Form (SBA Form 1919)
  • Personal financial statement and tax returns (SBA Form 912)
  • Community Advantage Addendum (SBA Form 2449)
  • Business financial statement and tax returns 

SBA Express Loans

SBA Community Advantage loans are attractive to many borrowers, yet they’re not available everywhere. Fortunately, SBA Express Loans are offered coast to coast with repayment terms up to 10 years.

Pros & Cons

There’s a lot to like about SBA Express Loans, but there are also some aspects that are likely to turn off potential borrowers. Here’s a breakdown of the pluses and minuses of this type of loan. 

Pros

  • SBA Express Loans can be funded in as little as 36 hours.
  • These loans can be up to $350,000.

Cons

Possible Uses

SBA Express Loans can be used for numerous purposes, including purchasing real estate, refinancing debt, and gaining access to working capital. Those are a few of the most common applications of SBA Express Loans, but there are many other potential uses as well.

How to Qualify 

In order to qualify for an SBA Express loan, your business will need to satisfy certain requirements, including having 2 years of history in operation in the United States. Additionally, the business owner is required to have previously financed their company via alternative means, and they must be able to prove that those funds were used for business-related purposes.

How to Apply

The process of applying for an SBA Express Loan is akin to the process for most other SBA Loans and business loans in general. Begin by making sure your company satisfies all of the criteria for the loan, then proceed to gather or prepare the required documents. Finally, fill out the application, submit your paperwork, and you should receive a response within 2 days. 

Potential Hidden Fees and Costs for SBA Startup Loans

There are several costs to consider when launching a business. If this is your first adventure in entrepreneurship, here are a few categories of costs you should be prepared to pay. 

  • Startup Fees
  • Office Location
  • Equipment and Tools
  • Marketing Costs
  • Licenses and Subscriptions

Learn More About SBA Loans

Conclusion

Hopefully, you now have a better understanding of SBA loans for startups and what’s involved when applying for one. Depending on what type of loan you’re applying for, though, there’s likely more to learn. Be sure to do your research when applying, and good luck with launching your startup!

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