The U.S. Small Business Administration partners with commercial lenders to offer various types of loans to small enterprises. In the 2021 fiscal year, the SBA provided $44.8 billion in funding to support its core programs.
There are many different ways to raise business capital, including business loans. However, of all types of commercial loans, SBA loans are the most attractive to small business owners. On the downside, getting approved isn’t a walk in the park.
We’re here to help.
Read on for tips on how to get approved for an SBA loan.
Apply for the Right Type of SBA Loan
There are different types of SBA loans, each designed with specific types of businesses in mind. The main types include:
- SBA 7(a) loans – up to $5 million for working capital
- SBA 504 loans – up to $5 million for purchasing commercial real estate and equipment
- SBA disaster loans – up to $2 million for businesses adversely affected by natural or economic disaster
The first step to enhancing your chances of getting approved for an SBA loan is to apply for the right type of loan. Also, ensure you know the exact requirements of that loan.
For example, let’s say you’re looking to borrow $500,000 for your business’s working capital. If you don’t know much about SBA loans, you can quickly conclude that the right loan to go for is the 7(a) loan.
Correct, but there are different types of 7(a) loans. There’s the standard 7(a), 7(a) small loan, SBA express, export express, express working capital, international trade, veterans advantage, and CAPlines. Find the loan that’s best suited to your needs.
In addition to specific SBA loan requirements, there are general requirements that all borrowers must meet. You must be an American citizen or permanent resident, the business must be based and operated in the U.S., and it must be a small, for-profit business in a qualifying industry.
Choose Your SBA Loan Lender Wisely
Not all banks have partnered with the SBA to offer SBA loans, so you have to do your research and find a bank that offers these loans. This, though, doesn’t mean you settle on the first SBA-approved bank you come across.
Take your time to find an SBA lender that will give your application the best chance of approval. If your small business is in the agriculture industry, for example, you need an SBA lender with a strong commitment to agricultural businesses.
You also want a local lender. If your business is based in Oklahoma, learn more about this top lender in your region.
Build Good Credit History
Although SBA loans are generally designed for businesses that cannot secure conventional business loans due to reasons such as credit history, you still need good credit to secure an SBA loan.
As such, build good credit before you apply for an SBA loan. Take out regular business loans or lines of credit and repay them on time to build a positive history and grow your business credit score.
How to Get Approved for an SBA Loan Made Easier
SBA loans were never meant to be difficult to secure. However, because the funds are limited and there are millions of applicants, getting approved has gotten more difficult over time. With this guide on how to get approved for an SBA loan, you now know the steps you should take to improve your chances.
Browse our blog for more advice for small business owners.