How To Get An SBA Loan

By Steve Strauss

In a recent blog, I shared how to think like a banker so as to up your chances of getting a conventional bank loan. Today I would like to drill down a bit more into a very specific sort of loan – one made in conjunction with The Small Business Administration.

What if I were to tell you that there is an agency of the United States government whose sole job is to help you succeed in your business? Would you like that? And what if I further told you that said agency has a yearly budget of over $1 billion and that it facilitates in excess of 50,000 small business loans a year, totaling more than $15 billion? Do you think that may help you get your business funded?

Of course we are talking about the Small Business Administration. In many ways, the SBA is one of the best friends your business can have, but this is even truer when it comes to funding. SBA loans have helped millions of entrepreneurs start and grow their business and it can help you too.

The first thing to understand about SBA loans is that the SBA does not make loans, as strange as that sounds. What the SBA does is guarantee loans. By offering a loan guarantee to a bank, the SBA makes it easier for that bank to make more loans since the bank is assured of repayment; if the borrower is unable to repay the loan, the U.S. government will. That is a fine incentive for making more loans.

How much does the SBA guarantee? Traditionally, SBA loan guarantees worked this way:

• Loans up to $50,000 – SBA guarantees 50% of the loan
• Loans up to $150,000 – SBA guarantees 85% of the loan
• Loans above $150,000 – SBA guarantees 75% of the loan

A big change resulting from the 2009 stimulus law is that the SBA now has the right to guarantee up to 90% of all loans. Sometimes the SBA does in fact guarantee that much, but not always. As they say, “your results may vary. “

The core loan the SBA makes, its basic, mainstay loan program, is the 7(a) loan. 7(a) loans can be used for all sorts of things – startups, working capital, equipment, furniture, and real estate even. The length of the loan can be anywhere for 10 to 25 years, and loan amounts have been raised to $5 million.

But this is just one type of loan. There are many others for other purposes. 

There really is not a lot of difference between applying for an SBA loan and a conventional business loan. You will need to provide extensive documentation as to your need and use of the monies and you will need to make a great impression. The main difference is that here, you will need to fill out SBA forms in addition to whatever else the lender typically requires. The basic SBA forms that you should expect to encounter, among others, are these:

• Form 4: Application for Business Loan
• Form 4A: Schedule of Collateral
• Form 413: Personal Financial Statement
• Form 912: Statement of Personal History
• Form 1846: Statement Regarding Lobbying

One last note: Aside from more lenient underwriting criteria, one other good thing about SBA loans is that you may not need collateral to get one. According to the SBA, “To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor.”

Steve Strauss is a senior small business columnist at USA Today and author of 15 books, including The Small Business Bible.