How to Apply for a Small Business Loan

What an SBA Loan Actually Is

The SBA does not lend money directly to most small businesses. Instead, it guarantees a portion of a loan that a participating bank or nonprofit lender makes, which lowers the lender's risk and makes it more willing to approve a business that might not otherwise qualify for conventional financing. Two programs cover most new and growing small businesses: the 7(a) loan program and the microloan program.

SBA 7(a) Loans

The 7(a) program is the SBA's primary loan program, with a maximum loan amount of $5 million, per the SBA. It can be used for working capital, purchasing or refinancing real estate, buying machinery and equipment, or refinancing existing business debt. A newer 7(a) Working Capital Pilot guarantees 85% of loans of $150,000 or less and 75% of larger loans, which is the kind of detail a lender will walk you through once you apply, since guarantee percentages affect how a lender prices the loan.

SBA Microloans

If you need less money, typically to cover startup supplies, inventory, or equipment rather than real estate or large working capital needs, the SBA's microloan program caps out at $50,000, with an average loan size around $13,000, per the SBA. Microloans are not issued by banks directly; they come through nonprofit, community-based intermediary lenders that also provide management and technical assistance alongside the loan. Repayment terms run up to 7 years, and interest rates, set by the intermediary rather than the SBA, typically fall between 8% and 13%.

Who Qualifies

Both programs require the business to be a for-profit, U.S.-based operation that meets the SBA's size standards for its industry, and to show it cannot get comparable credit from conventional sources on reasonable terms. Certain business types are ineligible for SBA-backed loans altogether, including passive real estate investment companies and businesses engaged in lending itself, so check the SBA's eligibility pages for your specific business type before applying.

How to Find a Lender

Since you apply through a lender rather than the SBA, start with the SBA's Lender Match tool, which connects you with banks and other SBA-approved lenders based on your location and loan need. You can also approach a bank you already have a relationship with and ask whether it participates in SBA lending, since an existing relationship can sometimes streamline underwriting.

What to Prepare Before You Apply

Most lenders ask for a written business plan, financial projections (and, if the business is already operating, two to three years of financial statements and tax returns), a clear statement of how much you need and what it will be used for, and personal financial information for every owner with 20% or more ownership. If you are seeking a loan to start a new business rather than expand an existing one, the business plan and projections carry even more weight, since there is no operating history to review instead.

Collateral and Personal Guarantees

SBA loans commonly require a personal guarantee from owners with a significant ownership stake, meaning you are personally responsible for repayment if the business cannot pay. Larger loans may also require collateral, such as business equipment or real estate, though the SBA does not require a startup to have collateral it does not have; a lender can still approve a loan based on the strength of the business plan and projected cash flow.

After You Submit an Application

The lender underwrites the loan using its own criteria plus the SBA's eligibility rules, which can take anywhere from a few weeks to a few months depending on the lender and loan size. Respond quickly to requests for additional documentation, since incomplete files are a common reason an application stalls. If one lender declines your application, you can apply with a different SBA-approved lender, since each lender makes its own underwriting decision within the SBA's guidelines.

Other SBA Loan Programs to Know About

Beyond the 7(a) and microloan programs, the SBA also backs 504 loans for major fixed assets like real estate and heavy equipment, and disaster loans after a declared disaster. If your financing need is for a specific large asset purchase rather than general working capital, ask a Lender Match-matched lender whether a 504 loan fits better than a 7(a) loan.

Match the Loan Size to the Need

A microloan's $50,000 ceiling fits many home-based or very early-stage businesses, while a 7(a) loan's much larger range suits a business with bigger equipment, real estate, or working capital needs. Applying for far more than you can show a documented need for slows down underwriting.

A Business Plan Carries More Weight for a New Business

Without financial statements from prior years, a lender leans heavily on your written business plan and financial projections to judge whether the business can repay the loan. Keep projections realistic and be ready to explain the assumptions behind them.

Your Business Structure Does Not Determine Loan Eligibility

Sole proprietorships, LLCs, and corporations can all apply for SBA-backed loans; the program looks at the business's size, industry, and use of funds rather than its legal structure. That said, lenders will ask for your EIN and formation documents as part of underwriting, so have them ready.

Rates and Terms Vary by Lender

The SBA sets maximum loan amounts and guarantee structures, but individual lenders and, for microloans, individual intermediary organizations set the actual interest rate and specific terms within those limits. Compare offers from more than one SBA-approved lender if your timeline allows it.

This Is Not Financial Advice

Whether an SBA-backed loan is the right financing choice, and how much debt your specific business can safely take on, depends on your numbers and your industry. Talk to an accountant or an SBA-affiliated Small Business Development Center before signing a loan agreement.