How to Qualify for a SBA Loan

The disaster loan programs have ended but the need for working capital for small businesses continues to grow. Entrepreneurs are ready to get back to business and access to outside funding is critical. There are many funding options available for qualified business owners but the rates, terms, use of funds, and other costs can be extremely varied.

If you’re in need of funding to help meet your business goals, consider applying for an SBA loan. SBA 7(a) loans are generally regarded as the “gold standard” in small business lending with great rates, a 10-year repayment term, and low monthly payments. Read on for information about how to qualify for a post-pandemic SBA loan.

What is an SBA 7(a) loan?

SBA loans are business loans guaranteed by the SBA. This government agency provides loan guarantees of up to 85% of the loan amount provided through an SBA-approved lender—typically banks.

The 7(a) loan programs let you borrow money for business purposes—including working capital, for inventory or equipment, to refinance other debts, or to purchase commercial real estate.

SBA loans have low interest rates and long repayment terms, making them one of the most sought after types of business financing available. These loans may require a longer application than others and be slower to fund.

Who SBA 7(a) loans are for

SBA loans are good for established small business owners wanting to shore up finances or expand with new inventory, additional products, or another location. Proceeds Your business must have fewer than 500 employees, and less than $7.5 million revenue on average each year for the past three years. Your net income must be under $5 million (after taxes and not counting carry-over losses), and your tangible net worth must be less than $15 million. Learn what a small business is according to the SBA: Small Business FAQ.

How it works

Here’s the application process for SBA 7(a) loans from banks in the SmartBiz® network:

  1. We get to know you and your unique business
  2. Complete one online loan application through our advanced technology platform
  3. No faxing or printing required
  4. Discover if you’re pre-qualified in about 5 minutes with no impact on your credit score*
  5. We help you understand your options

Once you pre-qualify, you are assigned to a team of dedicated professionals who can answer any questions and walk you through the online loan application process. You’ll receive recommendations for the best financing options based on your unique business credit and financial profile.

*We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

We match you with the best lender

Using our sophisticated technology platform and experience, we match you with the banks or non-bank lenders in our network most likely to approve your loan application. Your dedicated SmartBiz team helps you stay on track throughout the financing process. About 90% of the applications referred to our trusted network are approved.

SBA 7(a) loan amounts available

Businesses can get an SBA 7(a) loan for any amount of up to $5 million. SBA has no minimum amount for any of its loan programs and SBA has guaranteed loans for small businesses for $10,000, or less. Banks in the SmartBiz network fund SBA 7(a) loans between $30,000 to $5 million.

The first important decision you will make during the loan process is to request a loan amount that will help you reach your objectives. Review your business plan to determine where you currently stand and where you want to go. Speak with your accountant to nail down an amount with the cost of the loan and all fees in mind.

Interest rates for SBA 7(a) loans

SBA loan interest rates are some of the most competitive among lenders. SBA 7(a) loans from a bank in the SmartBiz network, have a variable rate of Prime Rate plus 1.5% to 3.75%.

A variable rate means your business can borrow money at an interest rate that may go up or down over time. For example, if the base rate rises by 0.5%, the rate on your loan will rise from 6% to 6.5%. Variable rate loans tend to have more competitive interest rates than fixed rate loans.

What type of collateral is required for an SBA loan?

Collateral is something pledged as security for repayment of a loan to be forfeited by the borrower in the event of a default. Any business asset that has value, and can be sold by the lender to pay off the loan,  may be considered collateral.

Most banks require some type of collateral. For banks in the SmartBiz network, collateral required depends on the SBA loan size. If you apply for a loan through a bank in the SmartBiz network for $30,000 to $350,000, a lien on business assets is required by the bank. This includes assets such as accounts receivable or inventory, as well as fixed assets such as new equipment purchased with loan proceeds or commercial real estate owned by the business. The value of these assets does not need to equal the loan amount you are requesting.

What are the repayment terms for an SBA loan?

The term for an SBA 7(a) working capital loan is 10 years, meaning monthly payments will be very low. The term for an SBA 7(a) commercial real estate loan for purchase or refinance is 25 years with no balloon payment.

You can partially or fully prepay your loan at any time with absolutely no prepayment penalty or fee.

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