How to Qualify for an SBA Loan

If you’re a budding entrepreneur, you may not have the capital you need to start and become successful. A Small Business Administration (SBA)  loan could be the key to getting your company off the ground. This loan can help cover startup costs, working capital needs, expansions, real estate purchases and more. They’re handled by a private lender but backed by the federal government. 

There are multiple different types of SBA loans. The most popular type is the 7(a) loan. This loan is issued through lenders that have partnered with the SBA, such as credit unions, banks, community development organizations and microlending institutions. You can use this type of SBA loan for multiple things such as construction and remodeling, furniture or real estate. 

“Usually, the 7(a) loan program under the SBA loan scheme is considered the most flexible one,” said Fran Haasch, founding attorney of Fran Haasch Law Group and SBA loan user. “However, I would advise business owners to check loan requirements thoroughly. Sometimes, a personal guarantee is required to sign by the business owner, which indicates that they’re liable to make loan repayments in case the business can’t repay.” 

The SBA has a guarantee that it will reimburse the lender for a percentage of the debt if you default on your loan. This is how SBA lenders can offer lower repayment prices. 

To receive an SBA loan, you have to meet a specific list of requirements. There are many different types of SBA loans, and some loans may have other requirements that are not listed here. All SBA loan applicants must have a need for financing assistance. However, they must not be delinquent on any debts. Additionally, there cannot be any owner—with 20% ownership or more—who is currently incarcerated, on probation or a defendant in a criminal proceeding. Below are the next five ways to qualify for an SBA loan. 

Be a Small Business 

Though it may seem obvious, to qualify for an SBA loan, you must be a small business. The SBA has a list of what it considers a small business. You can view the list here. Several different sectors and businesses are covered in this list, from farming to oil mining. Each industry has its own size standards in the number of employees. 

Be For Profit

Only for-profit businesses are eligible for an SBA loan. You must be a for-profit business to get an SBA loan because the SBA needs some assurance that you’ll be able to pay your loan back. While non-profit organizations do make money, they are not guaranteed to make the same stable income as for-profit businesses. Certain businesses are excluded from qualifying for SBA loans such as real estate investment firms, gambling activities and pyramid sales businesses. You can view a full list of excluded businesses here. 

Be Located In the United States

Businesses in the U.S. or located in U.S. territories are eligible for an SBA loan. The SBA was founded to help entrepreneurs achieve the American dream in 1953. The SBA is a federally funded organization and was given $15.13 billion in funding from Congress for the 2023 fiscal year. 

Provide a Personal Guarantee 

When borrowing from the SBA, you must provide a personal guarantee. A personal guarantee requires the business owner to be responsible for company debt in case of a default on the loan. There are two types of personal guarantees: unlimited and limited. Unlimited guarantees require owners to pay all amounts due until the note is paid in full. Some SBA loans may require an unlimited guarantee. A limited guarantee may reduce the dollar amount, time or percentage of the loan amount you’re liable for. 

Personally Invested In Your Business 

If you’re applying for an SBA loan as an owner of a business, you must have invested equity, either time or money into your business. The minimum amount of time you must have invested in your business is two years. It must be a portion of your own money, not money from financiers or lenders.

When qualifying for an SBA loan, it is important that you have all your documents in order.

“The application process is pretty straightforward, and it’s easy to submit the necessary documents to lenders,” said chief growth officer and co-CEO Dustin Ray of IncFile. “My one piece of advice is to ensure you have all the correct documents, and they are all accurate and up to date. Missing information can cause major delays or end with you being denied