How to Get an SBA Startup Loan

Entrepreneurs hoping to secure startup funding with an SBA loan can look to the following programs backed (and, in some cases, funded) by the U.S. Small Business Administration: SBA microloans, Community Advantage loans, 504 loans and 7(a) loans.

Startups are a risky bet for lenders — you don’t have a track record of success yet — and SBA loans are competitive. Targeting the right SBA loan program will improve your chances of success.

The SBA 7(a) and 504 loan programs typically require good personal credit (a FICO score of 690 or above), solid business financials and at least two years in business.

SBA microloan and Community Advantage loans, on the other hand, are designed for true startups. Both programs are available to new businesses and cater to business owners with bad credit (a FICO score of 629 or lower) and low income.

How much: Up to $50,000

Best for: Starting a business

Can be used for: Working capital, inventory, supplies, furniture, fixtures, machinery or equipment

Targeted specifically to startups, the SBA microloan program provides loans of up to $50,000 to help you start or grow your business. The maximum term length is eight years.

The SBA microloan program is administered by a network of community-based lenders, which can set their own rates and eligibility requirements. Those requirements are less stringent than other SBA loans, though, and small-business owners with poor credit or lower incomes can qualify.

How much: Up to $250,000

Best for: Starting a business

Can be used for: Normal business purposes, including inventory and working capital

SBA Community Advantage loans are available to startups in underserved communities. Borrowers have typically been in business for less than three years and don’t qualify for funding elsewhere. Collateral and profits are not deciding factors for Community Advantage loans, making them a great option for new businesses.

You can borrow up to $250,000, and loans mature after 10 years (working capital) or 25 years (fixed assets). SBA Community Advantage loans are offered by mission-focused, community-based lenders.

How much: Up to $5 million

Best for: Growing your business

Can be used for: Working capital, equipment, supplies and real estate

The SBA 7(a) loan program is actually composed of several loan types, each with its own terms and caps. You can borrow up to $5 million with a standard 7(a) loan, for example, or up to $1 million with an SBA Express loan.

SBA 7(a) loans are the most popular, and most competitive, type of SBA loan. You typically need a personal credit score of at least 690 or must be able to show several years of annual revenue. Most 7(a) borrowers have been in business for at least two years.

How much: Up to $5 million

Best for: Growing your business

Can be used for: Real estate, machinery and other major business purchases or upgrades

Startups can use an SBA 504 loan to fund large equipment purchases or facilities upgrades to “promote business growth and job creation.” You can borrow up to $5 million (some projects can qualify for up to $5.5 million) with a term length of 10, 20 or 25 years, depending on the loan.

Small-business owners need to put up 10% of the loan (up to 20% in some cases), which is a steep hurdle to clear for many startups. Each SBA 504 loan is funded by a Certified Development Company and a bank or credit union.

1. Calculate startup costs. You can’t apply for a startup business loan until you know how much you need to borrow. Factor in one-time costs, such as permits, licenses and equipment purchases, as well as recurring expenses like payroll, rent and inventory for at least the first year. This will give you a realistic picture of how much money you need to get your business off the ground.

2. Write a business plan. A solid business plan shows lenders you’ve thought of things like your target market, pricing structure, marketing costs, potential challenges and industry competition. Include your startup cost calculation and a detailed funding request, along with projected income. The goal is to show lenders your business will be a success, especially if you do not have multiple years of profits to lean on.

3. Choose a loan and lender. Determine which SBA startup loan option makes sense for your business, then find a participating lender.

You can use the SBA’s Lender Match tool to find a bank, credit union or community-based lender that participates in your chosen loan program. Remember, the SBA backs the loan, but it’s the lender that processes your application and ultimately makes the call on whether to approve your loan.

4. Prepare your loan application and apply. The paperwork needed to complete your SBA startup loan application will depend on the loan program and lender.

In addition to your business plan and loan application, you’ll likely need to supply the following documents:

• Personal tax returns.

• Cash-flow projections.

• A list of collateral.

• Contracts, quotes or purchase agreements.

If your business is already up and running, you’ll also need to show business financials, including:

• Business tax returns.

• Balance sheet and income statement.

• Business licenses and permits.

• List of current business assets.

The full loan process, from application to funds in your bank account, can take 30 to 90 days, depending on the loan type.

If an SBA startup loan isn’t right for your business, or if you’d like to compare loan options, NerdWallet has a list of small-business loans that are best for business owners. All of our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.