Is It Hard to Get SBA Loans For Small Businesses?

Business Guides

Jacques Famy Jr
Review By Todd Millman

Establishing a good working capital ratio can be challenging when operating a small business — sometimes, despite an owner’s best efforts, there’s a need for extra funding. Luckily, that’s where SBA loans come in.

The U.S. Small Business Administration (SBA) was created in 1953 to help American citizens receive funds to own and operate small businesses. While the application process can feel intimidating, obtaining an SBA loan is not difficult if you have the proper guidance and meet the eligibility criteria.

This article will detail everything business owners can expect during the SBA process and offers a step-by-step guide for completing the application process.

What You Need to Know about SBA Loans

The U.S. Small Business Administration is dedicated to helping for-profit businesses thrive in America’s economy by providing public funds to increase a company’s working capital and fill in cash flow gaps.

As of early 2022, the approval rates for SBA loans are rising. Currently, large financial institutions approve 15.3% of SBA applications, and small bank lenders approve 21.2%. It’s important to note that the pandemic negatively affected SBA lenders, so these approval rates may increase as the economy recovers.

But generally, there seems to be positive movement. The chart above shows the average dollar amount for SBA 7(a) loans from 2014 to 2018. As you can see, there’s an upward trend.

In addition to understanding what the SBA is for, there are basic requirements and loan types that you should become familiar with before beginning your application process.

SBA Loan Requirements

There are four general SBA loan requirements small businesses need to meet to qualify: 

  1. The business must be owned and operated in America—this is a primary qualification criteria
  2. A for-profit business must be legally recognized through articles of incorporation—a key documentation requirement acting as borrower information,
  3. Owners must operate and have equity within the company—this is the fundamental credit eligibility condition,
  4. As part of the "credit not available elsewhere" credit criteria, you cannot receive funding from other alternative lenders.

Business owners can ask for the maximum loan amount is $5 million, but SBA loan program participants generally borrow far less than that, underscoring the collateral requirement aspect, with average amounts hovering under $500 thousand.

Types of SBA Loans

The SBA offers several types of loan products to qualifying businesses. Among these, an unsecured loan stands out for its absence of personal collateral requirement. This includes startup loans to get your business off the ground, and inventory loans for securing important stock. Repayment terms for these loans can often be negotiated with the lender, providing more flexibility. Also, if you've been in business for a while, better terms could be waiting for you.

Now, let's dig into the variegated SBA loan options available for small business owners based in the United States:

  • SBA 7(a) Loans: Each year, over 50,000 loans are granted through SBA 7(a) program. These loans can boost your working capital, facilitating the purchase of inventory, supplies, furniture, fixtures, machinery or equipment. This makes them a prime choice for your startup or unsecured loan needs.
  • CDC/504 Loans: If acquisition of fixed assets or expansion is on your agenda, this loan can provide the vital financial impetus. These loans, too, include funds for large-scale ventures, making property enhancements, or purchasing fixtures integral to your business operation.
  • Disaster Loans: These loans come to the rescue of businesses affected by unforeseen natural disasters, including those interrupted due to the COVID-19 pandemic. Look to the Economic Injury Disaster Loan program for help during such dire times.
  • SBA CAPLine: Do you envision a revamped workspace for your business? Consider this loan to finance your small business construction project with feasible repayment terms.
  • SBA Microloans: This smaller, low-cost loan option is squarely aimed at bolstering a company’s working capital, serving as an excellent inventory loan.

Quick Tip: Still unsure about which SBA loan is right for you? Visit our Small Business Loans page for a comprehensive loan overview. It delineates details on each loan type and additional programs to perk up your company. Also, note that loans are off limits for certain ineligible businesses like real estate investment firms, lending entities, gambling businesses, and others. If you plan on leveraging your home's value as collateral, explore the home equity loans section.

How to Get an SBA Loan

Completing the application process is the most challenging part of getting an SBA loan to qualify for an SBA loan. However, it’s not impossible — thousands of businesses receive these loans every year. For the best chance at success, follow this step-by-step process when completing your application.

Step #1: Consider How an SBA Loan Will Help You

Before starting the SBA application process, consider how this loan will help your small business grow. The compensation of getting an SBA loan includes an opportunity for your small business to expand and flourish. During your application and pitch, lenders will want to hear all the details of how you plan to utilize the loan proceeds:

  • How will the money help you?
  • What will the proceeds be used for?
  • How much do you need?
  • How long will it take to repay the loan?

A significant perk of SBA loans is that you get an extended time to repay them, giving you more funds available for other business needs. Determine the right amount for you and the appropriate type of loan. You’ll also need to provide specific details on how the business plans to allocate the loan proceeds. The leads are more specific you are with your plans for the proceeds; the better your chance of obtaining an SBA loan.

For example, most companies apply for small business loans of less than $100 thousand. If this is the case for you, applying for an SBA 7(a) and CDC/504 loan is not recommended; these loans have 10- to 20-year terms, which if not properly calculated on how will you use the loan proceeds, could jeopardize a company’s future success. Remember, the big perk of getting these loans lies in the interest rates, but it's crucial to accurately plan and factor in this compensation.

Step #2: Find the Right SBA Lender for Your Business

Now that you’ve figured out why you need a loan, it’s time to find a potential lender. Through the Lender Match Service on the official government SBA funding website, small business owners can connect with an appropriate lending institution that adheres to favorable lender standards and meets their needs.

Regrettably, the number of active lenders in the SBA loan program has seen a decline since 2014. That’s why small business owners should identify a lender that primarily works with small to mid-sized businesses (SMBs). Notably, these lending businesses, due to their familiarity with SMB needs, will more likely approve your loan application.

Each lender has varying application prerequisites, do your due diligence in understanding the necessary documentation for each banking institution. Some may ask for a personal financial statement or inquire about your personal loans while assessing your business credit history and financial statements.

Keep in mind that a large financial institution may require more time to process your application and higher credit scores for an SBA loan's approval. On the other hand, potentially faster results and less stringent credit score requirements may be found with credit unions, small banks, or online lenders offering SBA lending services enhanced by the federal reserve's policies.

Step #3: Boost Your Credit Report

Make sure your business is current on any outstanding bills and loans. A bad credit score will not look good and can harm your chances of obtaining funds, especially when considering the FICO criteria used by most lenders.

The best practice is to ensure consecutive, on-time payments. In turn, your credit score will increase, ensuring your credit eligibility for prospective lenders. Also, borrowers with high credit scores can qualify for lower interest rates and better financing options.

Traditional banks usually require a minimum credit score of around 690 to 800 for a small business loan. If your personal credit history does not meet these credit criteria or if you have a low business credit score, it may be best to delay applying for an SBA loan until you can increase your score through consistent, on-time payments.

Quick Tip: Many lenders, including online ones with less strict credit criteria, will only accept one application, so if your application is denied the first time, the likelihood of success on a subsequent attempt remains low.

Step #4: Collect the Required Documents

The application requirements vary depending upon the company you apply with, but there are a few documents that are consistent throughout the SBA application process. Your lender, be it an orthodox or a tech-enabled institution that minimizes the amount of paperwork, should guide you in preparing your borrower information. Key documents you'll need to supply include:

  • Proof of business ownership
  • A form of ID, such as a government ID or a driver’s license
  • SBA's borrower information form
  • Any permits and licenses the business holds
  • Articles of incorporation
  • Business tax returns and financial documents for the past year

Besides, you will also need to provide a valid email address. Using an email not only allows lenders to communicate with you quickly but also aids in verifying your identity. Remember, fields marked with an asterisk (*) are required, and your email address will not be published.

Having these documents, along with your email, ready will not only save you time but show potential lenders that you are serious about getting a loan. Hence, adhering to this checklist ensures a smoother application process and reduces paperwork.

Step #5: Apply and Pitch

Once you’ve completed steps one through four, applying and pitching your case to a lender should be a breeze. You’ve already gathered your materials for the loan application; the only thing left is to sell your business ideas to your lender.

On the day of the appointment, you’ll want to look professional. Consider wearing your best business attire to make an excellent first impression. During your pitch, be sure to present as firm and confident. (It doesn’t hurt to practice rehearsing your pitch and anticipate potential feedback and questions from the lender.)

Why Small Businesses Struggle Getting SBA Loans

Although the Small Business Administration, a federal government agency, provides a guarantee to approved SBA lenders, the guarantee is typically up to 75%, so the remainder, the lender is on the hook and with high delinquency and default rates on SBA loans, lenders are cautious when offering SBA loans to small businesses.

6 Reasons SBA Loans are Denied

Applicants find that the SBA approval process is arduous with various obstacles. The SBA loan application, known for its stringent qualification criteria and collateral requirements, can be declined for many reasons. However, the following are the 6 most prevailing reasons why small business owners fail to meet the credit criteria and get denied for an SBA loan. Interestingly, these are common queries addressed in various SBA loan facts. Often, the "credit not available elsewhere" qualification requirement, which necessitates showing that funding is not available from your personal resources, acts as a stumbling block.

Time in Business  

The length of time in business plays an important role in the credit decision. Business history is a factor that is not overlooked. SBA approved lenders consider startup businesses very risky because 1 out of every 2 businesses fail in the first year and by the 5th year less than 20% survive. The longer the time in business in which you can show financial success with consistent cash flow over years, not months, the better chance of approval. Lenders will need to see at least 2 years of financial history before they will consider approval.

What is the solution to a time in business denial?

Although denial for time in business is hard to remedy in the short term, there are alternatives to SBA loans to secure business funding. Alterative lenders offer short term loans and merchant cash advance to those businesses who lack time in business with offers available after as littles as 6 months track record of sales in business.          

Cash Flow

When the SBA approved lender evaluates the ability of a company's cash flow to repay the loan they look to profit and loss, the balance sheet of course, but ultimately the cash flow consistency on a month to month basis and annual revenue dictates ability to repay the monthly payments.

What is the solution to a cash flow denial?

The best thing to do to resolve cash flow issues is to find alternative business financing options to help improve cash flow over a sustained period of time so that in 6 months to a year you can re-apply and garner reconsideration if you can demonstrate some cash flow consistency. Online and alternative lenders offer short-term business loans and cash advances that will consider volatile cash flow if minimum monthly revenue is met and other qualifications are acceptable.

Financial Documentation

The SBA loan application process is notorious for requiring a lot of documentation for there business loan approval factors. The loans require multiple years business and personal tax returns, year to date profit & loss, balance sheet, accounts receivable & accounts payable aging reports as well as a plethora of other financial documents to obtain approval.

What is the solution to a denial related to your financial documents ?

The repair to this problem requires time and performance of the business and guidance from a financial advisor and/or accountant to establish a sound footing for future reconsideration. Admittingly this will take time to get in the good graces of SBA to get an SBA loan. In the meantime, alternative lenders have a variety of business resources with small business financing for those businesses who cannot provide satisfactory financial statements to acquire a traditional term loan like an SBA loan.

Business Owner Personal Credit

The business owners personal credit history and personal credit score are very important in the businesses credit worthiness in the eyes of the SBA. It's important to have excellent credit history and a good personal credit score, with a standard minimum credit score of at least 680 to have the best chance of approval.

What is the solution to a denial related to personal credit ?

If you don not have good credit, engage with building credit and repair any negative credit. As you know, improving credit can take months if not years, so you may want to seek alternatives to a traditional small business loan. There are many business funding alternatives that consider poor credit score such as merchant cash advances.

Business Credit

Business credit comes in the form of prior business debt that shows a good pay history. There is know per say "business credit score", but a recording history of the business repaying debt. Without any history it can be difficult for SBA lenders to determine ability to repay successfully.

What is the solution to a denial related to business credit ?

Building business credit is key by establishing credit with venders or perhaps taking on multiple business credit cards. If you have bad business credit, its time to get it repaired and resolved if you hope to get an SBA loan. Other business funding is available that are more tolerant to a lack of business credit or some delinquency.  


Collateral of real estate, equipment and other business assets can be an asset in acquiring financing from SBA. Additionally, personal assets also can be used as collateral or down payment. The lack of collateral will not be viewed kindly by SBA lenders.

What is the solution to a denial related to collateral ?

If you have personal collateral that you can put up, you may want to offer such to the SBA lender for reconsideration. If you don't have any collateral or unwilling to provide personal collateral you will need to consider small business funding options from other than traditional lenders, that don't require collateral or personal guarantee, which do exist via short-term business loan, merchant cash advances and other revenue-based financing options.

The Bottom Line 

Is it hard to get an SBA Loan? Yes, it can be challenging unless you possess a sound business plan and demonstrated industry expertise. Many small business owners, when well-prepared, can swiftly secure the necessary funds to propel their businesses forward. This typically involves a good credit score, vital documents, a well-thought business plan, and an experienced business loan initiator, demonstrating your integrity and expertise in your field.

If you're prepared to check your qualification for an SBA loan, or perhaps contemplate other alternatives to SBA loans, including refinancing debt, reach out to AdvancePoint Capital today to get a free quote. Our dedicated team is prepared to assist small business owners and guide them through the application process. So what's holding you back? It's time to aid your business growth to its intended maturity.

Jacques Famy Jr

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