SBA Loan

Applying for an SBA Loan for your Small Business

When you are ready to start or expand your business, and want to see whether an SBA loan program might be appropriate for you, here’s how you go about getting started applying for a loan:

Documentation requirements may vary; contact your lender for information you must supply. Common requirements include: purpose of the loan, history of the business, financial statements for three years (existing businesses), schedule of term debts (existing businesses), aging of accounts receivable and payable (existing businesses), projected opening-day balance sheet (new businesses), lease details, amount of investment in the business by the owner(s), projections of income, expenses and cash flow, signed personal financial statements and personal resume(s). You should take the information, including your loan proposal and submit it to a local lender. If the lender is unable to approve your loan, you may ask if the lender can consider your request under the SBA loan guaranty program. Under this program, the SBA can guaranty up to 85% of a small business loan; however, the lender must agree to loaning the money with the SBA guarantee. The lender will then forward your loan application and a credit analysis to the nearest SBA District Office. After receiving all documentation, the SBA analyzes the entire application, then makes its decision.

The process may take up to 10 days to complete. If the lender needs SBA applications and/or guidance it may contact the nearest SBA District Office by visiting http://www.sba.gov/localresources/index.html. Upon SBA approval, the lending institution closes the loan and disburses the funds. To be eligible, a business must be operated for profit and not exceed SBA’s size standards. For further information and eligibility requirements, visit Contracting Opportunities.

What counts as a Small Business for and SBA Loan

Did you ever wonder what counts as a small business? Well its really pretty simple. It has to be a business, and it has to be small. Here is how the SBA defines it:

A Small Business is one that:

1. is organized for profit;
2. has a place of business in the United States;
3. makes a significant contribution to the U.S. economy by paying taxes or using American products, materials or labor; and,
4. does not exceed the numerical size standard for its industry.

The business may be a sole proprietorship, partnership, corporation, or any other legal form.

There is an SBA small business size standard for every private sector industry in the U.S. Economy. SBA uses the North American Industry Classification System (NAICS) to identify the industries.

Small Business

Size Standards (usually stated in number of employees or average annual receipts) represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA’s programs and for Federal contracting programs.

SBA has several general Size Standards. A business in one of the following industry groups is small if it is not greater than the size standard indicated.

Industry Group

Size Standard
Manufacturing 500 employees
Wholesale Trade 100 employees
Agriculture $750,000
Retail Trade $6.5 million
General & Heavy Construction (except Dredging) $31 million
Dredging $18.5 million
Special Trade Contractors $13 million
Travel Agencies $3.5 million (commissions & other income)
Business and Personal Services
Except: $6.5 million

Architectural, Engineering, Surveying, and Mapping Services

$4.5 million

Dry Cleaning and Carpet Cleaning Services

$4.5 million

If the size of a business exceeds the size standard for its overall industry group, it may still be a small business for the specific NAICS industry in that group. Some industries have higher size standards than the general one for the industry group. SBA has a Table of Size Standards on its web site.

Don’t know the NAICS code? Search for NAICS industries on the U.S. Bureau of the Census web site.

For Federal contracting, a small business must not exceed the size standard stated in the solicitation. The contracting officer designates the size standard of the procurement by selecting the size standards established for the NAICS industry that best describes the principle purpose of the procurement.

Need more information on size standards? Please read the Small Business Size Regulations or our “Guide to SBA’s Definitions of Size Standards. ”

For further information, you may write or call the Office of Size Standards.

Office of Size Standards
U.S. Small Business Administration
409 3rd St. , SW, Washington, DC 20416

Phone: (202) 205-6618
Fax: (202) 205-6390
E-mail: sizestandards@sba.gov

SBA 7(a) Loan Program

7(a) loans are the most basic and most used type loan of SBA’s business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American small businesses.

All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. Not all lenders choose to participate, but most American banks do. There are also some non-bank lenders who participate with SBA in the 7(a) program which expands the availability of lenders making loans under SBA guidelines.

7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA’s requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.

Under the guaranty concept, commercial lenders make and administer the loans.

The business applies to a lender for their financing. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty which SBA provides is only available to the lender. It assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for its loss, up to the percentage of SBA’s guaranty. Under this program, the borrower remains obligated for the full amount due.

All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets a loan from its lender with a 7(a) structure and the lender gets an SBA guaranty on a portion or percentage of this loan. Hence the primary business loan assistance program available to small business from the SBA is called the 7(a) guaranty loan program.

A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the Agency can not force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.

What SBA Seeks In A Loan Application:

In order to get a 7(a) loan, the applicant must first be eligible. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner’s equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

Eligibility Criteria:

All applicants must be eligible to be considered for a 7(a) loan. The eligibility requirements are designed to be as broad as possible in order that this lending program can accommodate the most diverse variety of small business financing needs. All businesses that are considered for financing under SBA’s 7(a) loan program must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Eligibility factors for all 7(a) loans include: size, type of business, use of proceeds, and the availability of funds from other sources. The following links will provide more detailed information on these eligibility issues.

Size
Eligible And Ineligible Types Of Business
Use Of Proceeds
Availability Of Funds From Other Sources

Character Considerations:

SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a “Statement of Personal History” is obtained from each principal.

Other Aspects Of The Basic 7(a) Loan Program

In addition to credit and eligibility criteria, an applicant should be aware of the general types of terms and conditions they can expect if SBA is involved in the financial assistance. The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a) loans. However, certain Loan Programs or Lender Programs vary from these standards. These variations are indicated for each program.

SBA Small Business Startup Assessment Test

Are You Ready to Start a Business?

This assessment tool is designed to help you better understand your readiness for starting a small business. It is simple to use and will take less than 5 minutes to complete. The tool will prompt you with questions and assist you in evaluating skills, characteristics and experience – as they relate to your preparedness for starting a business.
Your responses will be scored automatically and an assessment profile provided, when you click the submit button. You will also receive, based on your score, a statement of Suggested Next Steps, directing you to the most appropriate SBA resources to help improve your business preparedness. Such next steps may include free SBA online courses, direct access to online counseling and/or targeted links to appropriate resources.