Is it a good idea to get a SBA loan? (2024)

Is it a good idea to get a SBA loan?

SBA loans can be a good way to fund working capital and other business expenses if you've exhausted other lending options. They are partially guaranteed by the Small Business Administration and designed to be affordable for small businesses.

Is getting an SBA loan a good idea?

SBA loans provide low interest rates, allowing the borrower to repay the amount over several years. But because unsecured loans have no collateral requirement, they can be a good option for those who can't afford a down payment on a traditional loan.

Is it easy to get approved for a SBA loan?

In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding.

What are the disadvantages of SBA?

SBA loans are generally attractive to small business owners because of their guaranties and interest rate caps. However, drawbacks include long loan closing processes and collateral requirements.

What percentage of SBA loans get approved?

Many statistics say that large banks approve SBA loans at rates as low as 20-30%, while smaller banks approve SBA loans at around 40% or less. All this to say: SBA loan approval rates hover at half or below all loan applications that are submitted.

How hard is a SBA loan to get?

To qualify for an SBA loan, lenders typically like to see at least two years in business, strong annual revenue and a good credit score, which starts around 690.

What disqualifies you from getting an SBA loan?

The most common reasons SBA loans are denied are poor credit, too much existing debt, or insufficient collateral. Other reasons include: Prior bankruptcy. Negative taxable income.

Do people get denied for SBA loans?

You're not alone if you applied for an SBA loan and were denied. Most small businesses struggle to qualify, with over 50% of applicants being rejected. You can take concrete steps to improve your application, whether applying for the first time, trying to appeal a denial, or reapplying for a loan.

Why are SBA loans denied?

You have a low overall personal or business credit score, or a poor credit history. You do not have sufficient collateral or assets to secure your loan. You do not have enough free capital or cash flow to meet loan repayments. You have too much already outstanding debt.

How long does SBA approval take?

On average, most SBA loans take 30 to 90 days from applying to funding. 7(a) loan subtypes are backed directly by the SBA. The SBA's turnaround time is 2 to 10 business days, but approval from your chosen lender can take 30 to 60 days. Microloans are loans for smaller amounts of $50,000 or less.

Why are SBA loans hard to get?

Considered a Startup

Lenders are more likely to approve a loan application when you can show consistent, positive cash flow, ideally over several years. Every small business owner must start somewhere, but being unable to show the bank any revenue history makes it hard to qualify for an SBA loan.

What happens to SBA loan if business fails?

If your business and personal assets are not enough to cover your debt, your SBA lender will file a guarantee request with the U.S. Small Business Administration. In other words, by making this request, your lender is asking the SBA to repay the portion of the loan that was guaranteed by the government.

What is the failure rate of SBA loans?

With 1 in 6 SBA loan defaults within the last decade, it's important to look into why this is happening.

What is the average SBA loan amount?

While you can get up to $5 million for a standard SBA 7(a) loan, most borrowers in 2022 took out just under a million dollars at $999,210. The average for all SBA 7(a) loans, including the Small Loan and Express programs, was $538,903. Express loans, which are limited to a $500,000 maximum, averaged $97,097 in 2022.

How much collateral does the SBA require?

If you want to get an SBA loan of $25,000 or less, no collateral is required. But individual lenders may ask for collateral on loans of this size. For loans above $25,000, collateral requirements vary by loan program.

Are SBA loans 100% guaranteed?

Percentage of guaranty

For most 7(a) loan programs, SBA guarantees up to 85 percent of loans of $150,000 or less, and up to 75 percent of loans above $150,000.

Does SBA loan hurt credit?

Business loans do not typically show up on your personal credit report unless the bank reports it to credit bureaus as personal lending under your social security number. Normally, your personal credit report shouldn't be impacted by a business loan, even if you've personally guaranteed the loan.

How do I get denied for a SBA loan?

Do you need a downpayment for a SBA loan?

Many SBA lenders require you to provide a down payment of at least 10% of the loan amount. Lenders often require you to put money down upfront because it shows you have an investment in paying the loan back, thereby reducing their risk of working with your business.

What documentation do I need for an SBA loan?

Documents needed for SBA loan

SBA Form 413 (Personal Finance Statement) Current profit and loss statement, along with schedules from the prior three fiscal years. One year of projected financial statements and a detailed explanation of how your business will meet these projections.

Does everyone get approved for SBA?

SBA loan requirements vary based on the lender and the individual loan program. In general, however, you'll need to meet some basic criteria from the U.S. Small Business Administration — like operating in an eligible industry — and have good credit and strong financials to qualify for these small-business loans.

What credit score is required for SBA?

The minimum credit score required for an SBA loan depends on the type of loan. For SBA Microloans, the minimum credit score is typically between 620-640. For SBA 7(a) loans, the minimum credit score is typically 640, but borrowers may find greater success if they can boost their credit score into the 680+ range.

What happens if you can't pay back an SBA loan?

What Happens if You Can't Pay Your SBA Loan Installments? If you can't make your SBA loan payments, you won't just be in trouble with your lender. The SBA will get involved and, when you still can't pay your debt, they'll transfer your account to the US Department of the Treasury.

Which SBA loan you don't have to pay back?

Applicants for the COVID-19 Economic Injury Disaster Loan (EIDL) may have been eligible to receive up to $15,000 in funding from SBA that did not need to be repaid.

How long do you have to pay back a SBA loan?

An SBA EIDL loan due to the COVID-19 crisis carries a 30 year repayment term with an interest rate of 3.75% (or 2.75% for non-profits.) There is currently no loan forgiveness for these loans— they must be paid back.