Small businesses accounted for 67.2% of new jobs between 1995 and 2021‡, demonstrating their sustained importance to local and national economies. Because of the beneficial impact small businesses have on their communities – through services provided, job creation and revenue – there are unique resources for them to leverage when launching, growing or maturing their companies.

In a volatile and changing economy, now may be a good time to review options for support and assistance as you work to open or grow your small business.

Small business lending resource

Likely one of the first considerations you reviewed during your business ownership journey are the types of business loans and their pros and cons. One option is to use a loan from the U.S. Small Business Administration (SBA).

The basics of SBA loans are simple: they allow business owners that may not qualify for conventional commercial loans to obtain financing. There are several reasons why a small business may not yet qualify for a traditional loan, such as not enough credit history, collateral or cash flow. SBA loans are an accessible option and the SBA is a great resource for small business owners.

An SBA loan is a lending type known as debt financing, which works the same as a mortgage or auto loan. The process is similar to a home or auto loan, where you will be asked to provide credit background and other financial forms to prove your ability to pay back the loan.

SBA loan criteria

The North American Industry Classification System (NAICS) classifies businesses according to type of activity. You should have a 6-digit NAICS code that you can enter on the SBA website to help you determine if your business officially qualifies as a “small business” under the SBA Table of Size Standards.

Next, determine if you are eligible for an SBA loan by disclosing your businesses’ annual revenue or the number of employees depending upon business type. Your average annual receipts/revenue is calculated as your total receipts/revenue or total income (including all affiliates) over the last completed five fiscal years divided by five. Researching the SBA Size Standards Table on the SBA website‡ can give you a good idea of how your business is classified.

There are four basic requirements from the SBA to be considered for a loan.

  • You must have a for-profit small business that is officially registered and operated legally.
  • You must be physically located and operate in the U.S. or its territories
  • You must have proof that you have invested your own equity in the business.
  • And, finally, you have exhausted other financing options.

Even if you meet these requirements, keep in mind that specific SBA lenders and programs may have additional restrictions and requirements. Your lender should provide you with a full list of requirements needed for your loans. Information they request could include your credit score, how long you’ve been in business, your annual revenue and potentially personal collateral.

How hard is it to get an SBA loan?

SBA loans are flexible in that they can be for both long-time business owners and those who are just opening their business. But if you’re just starting out, some lenders have a minimum time-in-business requirement. This can hinder new business owners from applying. If this is the case for you, you may consider applying for a microloan (a loan less than $50,000) or starting instead with a small business credit card until you have enough time under your belt for an SBA loan. If you’ve been in business for a while, an SBA loan will likely be easier to acquire.

The next step is to determine your needs and what you want to ask for. If you have a good idea of how much funding you need, you can use a business loan calculator online to determine what the loan may cost you.

When it’s time to start working with a lender, revisit your business plan. Most will require to see your plan before offering a loan and a rock-solid business plan can help you tell a clear story of what you are trying to accomplish and need to get there.

Another consideration for those newer to business that don’t end up qualifying for an SBA loan is an SBA grant. These grants are available for research and development or management and technical assistance that could help newer businesses to meet their needs prior to a loan. They are not for starting and expanding a business, so be sure to check to see if a grant could be a good fit for you.

You qualify as a small business and are ready to apply. Now what?

When you get an SBA loan, money will typically not be provided directly from the SBA, but rather, a bank that follows SBA guidelines for lending. The one exception to this is if you are applying for the loan as a result of recovering from a declared disaster, like a hurricane.

To find an administrator, you can use resources like the SBA website to find legitimate lenders near you. It is important to choose the right lender, as the SBA warns about predatory lenders and suggests comparing rates from several lenders and ensuring fees are not above 5% of the loan total.

Consider talking with a trusted financial advisor or accountant before signing any official paperwork. An administrator will also help you through the application process for an SBA loan. Alternatively, you may have heard about SBA loan scams that started popping up during the Covid-19 pandemic. If you ever receive a suspicious email, contact your loan administrator to determine its legitimacy.

Choosing the right SBA loan

Once you have an administrator you are comfortable with, they can help you choose which SBA loan is best for you. There are typically a few types of SBA loans available:

  • A 7(a) loan and a 504 loan. A 7(a) loan is more common and include many loan programs dependent on your business needs. Be sure to review all programs for the best fit of what you are aiming to use the loan for. For example, the 504 loan is typically used for real estate and equipment only. Typical SBA loans have a repayment term of up to 10 years for working capital and fixed assets.
  • Less common but also available are microloans, which are loans less than $50,000 to help businesses start up or expand. Loan repayment terms for microloans are typically up to six years.
  • You can also consider applying for a business line of credit, which would be common if you don’t know the exact amount you need to borrow and would like to receive money on an as-needed basis. Loan repayment terms for lines of credit are typically up to five years.

There are a few things to keep in mind once you receive your SBA loan. First, SBA loans usually have a lower down payment requirement and also lower payments due to long amortization periods, but fees may be higher. Pay attention to what is offered to you and consequences of missing payments.

Once you are approved and receive your loan, it can be used for most business expenses, such as operating capital, equipment and more.

Utilizing a resource like the SBA gives small business owners an additional avenue for support. On top of the SBA, make sure you are working with a banking partner that you trust to support your business goals. For more resources for small business owners, visit UMB Small Business Banking.

Our small business specialists are ready to help you with your small business financial needs through guidance, support and service. We also offer a series of online tutorials to help your business succeed. We’re always adding new topics that we believe can help you build and manage your business. Explore our small business courses.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.