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Loans are a popular way for entrepreneurs to finance a new business venture, and the U.S. Small Business Administration (SBA) is one of the first places people look. But if you’re unfamiliar with the startup loan process, considering your options might feel overwhelming.

If you think an SBA loan might be the ideal way to finance your new small business, use this quick guide for the information you’ll need to get started.

Understanding SBA loans

SBA loans are government-backed loans that are provided by local or national banks. The SBA helps reduce risk for lenders and makes it easier for small businesses to obtain loans because they act as a guarantor for the lender. Loans procured through the SBA tend to have more favorable terms, flexible repayment options and lower rates than conventional loans from other sources.

The most popular SBA loan type for new small businesses is the SBA 7(a) loan. A 7(a) loan can suit a wide range of businesses’ needs up to $5 million (recommend not lower than $75,000). Additionally, 7(a) loans can be used on many different business expenses—such as the purchase of property, equipment and supplies—making them a versatile financing tool for a brand-new business.

In order to qualify for SBA 7(a) loans, you typically need a credit score of 685 minimum, 15-30% cash injection on startups and 10-15% cash injection on buyer acquisitions (resales),  additional cash reserves (post liquidity), and collateral.

In addition to the 7(a) loan, the SBA also offers a range of other loans, including those for disaster relief and ones specifically for veterans. Another type of loan, called the SBA Express loan, is for a much smaller amount and is generally suited for established businesses that need working capital.

How to obtain an SBA loan

Applying for an SBA loan can be done through a few different avenues, such as your local bank or a Small Business Development Center. First, though, you’ll want to do a few things. Most importantly, complete your startup’s business plan. Not only is this required for your loan, but it will help you understand exactly how much money you’ll need to request.

Next, you’ll want to determine which SBA loans you qualify for and which have the most appropriate terms for your business. You may be able to determine these things on your own, or you can work with a lender partner to explore your loan options.

Finally, gather all your necessary information, including your business plan, credit score and history, personal financial statements and income tax returns, financial projections for your business and proof of industry experience. Each of these things will be necessary to file your application and get approved.

After you apply, it could take up to 120 days or longer for your SBA 7(a) loan to be approved, since the lender and SBA need to process all the information you submit. For this reason, it’s important to begin your loan procurement process as soon as possible in your business, so you can make sure you have the capital needed to launch your business as planned.

If you’re interested in exploring SBA loan options for your new business, Tenet Financial Group is here to help. We understand the detailed qualifications required for numerous SBA loan types and can help you get funded quickly. Contact us to learn more.