5 Questions to Ask Yourself Before Applying for a SBA Loan

Small business (SBA) loans are a very attractive option for small businesses who are looking for a low-interest and long-term loan. These loans are also partially guaranteed by the government, making them less risky than other lenders. If you’re considering applying for an SBA loan, you want to ensure that you’re making the right decision. Keep reading for 5 questions you’ll want to answer before submitting an application.

  1. How much money do I need?

Before applying for any loan, you want to be crystal clear about how much money you need to borrow. You don’t want to borrow too much just as you don’t want to borrow too little. Sit down with your financial advisors as well as your accountant to determine your true funding needs. There are many factors to consider including:

  • Purpose of the loan
  • Available monthly budget to pay back the loan
  • Business assets that can be used as collateral

Applying for the wrong amount of money can cause all sorts of financial issues. Take the time to drill down the exact number so that you can avoid any business borrowing pitfalls.

  1. Is this the best loan option?

SBA loans are extremely beneficial in that they offer low interest rates and lengthy terms. With this type of loan, business can borrow money for all sorts of purposes, including inventory purchases, new equipment, real estate purchases, or to refinance existing business loans. While these loans are highly advantageous, there are certain qualifications that must be met. For example, to qualify, your business must make at least $100,000 annually and has to be in business for at least 2 years. SBA lenders also look for businesses with a credit score of at least 640.

Before applying for this loan, ensure it’s the best available option. These loans require a lot of paperwork, take a long time to approve, and may require collateral. If you need money quickly or lack business assets, an SBA loan may not be the best option.

  1. Which type of SBA loan is best?

Under the umbrella of SBA loans, there are a variety of loan programs. For example, the 7(a) loan program is used for expansion, equipment purchases, or working capital. This loan can provide up to $5 million. SBA loans also include the 504 loan program which is used for purchasing facilities, land, and machinery. Other SBA loan types include disaster loans and microloans.

Before applying for a SBA loan, you may benefit from reading SBA loan reviews. This allows you to get details from borrowers who are just like you. These reviews may also help guide you to choosing the right SBA loan program.

  1. How do I choose a lender?

There are a variety of lenders that offer SBA loans including online lenders, credit unions, traditional banks, and even nonprofit microlenders. Once you’ve determined that an SBA loan makes the most sense, you’ll want to shop around for a lender. Just as you’ve compared loans, you’ll want to compare lenders. Shop around to find the lender that offers the lowest APR and the most agreeable loan terms. You’ll want to consider factors such as:

  • Interest rate
  • Loan term period
  • Loan fees
  • Lender’s history

It makes the most sense to get an SBA loan through a bank if you have good credit and you can provide collateral. If you’re a startup or a small business, you may have more success getting approved through an online or a microlender. Non-traditional lenders also tend to process applications quicker, so if you need money fast, go the nontraditional route.

  1. What documentation is needed?

All lenders will want to have a thorough and detailed picture of your business before approving you for a loan. Lenders will want to see tax returns, bank statements, business assets, as well as legal documents. Most importantly, a lender will take a look at your business credit score and history. Lenders will examine your outstanding loan balances and your payment history. The cleaner your credit is, the better off you’re likely to be.

Before applying, ensure you have all of the necessary documentation. Being prepared makes the process much less time consuming. Work with your legal and budget team to get copies of all must-have documentation.


In today’s world there are all sorts of business lending options. SBA loans stand as one of the most widely-sought loans because of the low interest rates and lengthy payback period. While the loan is quite attractive, you want to do the necessary research to ensure it is the best option for your specific business needs. Answer these 5 questions to guide your borrowing decision.

How did you know when you were ready to apply for an SBA loan?  Do you think we covered everything in this article?  Share your insight in the comments.