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Pros

Lower interest rates. Insurance from the SBA and interest rate caps for some loans keep your business’ costs low.
Long repayment terms. SBA loan programs lower your monthly payments by keeping repayment terms long. Typically, they’re longer than the terms for private loans.
Programs designed for different purposes. You can find an SBA loan designed for your business's specific needs and situation.
Low down payments and other upfront costs. The upfront costs for SBA loans are usually lower than they are for private loans.

Cons

Harder to qualify. The application for SBA loans can be more involved than other loans and eligibility requirements can be more stringent.
Good credit is important. Your business and personal credit scores are an essential factor in your application’s chances.
Collateral. Some SBA loan programs require collateral to secure the loan.
Personal guarantee. Many SBA loans require that you promise to repay the loan out of your personal funds if your company is unable to.
Long application process. SBA loan applications involve a lot of paperwork and bureaucracy, meaning it can take longer to get funding than from a private lender.

What You Need To Know Before Applying For An SBA Loan

Though there are many different SBA loan programs, there are some important similarities between them. You can expect a similar application process regardless of the program you choose. You’ll also need to provide similar documents and information when applying.

Check out our articles about SBA loans to learn more and make sure you’re prepared to apply.

SBA loan application documents

When you apply for an SBA loan, you’ll have to fill out or read three forms: Forms 159, 413, and 912.

Form 159 is a fee disclosure and compensation agreement form. It outlines the fees involved with your loan and any compensation that the lending agent is receiving. You can read it to learn about the costs involved with your loan.

Form 413 asks for your personal financial information, such as your savings, investments, and real estate you own. This gives the SBA an idea of your personal financial situation.

Form 912 is a statement of personal history. It covers things like where you live and your criminal history.

We have some articles that take a deep dive into these important forms. Check them out to learn more.

Beyond The Loans: SBA Small Business Grants And Training

Loans are just one service that the Small Business Administration offers to entrepreneurs and business owners. You can also take advantage of the following programs.

SBA line of credit

SBA lines of credit, like loans, offer financing to small businesses. However, lines of credit are more flexible, giving business owners the option to draw funds multiple times. Like other lines of credit, you only pay interest on the amount you borrow.

This makes an SBA line of credit a good choice for businesses that have a more frequent need for financing.

SBA small business grants

The SBA offers grant programs that award funds to businesses that meet specific requirements. Unlike loans, businesses do not need to pay back the money they receive as a grant.

Typically, grant programs target specific communities, such as veterans, women entrepreneurs, minorities, and others from typically underserved communities.

SBA small business certification

If your business is interested in obtaining government contracts, the SBA small business certification program can help. The program helps smaller companies meet all of the requirements to gain certification and bid for government contracts.

There are special certification programs, like the Women-Owned Small Business (WOSB) and Historically Underutilized Business Zone (HUBZone) programs targeted at helping traditionally underrepresented communities.

SBA business training programs

Running a business can be incredibly complicated, especially if you’re trying to do everything yourself. The SBA offers workshops and online learning materials that you can use to get help and advice with running your business.

Conclusion

SBA loans are a fantastic source of funding for eligible small businesses. While there can be a lot of bureaucracy and paperwork to deal with, the multitude of programs and the low costs of these loans make them one of the better options for you to grow your business.

If you’re thinking about applying for an SBA loan, check out one of our articles about the different SBA loan programs.

Frequently Asked Questions(FAQ)

Are the SBA loans hard to get?
SBA loans aren’t necessarily hard to get. You can qualify so long as you meet the requirements. However, the application process may take longer than getting funds from a private lender.
How much down payment do you need for an SBA loan?
Down payment requirements vary based on the type of SBA loan you apply for. It also varies with your business's cash flow and collateral. Expect to pay 10% to 30%.
Can you apply for an SBA loan with bad credit?
Yes, you can apply for an SBA loan even if you have bad credit. However, it may make it difficult to qualify and could increase your interest rates, fees, and collateral requirements.
Can you apply for an SBA loan if you have a criminal record?

While the SBA assesses each applicant’s criminal background on a case-by-case basis, a criminal record is usually enough to block you from getting a loan. This is especially true if you have a conviction for a violent crime or one involving financial dishonesty.

Less serious crimes or ones especially far in the past may not immediately disqualify you.

Do SBA loans have to be paid back?

Yes, you have to repay SBA loans. There are certain loan forgiveness programs available, but those are special cases and do not apply to all loans. 

The SBA does offer some grant programs. These grants do not need to be repaid.

About the Authors

TJ Porter

Written by: TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

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Chip Stapleton

Reviewed by: Chip Stapleton

Finance Manager

Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years of experience in finance, from financial planning and wealth management to corporate finance and FP&A.

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Somer G. Anderson, Ph.D.

Fact checked by: Somer G. Anderson Ph.D., CPA

Accounting and Finance Professor

Somer G. Anderson has been working in the Accounting and Finance industries for over 20 years as a financial statement auditor, a finance manager in a large healthcare organization, and a Finance and Accounting professor at Maryville University.

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