Is an SBA Loan Right for Your Business?

In Business Law by Coolidge Wall

According to Derek Hutson, CEO of Datical, “Entrepreneurship is at the core of the American dream. It’s about blazing new trails, about believing in yourself, your mission and inspiring others to join you in the journey. What sets [entrepreneurs] apart is the will, courage and sometimes recklessness to actually do it.”

To realize their dream, an entrepreneur must have capital to either start or purchase a business enterprise. If the entrepreneur does not have the total of the funds required for the venture, loans guaranteed through the Small Business Administration of the United States (“SBA”) may be a viable source for that much needed capital. In 2017 the SBA guaranteed over $25.4 billion in small business loans. Through June of 2018, the SBA has guaranteed $18.7 billion in small business loans.[1] The 7(a) loan program is the SBA’s primary program for providing financial assistance to small businesses.

SBA Lending Guarantee Criteria

The SBA does not loan money to borrowers but rather guarantees loans on behalf of the borrower as an incentive for traditional lenders to enter into loan transactions with borrowers that might not otherwise qualify for traditional bank financing. The SBA has multiple loan guarantee programs based on the individual needs of the borrower.

Criteria for the “Standard” SBA Program is:[2]

Maximum loan amount

$5 million

Maximum SBA guarantee %

85% for loans up to $150,000 and 75% for loans greater than $150,000

Interest rate

Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum

Eligibility decision

By the SBA. Qualified lenders may be granted delegated authority to make eligibility determinations without SBA review.

SBA turnaround time

5-10 business days


SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)


Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.

Credit decision

By the SBA. Qualified lenders may be granted delegated authority to make credit decisions without SBA review.

The SBA Loan Process

To apply for an SBA loan the borrower must work with an SBA approved lender. The borrower may be required to fill out the applicable SBA and lender application documents, write a business plan, generate financial statements proving a sufficient estimated cash flow to repay the loan and submit to a thorough credit check. The borrower may also be required to supply a comprehensive list of documentation regarding the borrower including a resume, business licenses and a personal background statement. The SBA and lender also evaluate the application based on the borrower’s character, management abilities, collateral and amount that the borrower can personally contribute to the business. The SBA provided criteria suggests that the SBA turnaround time for the standard loan program is 5 to 10 business days. However, closing an SBA loan can take from 60 to 90 days (or longer) to complete.

The Details Matter

The SBA and the lenders are strict on obtaining the borrower’s required deliverables and confirming the borrower’s covenants prior to funding of the loan. The absence of any required information or document will delay funding of the loan until such absent information is provided as specified in the loan agreements.


Most entrepreneurs do not have 100% of the capital required to start or purchase a new business venture. Under certain circumstances, an SBA guaranteed loan may be an attractive source for establishing needed capital.

This information should not be considered a comprehensive discussion of obtaining SBA financing, legal advice, or all that parties should consider in funding a business start-up or purchase. Should you wish to discuss starting or purchasing a business and its implications, contact an attorney who can provide guidance tailored to your specific situation.

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