➥ SBA loans are the most difficult to qualify for, and its loan application process could be the lengthiest among small business loan options.
➥ The SBA Loan application is composed of four stages: collecting and gathering documents, application and underwriting, loan approval, and finally, closing. In general, approval for SBA loans could take a few weeks to six months, depending on the type of loan you’re applying for.
➥ If you’re not in a hurry to access funding and in need of a loan with flexible terms, waiting for the SBA loan approval could be worthwhile. However, if time is not on your side, it would make sense to consider other alternative loan options.
Cash flow is one of the biggest challenges that business owners face. Many will work with seasoned lenders to ensure that they have access to business financing if and when cash flow begins to dwindle.
Some of the most affordable financing options available to small businesses are SBA loans. SBA Loans are government-backed loans that offer an 85% guarantee, meaning the government will pay up to 85% of the loan should the business default for any reason. This guarantee incentivizes lenders to offer favorable terms to small business owners since there is lesser risk involved on their side.
However, the loan application process for SBA loans can be long and time-consuming, which can be intimidating for some applicants. If you’re looking to apply for one and hoping that you’re approved the following week, this likely isn’t the most suitable financing solution for you.
In this article, we’ll explore the details of the SBA loan timeline so you’ll have a better understanding of the wait times for each SBA loan type.
Why Does it Take a Long Time for SBA Loan Applications to Get Approved?
One of the most important things to note with regards to SBA loans is that you’re not merely asking a lender to grant you financing, you’re asking the federal government to essentially be your guarantor. There are two parties who have to review and approve your application which is why the application process for SBA loans can be twice as long as that of conventional loans.
The SBA Loan application process typically consists of four stages:
1. Collecting and gathering of documents (one to 30 days)
2. Application and underwriting (10 to 14 days)
3. Loan Approval (10 to 21 days)
4. Closing (seven to 14 days)
Here’s a deeper look at each stage of the SBA Loan application process:
1. Collecting and gathering documents
The most notable reason why SBA loan applications tend to take a long time is the mountain-load of paperwork you have to submit. Since the SBA is taking on a big risk by guaranteeing large portions of these loans, they only take on the most creditworthy applicants. Plain and simple, proving your creditworthiness can require a lot of paperwork. The list of documents you’ll need to submit with your application includes (but is not limited to):
➥ Business and personal financial statements
➥ Government-issued ID
➥ Credit reports
➥ Business and personal bank statements
➥ Business and personal tax returns
➥ Business history
➥ Copy of your business lease and registration
➥ Collateral documents
➥ Resumes (including co-owners and major stockholders)
➥ Business plans
➥ Business loan proposal
There’s a good chance the SBA will ask for even more documents than what we’ve listed here, which could drag the application process out even longer. Check out this SBA checklist outlining the documents and forms the business owner needs to submit during his or her application.
Overall, obtaining and compiling these documents can take approximately a few days to a month. It’s worth noting that submitting a complete set of required documents and paperwork upon application can help expedite the loan approval process.
In addition to the above documents, applicants will also have to fill out forms as required by the lender and the SBA. These forms will likely take a few days to complete as some may require you to consult with your lawyer or accountant.
2. Application and underwriting process
Once all your documents have been submitted, the lenders will evaluate your qualifications and start the underwriting process. This is usually the most daunting stage for borrowers as the loan providers will scrutinize every part of your financial and credit history to determine your eligibility.
Be as open and transparent as possible with the lenders. Answer their questions honestly. Attempting to lie or falsify information will only hurt your application.
During the underwriting process, the lenders will determine your capability to pay the loan back. At the very least, they will examine the following:
➥ Personal and business credit history (which involves the lenders making a hard inquiry)
➥ Collateral and its value
➥ History with other lenders
➥ Your business’ financial forecasts, revenue, and cash flow
➥ Debt-to-income ratio (personal and business)
➥ Legal issues that you might have encountered in the past(such as tax issues)
The entire underwriting process can take at least seven days to a maximum of 14 days. The lenders and the SBA want to make sure that you can afford to repay the loan and that you’ll make those repayments on time. Remember, the guarantee from the federal government is intended to serve as a last resort if your business becomes unable to pay off the loan balance.
3. Loan Approval
If you pass the underwriting process, the next step is approval. At this stage, the lenders will confirm that your business meets all the requirements and that you’re eligible for your SBA loan. They will send your application to the SBA which then must review it. This phase takes about five to seven days.
Once the SBA approves you for the loan, the lender will send out a commitment letter or loan agreement that outlines the loan’s terms, including the loan amount, interest rate, repayment period, and other terms. Review and sign the document only if and when you find the terms favorable. The lenders may also require you to submit additional documentation like articles of organization, business leases, franchise agreements, and more.
The entire loan approval stage of the SBA loan application process can take 10 to 21 days, depending on how fast you can provide the additional documents. The lender might reach out to you once in a while, especially if they need you to submit additional documents. They will also keep you appraised of any updates to the progress of your SBA loan application
After you submit the additional documents and sign the commitment letter, you (the borrower) and the lender move on to the loan closing. This entire process will take about 10 to 14 days.
During the loan closing period, the lending company will review additional documents like titles and environmental reports. At this stage, they will draw up the contract for signing and review any additional documents. Once everything is in place, the lender will transfer the funds to your business account, and you can immediately use the funds towards any eligible business initiatives.
How Long Does It Take for SBA Loans to Get Approved?
So, how long does it take for lenders to approve the SBA-backed loan? Here’s a look at the average timeline of the most popular SBA loans:
SBA 7(a) Loan
SBA’s flagship program, the SBA 7(a) loan, is the most popular SBA loan product. With SBA 7(a) loans, you can borrow as much as $5 million, which has a maximum repayment period of 25 years. The loan proceeds can be used for a variety of business initiatives. It includes business space renovations, building acquisitions, buying equipment, inventory, and more.
The flexibility it offers is the reason why business owners highly covet it. However, if you’re planning to apply for an SBA 7(a) loan, you’ll need to be prepared to wait two to three months before you hear anything from the lenders.
SBA Express Loans
SBA Express Loans, an extension of the SBA 7(a) loan program, have a faster approval process than other SBA loan types. It caps off its borrowing limit to $1 million ($500,000 after October 31, 2021) per business. Since it’s part of the SBA 7(a) loan program, the loan proceeds can also be used for the same purposes as those stated under the 7(a) loan. It includes building working capital, buying equipment, building acquisitions, and other business initiatives.
According to the SBA, the turnaround time for SBA Express Loans is 36 hours. However, it’s worth noting that the approval from the actual lender could still take several weeks. Generally, the average time it takes for the lenders to approve your Express Loan application is within one to two months – which is still much faster than SBA 7(a) loans.
SBA CDC/504 Loan
SBA CDC/504 Loans are primarily intended for the acquisition of assets. If you’re looking to purchase a real estate property like land or building or to purchase heavy equipment or machinery, this could be a viable SBA loan option to apply for.
However, the SBA CDC/504 loan involves dual approval from the CDC and SBA, which means that there are additional variables to consider, including whether or not the project would result in job retention or creations, essentially prolonging the approval process even more.
In general, approval for the SBA CDC/504 loans can take anywhere from one to six months. Plus, once the lender approves the loan, the business may have to wait another 30 to 45 days for the funds to be credited into their accounts.
SBA Microloans are designed to help small businesses get access to smaller amounts of business financing. With the SBA Microloan, companies can access up to $50,000 in funding, which can be used as working capital or to buy inventory, equipment, supplies, or fixtures.
Since SBA Microloans offer smaller amounts of funding, the processing and approval of these loans are also typically faster. Approval can take anywhere from one to three months.
Is it Worth Waiting for Your SBA Loan Approval?
Many may ask, “If it takes months to get approved, is it really worth getting?” The answer will ultimately depend on your needs. However, SBA loans offer more benefits for the most creditworthy borrowers than most other loan options available.
For one, creditworthy customers can getup to $5 million in funding, which can be used for almost any type of business initiative, such as: working capital, expansion, inventory, equipment purchases, and more.
Another feature that makes SBA loans worthwhile is their affordability. These loans have lower interest rates than conventional bank loans – with the average hovering between 6% and 7%. In fact, the SBA caps off the maximum interest rate that the bank can charge small business owners so you can’t be overcharged.
Moreover, SBA Loans have longer repayment periods. Depending on the use of the proceeds, the repayment term can range from seven years for working capital uses to 25 years for real estate acquisition purposes. This longer repayment feature significantly lowers the business’ monthly repayments, allowing them to maintain a stable cash flow.
The SBA can be a bit of a waiting game, but once you get approved, you’ll be able to take advantage of these fantastic benefits.
Are SBA Loans Right for You?
While SBA loans may be the most attractive loan options out there, it isn’t always the most suitable funding solution for your business. Remember, there are a lot of variables to consider when seeking financing, including how soon you need the funds, whether or not you can afford the monthly repayments, and your credit history.
For instance, suppose you need quick access to cash to address immediate, unforeseen expenses. The SBA wouldn’t be the most viable solution in this case as approval to receive the funding can take months. If your credit score is low, you may not even be able to qualify.
In general, you should consider SBA loans if:
➥ You’re not in a hurry to get the funding, and you can wait months for approval. If time is on your side, then waiting out the SBA loan approval will result in your being able to take advantage of the low-interest rates and longer repayment periods.
➥ You need access to higher loan amounts. Again, SBA loans offer higher loan amounts than conventional loans. This makes them a perfect solution if you’re looking to fund expensive business projects.
➥ You’re looking for a loan with longer payback periods. With SBA loans, loan repayment can extend as long as 25 years.
➥ Your personal and business credit score is low, and you have a short track record of your business performance. This usually happens to businesses that are still in the early stages of their operations.
If one or two of the items above don’t apply to your current financial situation, it might be better to consider other types of loan options.
SBA loans are, without a doubt, among the most affordable financing solutions for small businesses. The downside is that the approval process can be long, and you’ll have to submit many documents and paperwork. That said, if you’re planning to apply for one of their loan programs, time should be on your side, and you should be creditworthy.
While the entire SBA application process might seem intimidating, it’s certainly not impossible. And if you are approved, you can take advantage of the many benefits these programs can offer your business (i.e., low-interest rates and longer repayment period).
However, if you’re looking for quick access cash, you should consider alternatives. Applying through other FinTech companies might be a faster route. Plus, FinTech companies might be willing to risk lending to start-ups or companies with poor credit and financial standing.