Financing a small business with an SBA lender

Determining how to finance your small business is one of the most important early decisions you will make. There are many financing options to start, grow, and expand your business including personal funds, angel investors, and/or bank loans (such as a commercial loan or an SBA loan). How do you choose which is best for you and your business?

Starting with your own cash if available is a great way to start since it doesn’t require a third party. And even if you can only put a little bit of cash into your business, that symbolic move will be viewed very positively by third parties who may consider investing in your business (such as angel investors or SBA bankers).

Friends, family, and angels investors are another source of capital for your business. Note that individuals in these groups typically invest between $10,000 and $50,000 per deal, so unless you are well-connected or have many rich family members and/or friends, it’s hard to raise a meaningful level of capital going this route. The other issue with family and friends is what happens to those relationships if you lose their money. You will also need to consider whether potential investors are considered accredited investors, as there is more potential legal exposure to entrepreneurs who raise capital from non-accredited investors.

SBA loans are another powerful source of capital for small businesses and startups because SBA loans are guaranteed by the SBA, which derisks the deal for SBA lenders.

Banks perceive higher risks in lending to small businesses and startups, and rightly so as history has shown these types of businesses have high failure rates, so the SBA loan program helps reduce the risks to SBA banks.


What are the benefits of SBA guaranteed loans?

SBA guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans – so you’re not missing out on competitive terms – but are generally slightly higher than a commercial loan. However, for most small businesses the important element is getting the loan approved and executed timely, as we all have experienced how slow and painful obtaining a traditional commercial loan can be. Also, for a successful business a loan is a lower cost form of capital than an equity investment as you don’t have to give up shares in your company.

SBA loans offer lower down payments, flexible payment structures (i.e., the loan payments are usually lower and over a longer period than a traditional loan), and more accommodative loan covenants (e.g., many SBA loans have no hard asset collateral requirements).

How can I get my business SBA lender ready?

Before applying for a loan or meeting with potential equity investors (such as angel investors or venture capitalists), make sure you have the following:

A business plan:Almost all parties will want to see a well thought out business plan so they can understand the big picture behind your business.  Over the past decade or so, many startup entrepreneurs will rely solely on a pitch deck in lieu of a formal business plan. It’s ideal to have both but a pitch deck is a bare minimum requirement.

Financial projections:SBA lenders and equity investors will want to know that you have a plan for how you’ll use their capital, how you will pay them back, and how they will receive a return on their money. It’s best to have financial statement projections (monthly balance sheets and income statements) for three to five years out, plus the detailed assumptions utilized to create those assumptions. Our experience at is that this is an area that is a critical litmus test to get a business funded but ironically one area where the entrepreneur puts in the least effort. If you do not possess the financial capabilities in house to create plausible financial statement projections, we highly recommend hiring an outside party to work with you to create them.

A solid credit history:SBA lenders use the personal credit scores for all owners of 20% or more of the business to determine credit risk and interest rates, so a strong credit history will play to your favor. In general, a credit score above 680 is considered good; 680 – 720 is better; 720+ is awesome. Know your credit score before reaching out for a bank loan and be prepared to explain any factors that may have had a negative impact on your credit score (e.g., a divorce or a bankruptcy).

Personal guarantees:The SBA requires banks offering SBA loans to obtain personal guarantees of all owners of 20% or more of the business, so be prepared to pledge personal collateral assets (e.g., a home, car or a stock portfolio) to guarantee your SBA loan.

Industry experience: Having industry experience under your belt is helpful in accessing credit but not required. If you don’t have industry experience, it’s ideal that you have members on your team that do. This provides confidence to your investors and lenders that you can execute your business plan profitability and will strengthen your prospects for obtaining a loan.

How can I secure an SBA guaranteed loan?

By completing our SBA Lender Match pre-qualification form, which takes two minutes, we can route you with a top nationwide SBA lender who can expedite the loan process for you. Our SBA lending partners understand that speed is of the essence, so they will cut to the chase and let you know the likelihood of getting a transaction done with your small business. Our SBA lending partners provide loans as low as $25,000 up to $5,000,000 (note: the statutory limit for SBA loans is $5M).

Have any questions about SBA lending or fundraising in general? Reach out to us and we will glad to answer any of your questions. We have decades of experience with raising capital for small businesses.