May 16, 2024 - 7 Min Read
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The first step in getting approved for an SBA startup loan is having a registered business. This means registering your startup business with the federal government and getting an EIN/Tax ID number. And also registering your business with your state.
The second step to getting startup SBA financing is making sure you meet the basic requirements. The four requirements you absolutely need to qualify for a startup business loan are:
To qualify for an SBA startup loan you will need to show the lender you have 5-15% of your project amount to invest into your business by the time your business loan closes.
For example, you wish to start a daycare business. The total amount you need to lease the location, hire employees, get your license & supplies will cost you $150k. This $150k is the total cost of your project.
You will need to have 5-15% of your total project to invest into your business. This is called an equity injection. This is also referred to as “skin in the game.” The lender will fund you the remaining portion of your total project cost.
To find out what your specific equity injection will be, request a free lending consult.
To qualify for an SBA startup loan, you will need experience in the industry you are going to start. If you don’t have experience, most lenders may feel it is too much risk and will not fund you. Ways around not having experience:
If you do not have experience, the next best thing is franchising or partnering with someone who has experience in your industry and giving them a percentage in your company.
Note: If that person has 20% or more ownership in your company, they will be required to guarantee the loan alongside you.
To find out if you have enough experience to qualify for a startup loan, request a free lending consult.
To qualify for an SBA startup loan, you will need to show the lender you currently have enough income to maintain your personal expenses. Your SBA loan is only supposed to go towards your business expenses, not to pay your personal rent, cell phone bill, and child support.
Many startup business owners have W2 employment that can continue paying for their personal expenses, and some have savings that will hold them over until their business picks up and can pay them a salary.
Additionally, if your business is already earning revenue, it should be able to maintain its current expenses. SBA loans are there to help your business grow, not bring you out of the hole.
To find out if you cash-flow for a startup loan, request a free lending consult.
To qualify for a SBA startup loan, your personal credit will need to meet the lender’s minimum requirements. This is not so cut and dry as the SBA itself does not have a minimum credit score.
It’s up to the lender to establish the credit scores they will accept, so each lender has a different minimum credit score. Some lenders are 625, some 650, some 685, and some 700. There are some that will approve 500 scores, and some that don’t have any credit score minimums.
If your score is lower than a 625, you are better off using a CDFI (community financial development institution) for SBA startup financing. And although some of these lenders don’t have minimum credit scores, they will check your credit history to see how you pay your debts.
Tip: When going for an SBA startup loan, it’s best not to have any late payments or new collections/charge-offs in the last year, at minimum the last 6 months. There can be exceptions based on your specific situation.
Whew, now that we got the startup loan requirements out of the way, what’s next? Many people think the next step to startup SBA financing is finding a lender, but it’s not. The third step to getting SBA financing is preparing your business plan & financial projections.
How to create a startup business plan?
How to create startup projections?
The final step to getting startup financing is finding a lender. Many lenders want the same thing:
There are hundreds, possibly even thousands of banks that participate in SBA lending. Most of those banks do not lend to startup businesses. A startup business is classified as less than 2 years in business or pre-revenue. So, you will have to do your research to see who will approve a startup business.
Before you go calling SBA lenders one by one, there is an easier way. We here at LenPick specialize in getting Startup Businesses approved for SBA loans. We have 25 of the best startup lenders in the country, we know all of their requirements, and we can get you approved for a startup SBA loan in 8 weeks.
We will also assist you with your business plan and financial projections.
To discuss your situation and what you qualify for, request your free consult below.
If you need more startup loan help, make sure you check out these articles:
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