For many small businesses, SBA loans are a financial solution to keep their business running. However, how quickly can this financial solution be obtained?
SBA loans are one of the most sought-after business loans. They offer lower interest rates, longer repayment terms, and better loan conditions. However, these loans require much effort and time to be acquired and disbursed.
Are you looking to apply for an SBA loan? Let us give you a heads-up on how long you might spend from the beginning to the end of an SBA loan process.
What Is An SBA Loan?
The SBA loan is a Small Business Administration loan system created to assist small businesses with the funds needed for their business to function.
For these loans, the SBA drafted agreements with legal money-lending establishments like banks, credit unions, microfinance agencies, and other financial institutions to make it easier for small businesses to secure the funding they need while reducing the lender’s risks in the transaction. SBA loans are guaranteed by the government and are designed especially for small businesses.
They come in different types, sizes, and forms for multiple uses. Simply put, there is an SBA loan for every loan function for small businesses. SBA loans have become a top-rated financing solution for many small businesses today. With an opportunity to get a loan in the amount you applied for with a longer repayment term and a lower interest rate than any other financing system can guarantee, it is easy to see why small business owners have no problem applying for these loans.
Although SBA loans may look like an easy way to get enough business funds, you must familiarize yourself with all aspects of this loan system before seeking a loan. Asking important questions like “how does it work?’, ‘what do I need to do to secure an SBA loan’, and ‘how long will it take’ will prepare you for what lies ahead of the loan process.
One important thing to note is that although SBA loans are a program of the Small Business Administration government agency, they are not awarded by the agency. When a business is approved for an SBA loan, it means the SBA has agreed to guarantee a percentage of the business’s loan (up to 85%), thereby reducing the lender’s risk when the business defaults on its payment.
The SBA does not disburse the loan but acts as a co-signer, guaranteeing the lender that you will repay your loan with the necessary interest when due.This allows the lender to offer the business fairer loan terms and a more flexible payment that they will be privy to in other loan programs. With SBA loans, it is a win-win situation for the small business and the lender.
Why SBA Loans?
Ordinarily, many money lenders do not believe in approving loans- especially loans in large amounts- to small businesses who seek them. In fact, according to Forbes, small business loan approval rates at big banks wavered around 13.6% in June 2021. They approach such transactions with caution as they consider small business loans to be a risky
But what exactly is a turn-off about small business loans? One primary reason small business loans are not attractive to money lending establishments is they are not cost-effective. This is because many small business owners only need small amounts of money compared to what a larger organization will need to get by.
Small businesses often require as small as $5000 and less than $500,000, an amount national banks and many other alternative lenders consider a poor bargain that will yield low profit. Because banks spend the same money underwriting loans, the higher the loan requested, the higher the potential profit.
Since small business loan requests are often on the lesser side than large businesses and will yield lesser profit, big banks will instead spend their time and resources on approving larger loans. Other than the fact that approving a small business loan is expensive and not cost-effective, banks and other lenders find lending money to small businesses has a higher risk than lending to larger organizations.
Many small businesses fail, become bankrupt, or close up, even after getting the loan applied for. This might be because of mismanagement of funds or changes in the business cycle. Couple these with a lack of proof of consistent cash flow, high business debt-to-income ratio, and a low or bad credit score (which consists of at least 20% small business loan denials), it is not surprising why small businesses are often more unlucky with securing loans from banks and other alternative lenders than big businesses.
As an alternative, small businesses now look to SBA loans as a solution to not only help them to secure a loan to keep their business running but also get a lower interest rate and better repayment terms. SBA loans are secured loans that lead to happier lenders and a better chance of survival for small businesses.
However, applying for an SBA loan does not guarantee that the loan will be approved. Like conventional loans, getting an SBA loan is a rigorous process that requires a lot of patience, effort, and documents. You will be required to have a minimum of two years of business history for the loan you are applying for, great business and personal financial statements, good personal credit scores, a business plan, and other eligibility requirements.
Although qualifying for these requirements does not guarantee that you will be awarded the loan, they give you a fighting chance and increase your chances of getting the loan approved. It is worth noting that while SBA loans may offer a better chance to businesses that need the extra capital to function, they are not the best types of loans to apply for if you are in a hurry.
This is because SBA loans take an average of sixty to ninety days (2-3 months) to be approved and disbursed. This period can be shorter or longer, depending on factors from the submission of your documents to the time of disbursement. If you plan to apply for an SBA loan, be prepared to sit tight and have robust patience.
What Is The SBA Loan Timeline?
The SBA loan processing period takes an estimated two to three months or sixty to ninety days from the beginning of the application to the time of disbursement. This might look like a long wait, especially if many loan programs take less than half the time.
However, it is crucial to keep in mind that the loan approval process requires a lot of effort, from the gathering of the applicants’ necessary personal and business documents to the reviewing or underwriting process and, essentially, the approval process. It is also important to remember that getting a loan as a small business is easier said than done outside of the Small Business Administration’s umbrella.
Because you have a better chance with the SBA, it is better to see the long wait period as a small sacrifice to secure the best for your business. Essentially, the SBA loan processing time is long because the loan doesn’t come from the SBA’s own pockets. Although they are co-signers and will cover a large percentage of the guarantee to ensure you get the loan you need (if you are eligible), the application process is still reviewed by the money lenders.
To be eligible for an SBA loan, the business entity and the personalities behind the business will be scrutinized by the SBA and the money-lending institution. It only makes sense that the process will take twice the time a normal loan process would.
Are There Faster SBA Loans?
While regular SBA loans take a long time to be approved, SBA Express loans have much shorter approval times. These loans are available for funding for up to $350,000 and a guarantee of about 50 percent backed by the SBA agency. Interest rates for SBA Express loans can range anywhere from 4.5% to 6.5%, depending on the loan amount being approved and the money lender’s terms.
SBA Express loans are relatively fast, with an estimated turnaround and approval time of 36 hours promised by the SBA. However, this timeline is not usually met and often stretches out to weeks. Why does this happen?
Although the SBA stipulates the response time to be within 36 hours of application, this doesn’t include the time necessary for the lender or loan officer to review the applicant’s documents and approve the loan. Essentially, most SBA Express loans, from the beginning of the application process to fund disbursement, can have a wait time of between 25 to 60 days.
However, many lenders can close the loan process in as little as 30 days. Regardless of the loan closing time, SBA Express loans are, as a rule of thumb, generally faster to get than other types of SBA loans. If you plan to apply for the SBA Express loan, you must meet several eligibility requirements as a small business owner.
Although meeting these requirements does not guarantee the approval of your loan, it gives you a better fighting chance during the approval process. To be eligible:
- You must meet the SBA’s small business requirements
- You must be a for-profit organization operating within the U.S. and its territories
- Have outstanding owner equity to invest
- Have used other financial resources like your personal assets before applying for the SBA Express loan
- You must meet your individual lender’s requirements like a certain period of business history, FICO requirements, and annual revenue reports requirements
Another type of SBA loan that has a faster turnaround time than other SBA loans (like the SBA 7(a) loan and SBA microloans) is the SBA export Express loan. The SBA Export Express loan is designed specifically for small businesses trying to sell their products to international markets. Like other SBA loans, SBA export Express loans are SBA-backed loans obtained from local participating banks.
The maximum loan amount approved for SBA Export Express loans is $500,000. This funding can be used for anything that will facilitate the entry of your small business into the export market. Because lenders view loans to small business exporters as extremely risky, they are skeptical about offering these entities the loans. As a result, the SBA provides a 90% guarantee on Express Export loans.
The SBA offers a response time of about 24 hours for all SBA Export Express loans. However, it is important to remember that this can be longer, and disbursement might require more time.
What Can You Do To Hasten The Loan Processing Period?
Although you cannot precisely force your lender or the SBA to speed up or expedite the SBA loan review and approval process, you can help to make sure that the process does not take more time than necessary.
The SBA loans generally take time to be approved not only because of the combined approval effort with the lender but also because there is no way to get through all applications fast. The SBA is a bureaucratic agency with the typical slow bureaucratic drag. Couple this with the low staffing and the tons of applications the administration receives, and it becomes clear as day that the slow approval time is almost unavoidable.
However, you can contribute to faster processing by:
- Working with a preferred lender. Although the SBA does not trust lenders blindly, they have a significant amount of trust in preferred lenders, and the application process generally moves faster when you work with these lenders. Working with lenders not on the SBA’s approved list is not impossible, but it will move at a much slower pace than it will when you work with approved lenders.
- Check your eligibility beforehand. Ensure you meet the general requirements for an SBA loan approval before applying. This will ensure you do not waste time applying for the wrong type of SBA loan.
- Follow all necessary application procedures. Follow the due process to ensure you have a hitch-free process.
- Provide all necessary documents.
- Provide supporting documents when necessary. Sometimes during the review or underwriting process, your lender might require additional supporting documents. When these documents are requested, do all you can to provide them quickly and as asked.
Securing Loans Easily With Coastal Kapital
Small businesses often face a lot of vias when trying to secure loans from money lenders. Although this might be due to the risk associated with the loan process with small businesses, it can also be due to various underlying factors like bad credit and unmet financial credibility or eligibility requirements.
However, when it comes to getting a loan for your small business, you can trust us at Coastal Kapital to offer the financing solutions you need. As financial experts, we know and provide the best loaning and leasing needs for you.
At Coastal Capital, we offer a wide range of loan options ranging from equipment financing to SBA loans for your small business. We dedicate our resources and years of expertise to ensure our clients receive the best loan terms that guarantee the success of their business. At Coastal Kapital, we love to see you win.
To apply for a loan, visit our official Coastal Kapital website and fill out an application form or check your eligibility status for the loan you need. Contact us and let us help you achieve your financial goals.