May 16, 2024 - 6 Min Read
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Realistically you can get approved for a startup SBA loan between $30k to $5M, and sometimes you might find a lender to go even lower. What determines how much you can be approved for is as follows:
Let’s go into each of these in more detail.
There are multiple different programs that fall under the SBA loan guarantee programs, including loans specifically for veterans, Express SBA loans that only take 10 days to fund, and loans meant to help underserved minority business owners.
For a startup business, you have two SBA loan program options, the 7A, and the CA (Community Advantage). The SBA 7A is the most common type of SBA loan issued and approvals go up to $5M. The SBA CA only goes up to $350k.
If you would like to have the perks that come with a SBA CA loan including lower equity injections, and less fees you would be capped at $350k. Otherwise, you can go all the way up to $5M with an SBA 7A loan.
There are hundreds if not thousands of lenders who participate in the SBA lending program. Lenders loan you money and the government guarantees a percentage of it, so if you default the lender does not lose 100% of their money. This is truly the reason why so many lenders provide startup loans, otherwise, it’s too risky for them.
Now although these lenders all provide SBA loans, they all have different minimum loan amounts. The truth is for a lender, a small loan can take the same amount of work as a large loan, so they would rather spend all their time and resources on the larger loans.
Most lenders who provide the SBA 7A program have minimums of $350k, some of them will go as low as $100k, and very few of them go down to $50k.
Lenders who provide the SBA CA are called CDFIs (Community Development Financial Institutions) and they normally have minimums that start at $5k and go up to $350k.
What you are using your SBA startup funds for will affect your approval. You will have to list out the reasons you need the capital and explain how you will use it to help start and/or grow your startup business. This request is reflected in your business plan and financial projections and it must make sense.
For example, saying you need $500,000 to start a food truck may be a little excessive. How would a lender know? Your actual expenses (equipment, goods, services) may not add up to $500k.
Lenders will do their due diligence to see if what you are requesting lines up what other borrowers have requested in your industry. If they don’t have that information handy, they will research it. They want to make sure you are not taking more than what you need, which would give you a higher loan payment that your business may not be able to support, and therefore puts more of their money at risk of not being paid back.
Startup SBA loans will require you to have an equity injection. An equity injection is the portion of your project that you will have to pay for with your own funds (savings, 401k, or a gift). For example, if you want to start a food truck and it costs $150k for your truck, food, and supplies, the lender will expect for you to put in 5-15% of that $150k and they will give you the rest.
All startup business loans will require an equity injection, however sometimes you will have already paid for some of your project and now all you need is the remaining portion from the lender, so the money you’ve already spent can count as your equity injection.
The amount of equity you will have to put in will depend on what the lender requires, your loan amount, and your overall file (credit, income, experience, and collateral). The more things you have going for you, the less you may have to put down. However, most lenders will require 10-15% no matter how good your file is. Only CDFIs can get away with only making you put down 5%, and this is only for minority owned businesses.
In summary, the higher the loan amount, the higher the equity injection that will be required. Therefore, your equity injection will determine the business loan amount are eligible for.
Sometimes it’s difficult to use generic guidelines and apply them to your specific situation. To find out how much working capital you qualify for, request a free lending consult with us.
If you need more startup loan help, make sure you check out these articles:
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