American Capital Insights: The Basics of SBA Loans

What are the approval odds for an SBA Loan?

Whether you are opening a new location, expanding to a hybrid business model, replacing worn-out equipment, or maintaining daily operations like payroll, there’s one thing you’ll need: capital. 

According to Forbes, only 42% of small businesses have their financial needs met. If you’re seeking financing for your fitness, wellbeing, or hybrid business, you’re certainly not alone. There are a number of financing options and loan programs available, each with different requirements for personal credit, tax returns, profitability, and more. 

One of the most accessible options available to finance your small business is the SBA Loan Program. Below are answers to the most common questions about the SBA Loan Program.

What is an SBA Loan? 

The 7(a) Loan Program is the U.S. Small Business Administration’s primary business loan program. This program provides loan guarantees to lenders that make it convenient for them to provide financial help to small businesses that meet special eligibility requirements. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. 

According to the SBA, these loans can be used for: 

• Acquiring, refinancing, or improving real estate and buildings
• Short- and long-term working capital 
• Refinancing current business debt 
• Purchasing and installation of machinery and equipment, including AI-related expenses
• Purchasing furniture, fixtures, and supplies 
• Changes of ownership (complete or partial)
• Multiple-purpose loans, including any of the above

What makes an SBA Loan different from other financing options? 

The express intent of the SBA is to support small businesses like yours. Because these loans are backed by the government, lenders are more likely to approve applications from borrowers with lower credit scores or lower liquidity.

At the start, applying for an SBA is similar to the traditional financing that you apply for at your local bank. Once the lender performs a risk assessment, certain factors in your application indicate you are a good candidate for the SBA loan program.

What are the pros and cons of choosing an SBA Loan instead of a traditional bank loan?

The biggest advantage of the SBA Loan is that you’ll have a higher likelihood of approval, even as a start-up. On the downside, SBA loans require more paperwork for the government to provide the guarantee. Additionally, rates may be higher compared to conventional bank products.

What are the approval odds for an SBA Loan?

Criteria that improve the odds for a borrower to obtain an SBA loan include:

• 700+ personal credit. Lenders will look at your Experian FICO score, which is usually ~20 points lower than the score you see in Credit Karma.
• 2+ years in business. For start-ups, profit projections, liquidity, and personal investment will be weighed more heavily.
• While not mandatory in all cases, showing as much profit as possible on tax returns is always beneficial.

To learn more about the SBA loan program and application process, watch the full Q&A with American Capital Group’s Founder and CEO, Alex McAloon

One of the biggest hurdles for any small business is securing capital. American Capital’s main focus is securing your financial support with speed and ease so you can focus more time selling memberships and running your boutique fitness studio. With our concierge service and network of over 30 lenders, we can help borrowers package their file in the best possible light to secure optimal funding in as little as two weeks.