When to Apply for an SBA Loan

This answer was adapted from material on the U.S. Small Business Administration Web site.

Before you can become

eligible for an SBA loan, you have to apply — and be turned down — for a conventional loan from a commercial lender. At that point, you may be eligible under SBA's Loan Guarantee Plan or Immediate Participation Plan. If you do qualify for one of these loan types, you won't receive money directly from the SBA. Rather, the SBA guarantees the loan made by the private lender. It has a long list of certified and preferred lenders throughout the U.S.

You might find the same lender that otherwise wouldn't give you the time of day is eager to lend you money under one of the SBA's loan guarantee programs. This is because the federal guarantee not only reduces the lender's risks, but the bank now has a readily available secondary market for the guaranteed portion of the loan. You will make the monthly loan payments directly to the lender, not to the SBA.