Starting a business can be tough, especially when it comes to securing capital. Luckily, there is support from the government to help existing business owners grow and new entrepreneurs pursue their first franchise or small business. For those struggling to acquire working capital or fund fixed assets, the Small Business Administration (SBA) is a viable lending option.

What is an SBA loan?

The SBA is a government agency that helps Americans start, build and grow small businesses, but is largely known for its loan programs. Unlike traditional banks, the SBA doesn't lend money directly. Instead, it partners with lenders, community development organizations and micro-lending institutions and, through a set of specific guidelines, offers government-backed loans.

The SBA can cover up to 75% of a lender's loss if the loan defaults, thus reducing the risk for lenders while allowing small business owners and entrepreneurs easier access capital. At the same time, SBA guidelines simplify the loan process, including lower down payments, flexible overhead requirements and in some instances, eliminating collateral.

Who should get an SBA loan?

SBA loans are available for a variety of uses, but are popular with entrepreneurs looking to refinance, hire employees, open a new location or even get disaster relief. They are also a popular financing option for first-time business owners looking to open a franchise.

Oftentimes, SBA loans support small business owners who lack strong credit or a stable financial history. Under normal circumstances, traditional banks would hesitate to issue large amounts of cash to those without good credit. Yet partnering with the SBA allows banks and other lenders to issue loans to a larger pool of small business owners.

How do I get an SBA loan?

While SBA loans make it easier to access capital, that doesn't mean that banks hand them out freely; eligibility can vary by lender. If you're looking to secure capital through the SBA, consider these steps to help guarantee loan approval:

  • Make sure you are bank ready. Look for ways to strengthen your credit and elevate your score. Create a strong business plan with financial projections and cash flow statements, and gather and organize P&L statements, tax documents, licenses and other financial documents. It ultimately depends on lender requirements, but it's a good idea to begin finding and organizing these documents early to assess the amount of money you'll need to borrow. If you need assistance preparing for your loan, contact your local Small Business Development Center and ask to work with a consultant.

  • Make sure you qualify. While each lender and loan program has unique eligibility requirements, SBA loans require a borrower to be for-profit, do business in the U.S., have invested equity in the business and be unable to obtain funds from any other financial lending source in order to qualify. It's also important to remember that SBA loan programs are reserved for small businesses. Therefore, you must meet the SBA's definition of a small business, which can vary by industry. Find more information on specific size standards here.

  • Find a lender. The SBA doesn't directly provide lenders, so make sure you come prepared with the right questions to help you make an informed choice. Consider interest rates, application length, down payment amount and necessary collateral when preparing questions. This list of active lenders provided by the SBA is a great place to start looking.

  • Fill out the forms. The next steps generally depend on the lender, but most often involve filling out applications and other forms. If you get stuck during this part of the process, consult the SBA website, your state SBA office or your bank. Generally, it then takes anywhere from 60 to 90 days for processing and approval.

What happens to SBA lending during a government shutdown?

As we saw earlier this year, a government shutdown has far-reaching implications. According to the BizBuySell opinion poll, 13% of small businesses faced SBA loan delays because of the shutdown -- but 60% of those who were negatively affected by the shutdown have since recovered.  

So yes, unfortunately, the SBA lending program is affected in the event of a shutdown. Here's what to expect from the SBA program if the worst happens:

  • If you are in the process of applying for a loan: Lenders will accept new loan applications and process existing requests up until the point where they require SBA approval -- this is because they can't verify financial information with the Internal Revenue Service (IRS). At this stage, all you can do is wait for the shutdown to end. Or, you can seek other methods of financing that you can then pay off with a future SBA loan. If you're still unsure, here is more advice on how to offset the delay.

  • If you already have an SBA loan: If you're approved for an SBA loan ahead of the shutdown, your funds will still be distributed and arrive on schedule. However, you cannot make any changes to the existing agreement until the government re-opens.

Kickstart your dreams with SBA lending

SBA loans can be a saving grace to aspiring entrepreneurs who need a boost to pursue their dreams. The SBA makes business ownership something more attainable for entrepreneurs of every level -- but it's not a free pass. Eligibility and approval can be tough, but the security of SBA funding easily justifies your time and due diligence.