Yes, you can get a loan to start a small business, but for most first-time founders the realistic route is an SBA-backed loan rather than a conventional bank loan. The SBA’s flagship 7(a) program allows borrowing up to $5 million for working capital, equipment, inventory, or real estate, and it is the most widely used federal financing vehicle for businesses that don’t yet have the operating history traditional lenders want to see. Approval turns on three things a startup can actually control: your personal credit, a cash contribution of your own, and a business plan credible enough to convince a lender the venture will repay the debt.
What Lenders Look at When You Have No Business History
Your Personal Credit
A brand-new business has no revenue record, so lenders lean on the personal credit profile of each owner. The SBA does not publish a hard minimum personal FICO score, but it requires lenders to run applicants through the FICO Small Business Scoring Service, which blends personal and business credit data into a single number. The current minimum SBSS score for 7(a) small loans is 165.1U.S. Small Business Administration. 7(a) Loan Program In practice most lenders set their own floors well above that, and applicants with personal FICO scores below the mid-600s will have a hard time getting approved through a traditional SBA lender.
Your Own Money in the Deal
Startups with fewer than two years of operations are generally expected to put in at least 10 percent of the total project cost as an equity injection. That money must come from savings or other non-debt sources so the business begins with a manageable debt load. Lenders sometimes push the requirement higher for riskier ventures, and you should expect to document exactly where every dollar of your injection came from.
A Personal Guarantee
Every owner holding at least 20 percent of the business must personally guarantee the loan.2eCFR. 13 CFR 120.160 – Loan Conditions A personal guarantee means your personal assets are on the hook if the business cannot make payments. The SBA can also require guarantees from people with smaller stakes if it believes the credit risk warrants it.
Citizenship and Residency
Effective March 1, 2026, the SBA revised Standard Operating Procedure (SOP 50 10 8) to require that 100 percent of all direct and indirect owners of an applicant business be U.S. citizens or U.S. nationals. Each owner must also maintain a principal residence within the United States or its territories. Legal permanent residents, commonly known as green card holders, are no longer eligible to hold any ownership interest in a business applying for SBA financing. Under the prior policy, businesses could qualify even if up to 5 percent of ownership was held by foreign nationals or by citizens living abroad. Any ownership structure that now includes a non-citizen renders the business ineligible.
Criminal History
A business is ineligible for SBA loans if any owner or key associate is currently incarcerated or under indictment for a felony or any crime involving financial misconduct or a false statement.3eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans? A past conviction that has been resolved does not automatically disqualify you, but it will trigger additional scrutiny during the SBA’s character review. The Borrower Information Form (SBA Form 1919) asks detailed questions about criminal history, and any misrepresentation on that form can result in federal penalties.
Businesses That Can’t Get an SBA Loan
Before you spend weeks on an application, check that your business isn’t on the ineligible list. The SBA will not finance:3eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans?
- Businesses that derive more than one-third of gross annual revenue from legal gambling.
- Speculative ventures such as oil wildcatting or investment-focused real estate development.
- Passive real estate holdings where the owner does not actively occupy or use the property acquired with the loan.
- Banks, finance companies, and similar lending operations, though pawnshops may qualify in some cases.
- Nonprofits, though for-profit subsidiaries of nonprofits are eligible.
- Any business engaged in activity that violates federal, state, or local law.
- Businesses primarily engaged in political advocacy or lobbying.
- Businesses whose owners previously defaulted on a federal loan and caused the government a loss, unless the SBA grants a waiver.
The speculative-business rule trips up more applicants than you might expect. If the SBA views your revenue model as inherently unpredictable rather than based on ongoing operations, the application will be denied regardless of how strong your personal credit looks.
Loan Programs a Startup Can Actually Use
SBA 7(a) Loans
The 7(a) program is the SBA’s flagship and the one most startups will pursue. Authorized under 15 U.S.C. § 636(a), these loans cap at $5 million and can fund virtually any legitimate business expense: working capital, equipment, inventory, land, or building construction.4Office of the Law Revision Counsel. 15 USC 636 – Additional Powers Repayment terms depend on what the money is used for. Real estate loans can stretch to 25 years, while working capital loans max out at 10 years. Equipment and other fixed-asset loans fall between those poles based on the useful life of the asset.
The SBA does not lend money directly under this program. It guarantees a portion of a loan made by a participating bank or credit union, which reduces the lender’s risk and makes approval more likely for businesses that would otherwise be turned away. That guarantee comes with a fee the borrower pays.
SBA 504 Loans
The 504 program is designed for major fixed-asset purchases like buildings, land, and long-lived equipment. It works as a partnership: a conventional lender covers roughly 50 percent of the project cost, an SBA-certified development company provides up to 40 percent (capped at $5.5 million), and the borrower contributes at least 10 percent as a down payment.5U.S. Small Business Administration. 504 Loans
To qualify, the business must operate as a for-profit company in the United States, have a tangible net worth under $20 million, and average net income below $6.5 million over the two years before application.5U.S. Small Business Administration. 504 Loans The 504 program cannot be used for working capital or inventory, which limits its usefulness for startups that don’t need a physical location or heavy equipment right away.
SBA Microloans
Microloans provide up to $50,000 through nonprofit community lenders rather than banks. The money can go toward working capital, inventory, supplies, furniture, fixtures, or equipment. It cannot be used to refinance existing debt or purchase real estate.6U.S. Small Business Administration. Microloans Interest rates tend to run higher than 7(a) loans because the intermediary lenders take on more risk with smaller, less-established borrowers. This is a reasonable entry point if your startup needs a modest amount of capital and you want to build a borrowing track record.
Equipment Financing
Equipment loans use the machinery or technology being purchased as collateral, so you generally don’t need to pledge your home or other personal assets. These loans are available from banks, credit unions, and specialized lenders outside the SBA system. Terms typically match the expected useful life of the equipment, and rates are often fixed. The trade-off is that the money can only buy equipment. It cannot cover payroll, rent, or other operating costs.
What a Startup Loan Will Cost
SBA 7(a) loans can carry either variable or fixed interest rates, and the SBA caps how much a lender can charge above the base rate. As of March 2026, the maximum allowable spreads over the prime rate for variable-rate loans are:
- Loans of $50,000 or less: Prime + 6.5%
- $50,001 to $250,000: Prime + 6.0%
- $250,001 to $350,000: Prime + 4.5%
- Over $350,000: Prime + 3.0%
Smaller loans carry higher spreads because lenders earn less in absolute terms on a $30,000 loan than on a $500,000 one, so the extra margin covers the fixed costs of underwriting. If the prime rate sits at 7.5 percent and you borrow $400,000, your rate could be as high as 10.5 percent.
On top of interest, borrowers pay an upfront SBA guarantee fee that scales with the loan amount and maturity. The SBA publishes updated fee schedules each fiscal year; the current schedule took effect October 1, 2025 for fiscal year 2026. Your lender will calculate the exact fee and roll it into closing costs. Budget as well for an appraisal, legal review of closing documents (typically $500 to $3,000 depending on complexity), and a UCC-1 filing fee the lender pays to perfect its security interest in business assets.
What You Need to Apply
A Real Business Plan
A solid business plan is the single document that can make or break a startup loan application. The SBA recommends including financial projections for at least five years, with monthly or quarterly detail for the first year: income statements, balance sheets, and cash flow statements.7U.S. Small Business Administration. Write Your Business Plan Your projections need to show not just profitability but the specific point at which revenue exceeds expenses, the break-even analysis that tells a lender when the loan starts paying for itself.
Beyond the numbers, include a market analysis demonstrating real demand for what you’re selling and a clear explanation of how you plan to compete. Lenders read dozens of these and can spot thin research immediately. If your competitive advantage section reads like a wish list rather than a strategy grounded in actual market conditions, that is where applications stall.
The SBA Forms
SBA Form 1919, the Borrower Information Form, collects data on the applicant business, its owners, the loan request, existing debts, and any previous government financing. It also authorizes background checks under 15 U.S.C. § 636(a)(1)(B).8U.S. Small Business Administration. Borrower Information Form SBA Form 413 is the Personal Financial Statement, which requires a full inventory of each owner’s personal assets and liabilities. Anyone holding 20 percent or more of the business must complete and sign both forms.
You also need to submit a Schedule of Liabilities (SBA Form 2202), which lists every existing debt: the creditor name, original and current balance, maturity date, monthly payment, whether the account is current or delinquent, and what collateral secures it. Incomplete or inconsistent debt disclosures are a common reason applications get sent back for corrections.
Tax Returns and Legal Documents
Lenders will request personal tax returns for the previous three years from every owner. If the business has been operating in any capacity, business tax returns for the same period are also required. For a pure startup, the personal returns carry the full weight because they are the only record of your income history and financial behavior.
You also need legal formation documents: Articles of Organization (for LLCs) or Articles of Incorporation (for corporations), along with any operating agreements or bylaws. If you’re buying into a franchise, include the franchise agreement. Commercial lease agreements, resumes for key management, and any relevant permits or licenses round out the package. Organizing everything into a single digital file with a clear table of contents saves time during underwriting.
How Long It Takes
You submit your completed package to an SBA-approved lender, which can be a bank, credit union, or online lending platform that participates in the SBA program. The lender reviews the application internally, verifies your documentation, and runs its own credit analysis before forwarding the file to the SBA for a guarantee decision. From submission to approval, expect roughly 60 to 90 days for a standard 7(a) loan. Lenders participating in the SBA’s Certified Lenders Program can cut that timeline because they have delegated authority to make credit decisions without full SBA review.
If approved, the lender issues a commitment letter specifying the final loan amount, interest rate, repayment schedule, and any remaining conditions you must satisfy before closing. Common conditions include obtaining hazard insurance on collateral, completing an appraisal, or providing a final lease agreement. The closing itself involves signing a promissory note and security agreements that formalize the debt. Funds are typically disbursed as a lump sum, though construction or renovation projects may use a draw schedule where money is released in stages as work is completed.
If You Get Denied
A denial is not the end of the road, and federal law gives you specific rights when a lender turns you down. Under the Equal Credit Opportunity Act, a lender that takes adverse action on a business loan application for a company with $1 million or less in gross revenue must either provide specific reasons for the denial or inform you of your right to request those reasons.9Consumer Financial Protection Bureau. Regulation B – 1002.9 Notifications You have 60 days from the denial notice to make that request, and the lender must respond within 30 days. The reasons must be specific. A lender cannot simply say you “didn’t meet internal standards” and leave it at that.
Knowing the exact reasons matters because it tells you what to fix. If the denial was based on insufficient collateral, you might bring in a co-signer or offer additional assets. If cash flow projections were the problem, reworking your business plan with more conservative assumptions and stronger market data could make the difference on a second attempt. Some lenders offer informal pre-screening conversations before you go through the full application, which can save months of effort if a fixable weakness would otherwise lead to denial.
For SBA loans specifically, if you believe the lender or the SBA made an error in evaluating your application, you can file a written appeal with the SBA’s Office of Hearings and Appeals within 30 days of receiving the decision. The appeal must include a copy of the decision, a detailed explanation of why you believe it was wrong, and any supporting evidence.