SBA Loan FAQ
Answers to the most common questions about SBA 7(a), 504, and industry-specific financing.
By Thomas Hartwell | Updated
Written by Thomas Hartwell, SBA lending specialist and author of the FUNDED series.
General SBA Loan Questions
What is an SBA loan?
An SBA loan is a small business loan partially guaranteed by the U.S. Small Business Administration. The SBA guarantees a portion of loans made by approved lenders, reducing lender risk and making it easier for small businesses to qualify.
What's the difference between SBA 7(a) and 504 loans?
SBA 7(a) is the most flexible program, covering working capital, equipment, real estate, and acquisitions up to $5 million. SBA 504 is specifically for major fixed assets (real estate and heavy equipment) and involves a CDC providing a second position loan. The right choice depends on your industry and deal structure.
What credit score do I need for an SBA loan?
Most lenders require at least 680, though some will consider lower scores with compensating factors like significant experience, higher equity injection, or strong business cash flow.
How much down payment is required for an SBA loan?
The SBA minimum is 10% equity injection, but lenders often require 15-20% for startups, change of industry, or higher-risk deals. The equity must come from acceptable sources—not borrowed funds.
How long does it take to get an SBA loan?
Expect 60-90 days for a well-prepared SBA 7(a) loan with a Preferred Lender. SBA Express can close in 30-45 days for loans under $500K. Incomplete applications or complex deals take longer.
What can SBA loans be used for?
Business acquisitions, real estate purchase or construction, equipment, inventory, working capital, and debt refinancing. Speculative investments and passive income properties don't qualify.
Who qualifies for an SBA loan?
For-profit U.S. businesses that meet SBA size standards and have invested equity. You must also meet your specific lender's requirements for credit, experience, and cash flow.
What disqualifies you from getting an SBA loan?
Ineligible industries (gambling, lending, life insurance), recent bankruptcies, criminal records, delinquent federal debt, and businesses that can get conventional financing. Passive investment properties also don't qualify.
Restaurant SBA Loan Questions
How hard is it to get an SBA loan for a restaurant?
Restaurant SBA loans are more challenging than many other industries due to higher failure rates. You'll need strong food service experience (2-3 years management), good credit (680+), 15-20% down payment for startups, and solid cash flow projections. With proper preparation, approval is achievable.
What experience do I need for a restaurant SBA loan?
Lenders want to see 2-3 years of relevant food service experience, preferably with P&L responsibility. Front-of-house experience alone typically isn't sufficient—they want to see you've managed operations, including back-of-house, food costs, and staffing.
How much can I borrow with an SBA loan for a restaurant?
SBA 7(a) loans for restaurants can go up to $5 million. Typical restaurant loans range from $350,000 to $2 million depending on whether you're buying equipment, building out a location, or acquiring an existing restaurant.
Can I get an SBA loan to open a new restaurant?
Yes, but startup restaurants face higher requirements: typically 20-30% equity injection, strong relevant experience, detailed business plan with realistic projections, and possibly a co-signer or experienced partner.
Are restaurants considered high-risk for SBA loans?
Restaurants do face additional scrutiny due to industry failure rates, but they're not disqualified from SBA financing. Lenders mitigate risk by requiring more experience, higher equity injection, and careful cash flow analysis.
Hotel SBA Loan Questions
Should I use SBA 7(a) or 504 for a hotel purchase?
For most hotel acquisitions, 504 is often advantageous because hotels are real estate-heavy. The 504 program offers fixed rates on the CDC portion and potentially lower down payments. However, 7(a) offers more flexibility if you're also buying a business or need working capital.
What management experience do I need for a hotel SBA loan?
Lenders typically want to see 2-5 years of hotel management experience, preferably in a similar property type. Experience as a general manager or in revenue management is valued. Lacking experience? Consider a management company or experienced partner.
What is PIP and how does it affect my hotel SBA loan?
A Property Improvement Plan (PIP) is required when buying a flagged hotel. Lenders will want to see the PIP costs included in your loan request and projections. Unexpected PIP costs can sink deals—always get the PIP before finalizing your offer.
What DSCR do I need for a hotel SBA loan?
Most lenders require a Debt Service Coverage Ratio (DSCR) of 1.25x or higher for hotel deals. This means your property's net operating income should cover 125% of your debt payments. Higher DSCR requirements may apply for certain property types or markets.
Can I buy an independent hotel with an SBA loan?
Yes, SBA loans work for both flagged and independent hotels. Independent hotels may actually have advantages—no franchise fees, no PIP requirements, and more flexibility. However, you'll need to demonstrate strong management capability.
Franchise SBA Loan Questions
What is the SBA Franchise Directory?
The SBA Franchise Directory lists franchises that have been reviewed and approved for SBA lending. If your franchise is on the directory, the SBA has already reviewed the FDD for eligibility issues. If it's not listed, additional review is required—which can add time to your loan process.
Can franchise fees be included in my SBA loan?
Yes, the initial franchise fee can typically be included in your SBA loan. However, ongoing royalties cannot be financed—those are operating expenses. Your projections should clearly account for all franchise costs.
What if my franchise isn't on the SBA Directory?
Your lender can request an SBA franchise review, but this adds time (2-4 weeks typically). The SBA will review the Franchise Disclosure Document (FDD) for any provisions that might make the franchise ineligible for SBA financing.
Do I need experience in the franchise's industry?
Requirements vary by franchise and lender. Some franchises provide extensive training that can compensate for lack of industry experience. However, having relevant experience strengthens your application and may reduce equity requirements.
Can I buy an existing franchise location with an SBA loan?
Yes, acquiring an existing franchise is often easier than starting new. You'll have historical financials to support your projections. Just ensure the franchisor approves the transfer and any training requirements are clear.
Dental Practice SBA Loan Questions
Can I get an SBA loan to buy a dental practice?
Yes. SBA loans are one of the most common financing methods for dental practice acquisitions. Both SBA 7(a) and 504 programs can be used. You'll need dental experience, 10% down payment, 680+ credit score, and practice cash flow sufficient to cover debt service.
How does student debt affect my SBA dental loan?
Student debt is included in your global DSCR calculation. Lenders add monthly student loan payments to total debt obligations. With average dental school debt around $300,000, this significantly impacts borrowing power. Income-driven repayment plans help by lowering monthly obligations.
How do lenders value a dental practice for SBA loans?
Dental practices are 60-80% goodwill (patient relationships, reputation), creating a collateral gap. Lenders use income, market, and asset-based approaches, weighting the income approach most heavily because it demonstrates debt service ability.
Can I leave a DSO and get an SBA loan for my own practice?
Yes. Many dentists transition from DSO employment to independent ownership using SBA financing. Key factors include your non-compete agreement, ability to demonstrate business management skills, and a solid business plan.
What about insurance credentialing when buying a dental practice?
Start credentialing 90-120 days before closing. You must be credentialed with insurance panels before billing under your own provider number. Many deals include a seller transition period to bridge the credentialing gap.
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