Behind the Scenes of SBA Lending

SBA loans are one of the most common ways small businesses get financed, yet one of the least understood.

What actually happens when someone tries to buy a business with an SBA loan?

In Episode 2 of The AiCR Exchange, Joe Furlong sits down with Eric Dunham, a commercial lending veteran with over two decades of experience, now with Main Street Funding Group. Eric pulls back the curtain on how SBA loans are structured, where deals stall, and what borrowers and sellers can do to keep things moving.

What is an SBA loan and how does it work?

An SBA loan is a government-backed lending program where the Small Business Administration guarantees a portion of the loan, typically 75%, to help lenders approve transactions that would otherwise have a collateral gap. The program was created in the 1940s and remains one of the primary tools for financing small business acquisitions, equipment purchases, refinancing, and working capital needs. The guarantee gives lenders the comfort to proceed on deals that wouldn’t qualify through conventional channels.

What are SBA loans most commonly used for?

Business acquisitions make up the majority of SBA loan activity, roughly 75% of transactions according to Eric Dunham. Most of these deals involve no real estate. They’re purchases of operating businesses where the primary collateral is the business itself. The SBA 7(a) program supports loan amounts up to $5 million, and lenders can layer in additional financing to reach $7 to $8 million for larger acquisitions. Other common uses include equipment purchases, refinancing, working capital, and rent replacement, where a business owner buys the space they have been leasing.

Why is SBA lending so document intensive?

SBA lending requires more documentation than any other form of lending because the government guarantees the loan and audits the file after closing. Every required document needs to be present and accounted for, including the business’s tax returns, financial statements, the buyer’s background, and the transaction details. The government doesn’t leave any stone unturned when vetting the deal, the client, and the business being purchased. For borrowers used to conventional lending, the volume of paperwork can come as a surprise.

What causes the most delays in SBA loan processing?

The most common cause of delays is slow document collection from one or both parties. In a business acquisition there is a buyer and a seller, and both need to provide significant documentation. When either side is slow to respond, the process drags. Eric’s team addresses this upfront by walking both parties through exactly what is needed and establishing expectations before the process begins. A cooperative seller and a cooperative buyer make all the difference. The typical timeline from application to closing is 60 to 120 days, with 75 days being roughly average. Experienced advisors can compress that timeline by knowing which lenders to approach for which deal types from the start.

How does a government shutdown affect SBA loans?

A government shutdown affects SBA loans at the approval stage. Most lenders Eric works with are designated preferred lenders, meaning they can authorize their own loans through the SBA system. But if a loan has not received its authorization number before a shutdown begins, that approval has to wait until the SBA reopens. Closing itself does not require the SBA to be open, only approval does. Eric’s team responds to shutdown risk by accelerating approvals for deals close to the finish line and keeping everything else ready to move the moment the SBA comes back online.

What should borrowers do to prepare for an SBA loan?

The single most important thing a business owner can do, whether buying or selling, is keep clean financial records. Lenders spread the tax returns first to confirm the business generates enough cash flow to repay the loan. Financial statements should be prepared according to GAAP and consistent with tax returns. Sellers who have underreported income will find that it works against them when a buyer is trying to qualify. Experienced advisors can also help route deals to the right lenders from the start, since different lenders have different appetites for different deal types, and knowing that upfront saves significant time.

Frequently Asked Questions About SBA Lending

What is the difference between an SBA loan and a conventional loan?

A conventional loan relies on collateral to secure the lender’s position. An SBA loan adds a government guarantee, typically 75% of the transaction, which allows lenders to approve deals where collateral alone would not be sufficient. This makes SBA loans particularly useful for business acquisitions where the primary asset being purchased is the business itself.

How long does an SBA loan take to close?

The typical SBA loan closes in 60 to 120 days, with 75 days being a reasonable average. Experienced advisors working with cooperative buyers and sellers can compress that timeline. The biggest variable is how quickly both parties provide required documentation.

What documents are required for an SBA loan?

SBA loans require extensive documentation including business tax returns, financial statements, buyer background information, and transaction details. The government audits SBA loan files after closing, so every required document must be present. The specific checklist varies by deal type but is more extensive than any other form of commercial lending.

Can an SBA loan be affected by a government shutdown?

Yes. SBA loans require an authorization from the Small Business Administration before closing. If the government shuts down before that authorization is issued, the approval process pauses until the SBA reopens. Lenders and advisors with active pipelines typically work to advance approvals ahead of a potential shutdown to minimize the impact.