What To Expect During Your SBA Loan Application Process
Is this your first time applying for a business loan? Even veteran business people get confused about what to expect from the SBA loan application process sometimes.
Your business is picking up and you want to expand, upgrade your equipment or move to a better location or your startup is starting to get some traction and you need funds to get finance the next great idea.
Regardless of why your business needs funds, the important question is where you will source the funds.
Not everybody has a fat bank account or unlimited access to cash, so you need help to fund these upgrades. For small businesses, the best way to acquire these funds is by applying for an SBA loan.
While the SBA loan application may be intimidating, it’s similar to applying for a loan from the bank. It’s advisable that you understand the application process as this will make the application easy.
What You Should Know About the SBA Loan Application Process
Applying for SBA loans is becoming increasingly difficult as times get tougher. Not only do these loans require more paperwork they also take longer than typical loans.
It gets even tougher if you don’t know the application process. This is why you are advised to know the SBA loan requirements. Below are the business loan requirements:
1. Personal Background Statement
The first SBA loan qualification is that you are required to provide a written statement that clearly details your personal background.
The written statement will include details like criminal records, previous addresses, educational background, and names you’ve used. It’s like a biography that contains all personal information that is verifiable from outside sources.
SBA lenders will often request your professional resume, as it will help them understand your business experience. Here you get to describe your business expertise and make expound on why you are qualified to run the business.
This is why you are advised to learn how to qualify for a small business loan. Your resume becomes your pitch and if you really need that loan, you get to show the lenders that you’re prepared to use the loan accordingly.
3. Credit Report & Score
SBA lenders will typically look at the credit history of the business. However, small businesses often have no borrowing history and the lenders rely on your personal credit history to better understand your debt repayment habits.
Before you apply for a small business loan, request for your credit reports from any of the major credit agencies. Take your time to go through your credit report and check for any errors that might downgrade your credit score. Ensure that all the errors are corrected before you submit the SBA loan application.
4. Personal Tax Returns
SBA lenders will want to look at your personal tax returns as a way of analyzing whether you are fiscally responsible. You will be required to provide personal tax returns for at least two years.
Ensure that your tax returns are up to date. If you are not up to date, request an extension and a written explanation of why you needed the extension.
5. Business Credit Report
SBA lenders will have to look at your business credit report regardless of whether you have ever borrowed or not. Ensure that you go through your credit report before you apply for the SBA loan. Check for any errors or incorrect information and contact the agency to rectify the errors before you apply for the loan.
6. Legal Documents
The legal documents required will vary depending on the lender but it’s advisable that you compile all the business documents just in case the lender requests for some. Such documents include:
- Articles of incorporation
- Franchise agreements
- Registrations and business agreements
- Leases for equipment and commercial real estate
- Contracts with third parties such as suppliers and clients
To have all the legal documents, don’t shy away from seeking the services of an SBA legal attorney.
7. Business Plan
Since you are seeking a loan to either grow your business or upgrade premises and equipment, the SBA lender will need to see your business plan. The business plan should clearly detail your cash flow projections, future sales, and projected profit margin. It should also explain how the loan will help grow your business.
8. Use of loan
This is where you get to convince the lender that your business is a good investment. You get to explain how you intend to use the funds to grow your business and how you intend to pay it. This will help you get a loan program that matches your needs. Also, know the dos & don'ts of SBA loans.
9. Financial Statements
Every business has a balance sheet that shows the financial health of the business for a full year. SBA lenders will need balance sheets for the last 2 years. These balance sheets should clearly indicate your assets and liabilities.
The lender will use your balance sheet to check your creditworthiness. Other requirements include profit & loss statements, bank statements, income tax returns, and collateral.
Determine How Much You Need
Before you apply for a loan, take time and figure out how much you need to fund your business. Figure out how much your business will generate if your loan application is successful. This will help you understand if the business will generate enough to pay back the loan in time.
Take time to reflect whether the reasons you are seeking a loan are sound and feasible.
If you intend to change locations, shop around for a better location that is within your budget estimates. If it’s an equipment, shop around and compare the prices. Getting a loan is an investment, you want to get the best out of it.
SBA Loan Application Best Practices
Now that you have prepared everything from the legal documents to the business plan, it’s time for that SBA loan application.
Before you do, ensure that you are thorough in everything from compiling your paperwork to calculating the funds you need. Do enough research even when shopping for lenders, you want an SBA lender whose rates are favorable.
Be upfront about how you intend to use the money and how the current financial situation is affecting your business.
Lenders prefer working with people who are trustworthy and honest. Also, be honest with yourself, don’t borrow too much money that will only hurt you in the long term. Borrow only what you need.
What To Do If You Default On Your SBA Loan
Despite all your best efforts, your business fails. Often, factors beyond your control negatively affect your business. But your problems are just starting - the SBA now looks to you and your personal guarantee to pay the amount due on the defaulted SBA loan. At this point, you need experienced, assertive legal counsel to represent you in front of the SBA.
In case you are having trouble with your SBA loan, contact us for real solutions to your loan problems.