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How to Get an SBA Loan in 5 Steps

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If you’re in the market for a business loan —because you recently started a business or need financing for working capital or new equipment— there is an excellent loan program used by hundreds of businesses each year. This program exists to promote and support small businesses in the United States while also making it more likely that a bank will lend to you.

Are you familiar with U.S. Small Business Administration? Their mission is to “preserve free competitive enterprise and to maintain and strengthen the overall economy” of the nation. Since inception, the SBA has provided millions of loans, loan guarantees, counseling sessions and other small types of business assistance.

Before applying for an SBA loan

Applying for a business loan can be a long and complicated process. You’ll need to submit numerous documents, go through a credit check, determine how you will use the funds and more. Before you speak to lenders, make sure you’re ready using the following check-list:

  • Personal and business credit histories will be reviewed to see if financial obligations are met. Extenuating circumstances will require an explanation.
  • Upon approval of a loan guarantee, collateral may be required to secure funding. Not all lenders will require collateral; however, it may improve your chance for a loan approval.
  • A business should meet the size standards for its particular industry, which is determined by the number of employees or annual receipts.
  • A business plan should be a detailed statement about the goals of the business and how you plan to reach those goals..
  • Expense reports and financial projections are needed to help investors determine if they should invest in your company. Financial projections illustrates your finances, and how you plan to use and repay the loan.
  • Determining how much capital you will need will help you get matched with the right loan program.
  • Lenders will be looking to work with experienced business owners in their industry, although not having the experience won’t make an applicant ineligible. “They’re going to look at the experience and background of the principals of the company in terms of being able to manage that company effectively, and if they have experience in that particular industry,” said Terri Denison, district director of the SBA Georgia district office.
  • How to get an SBA loan in 5 steps

Now that you’ve got everything above ironed out, we’ve outlined 5 steps to apply for a business loan that’s backed with the SBA guarantee:

1. Review eligibility requirements.

SBA loans have a number of requirements in order to be eligible for an SBA-backed loan:

  • The business must be a for-profit company.
  • The business owner should have no other method of receiving financing.
  • The business must operate in the United States.
  • The business owner must invest their own equity in the company
  • Business owner must be able to demonstrate their ability to repay.

2. Identify why you need the loan.

Determining how much you need and what you will use the funds for will help you determine which loan program is best for you. For example, the Microloan Program is a good option if you only need $50,000.

3. Search and compare lenders.

Start your SBA loan search with your local bank as many commercial banks carry SBA loans. You can search for a lender using the SBA Lender Match tool on the Small Business Administration’s website. You will receive a list of matches within two days of submitting your information through the Lender Match tool. When looking for a lender, it’s also a good idea to work with a Preferred Lender. Preferred Lenders have been given authority through the SBA to approve loans.

4. Develop your application package.

Each application will have its own list of requirements. The SBA offers a number of services through programs like SCORE, the Women’s Business Center (WBC) and Small Business Development Centers (SBDCs). “Definitely take advantage of the counseling resources: SCORE, the SBDC and the Women’s Business Centers. They can work with you to map out financials and look at where that business is and exactly what a small business needs as far as amount of funding and what type of funding,” said Denison.

5. Submit your application.

The timeline for the application process will vary from lender to lender. Once the application has been submitted, the lender will submit a letter of intent with details about the loan amount and potential rates and terms. If you agree, you will return the signed letter, signed, which may require a refundable deposit.

During the underwriting process, a lending specialist will follow-up with you to clarify documents or request additional ones. If approved, your loan agreement will include all the important information about your loan. The loan is considered closed (or finalized) once documents are signed and all fees are paid, such as the closing cost or guarantee fee.

Choosing a lender for your SBA loan

It’s important to ask questions when choosing a lender for your small business loan. You’ll want to make sure you have a full understanding of average loan size and rate, if there’s a pre-approval process, if collateral is required, etc. Don’t just limit yourself to those questions either. Feel free to ask away—your money and the lender’s potential investment are on the line.

It’s a good idea to build a good relationship with your lending institution before applying for a loan. “If you explain how your business model works, then you can start building a level of comfort and knowledge with them about your business. Then they understand why you’re approaching them for a loan,” Denison said.

As previously mentioned, the SBA has a list of Preferred Lenders that have a good track record and understanding of SBA loans. Under the Preferred Lenders Program (PLP), lenders are granted approval to close loans, and given authority for servicing and liquidation.

Finally, be sure to find a lender that will suit the needs of your small business. “Generally speaking, lending institutions have different models. So a lot of lenders have comfort levels in terms of knowledge of certain industries, businesses and business models,” said Denison.

What to do if you get turned down

Being turned down isn’t necessarily the end of your journey. Other alternatives exist if your application was declined. Denison suggests working with an SBA partner (SCORE, SBDC and WBC) and walking through the application package to understand how it was presented, such as the financials and projections provided. “They can help that borrower look at things that may not have boded favorably for them as reviewed by the lending institution,” said Denison.

However, if nothing in particular, then maybe the lender wasn’t interested and the small business might want to try another financial institution, she said. Four alternative sources for funding include:

The bottom line

SBA loans are a solid way to secure funding for your small business, particularly if you do not qualify for a traditional business loan. The application process for any of the SBA loan programs will be extensive, but the benefit is the safety net of the loan guarantee.


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