SBA Loan Applications: The Thorough Process Explained
Some believe they can get grant money from the government. However, this is usually reserved for highly specialized businesses, if available at all. The Small Business Administration (SBA) has loan money available but doesn’t provide this money directly to businesses. It works with approved funding institutions, which is an important distinction.
If you decide to pursue SBA lending, the application process has several components to it. This article will help you learn more about the process.
An Overview of the SBA Loan Application
The SBA loan application starts by finding a lending institution that’s eligible to lend via the SBA program. Ask someone at your bank if there’s a qualified lender on staff. If not, it’s possible they may know someone in your community who is qualified.
The SBA has several programs, which can make the process confusing. It’s important to choose the right program as you don’t want to waste time during the application process. It’ll also help your chances of approval by applying for the right program at the start.
Prepare all the required documentation before approaching a lender, as this can expedite the process. It also shows the lender that you did your homework.
The SBA guarantees most programs. This reduces the lender’s risk. However, it’s not a guarantee for 100% of the loan, which means the lender will still assume some risk. The lender you work with will consider this.
You may be required to put up collateral for the loan. This could be assets in the business or even personal assets and guarantees. Traditional banks are often the lenders approved by the SBA, so the approval will likely take some time.
We offer a comprehensive guide about small business loans. It can help you determine which loan type may be right for your business. Be sure to check out the guide to help you choose the right funding option.
The SBA Loan Application Process
When you learn how to apply for an SBA loan, you can increase the odds of approval. You’ll show the lender that you are serious about obtaining appropriate funding for your business.
You’ll learn about the programs and which are right for your business. Then, you’ll learn how to find a qualified SBA lender and work with them to help you get approved for the loan.
Select Which Program to Apply Through
The SBA does have some grant money available for select businesses. However, only particular types of businesses are eligible. The likelihood of obtaining capital with this option is small. It is worth looking into, however.
The following highlights the popular loan programs available via SBA lenders:
- SBA 7(a) – this is the loan type that most businesses would choose. It allows for funding up to $5 million. It’s a general-purpose business loan that can be used for legitimate business functions.
- Disaster Assistance – when a disaster strikes, the government understands that it can take time for businesses to rebuild. This can leave communities without the necessary goods and services. Loans for disasters are available to help rebuild.
- SBA 504 – for the 504 program, the SBA works with Certified Development Companies (CDC). The loan is split between the SBA, the CDC, and the borrower.
- Exporting – the SBA understands that getting loans for exporting businesses is difficult. The administration also knows that exporting is crucial for our growth as a country. It has loans available to help exporters receive funding.
There are other funding programs offered by the SBA. Check the website for more information.
Make Eligibility Determinations
While the objective of the SBA is to help support businesses, it doesn’t simply hand out money to business owners. It has eligibility requirements that lenders will follow. Lenders will have their own set of eligibility requirements and are not required to approve SBA loans.
The SBA specifies that if businesses can find funding sources, they should explore those before applying for an SBA loan. Therefore, if your lender feels your business can obtain capital by alternative means, you may not be approved. Lenders or the SBA may ask to see proof of denials from other lenders.
The SBA doesn’t specify any specific personal credit score that applicants need to have to be eligible. Even though the SBA guarantees many loans, lenders still bear some of the risks. These lenders will likely require that your credit rating is good to excellent.
Lenders often require business owners to put up collateral and personal guarantees for the loans.
Locate a Small Business Lender
Most likely, you’ve established a relationship with a few bankers in your community. To start, you should ask if they’re approved for SBA lending. If your bankers aren’t approved, ask if they know of any lenders that may be qualified.
The SBA website has a function to help you locate lenders who are qualified. It’s a good idea to go through this process because there are scams targeting small business owners relating to SBA loans.
When using the SBA website to find lenders, you’ll be asked for your contact information. Unfortunately, you’ll have to wait for a response from the SBA.
When you locate a lender, contact them to set up an appointment. Before the interview, you should compile necessary paperwork and read about the lender’s eligibility requirements.
If you can find a lender that works in your industry, that may help you in the approval process. This lender may know what’s needed to get your business approved for financing.
Submit Your Completed SBA Loan Application
Lenders will evaluate your loan application to see if you’ll qualify for an SBA loan. However, the application still requires approval from the SBA. After all, the loans are guaranteed by the SBA, so they want to be confident that your business can responsibly repay the loan amount.
The website of the SBA has a secure submission process that you can send the application and supporting documentation. Your lender will discuss other requirements that he or she may be familiar with.
Here’s an abbreviated SBA loan requirement checklist:
- Business Plan
- Amount of Loan
- How It Will Be Used
- Credit History
- Financial Projections
- Industry Experience
Finder.com has a detailed step-by-step guide to help small business owners understand the forms and requirements of the SBA lending program.
In addition, the SBA has guides and videos to help you understand what they’ll need from you to obtain funding.
Work With Lender to Complete Closing Process
Approved SBA lenders have learned what’s needed to get approved for these loans. Be sure to ask them questions about what you can do to increase your chances of getting approved.
Lenders have incentives to lend as the interest rates they receive is how they make money. Therefore, they’ll be willing to work with you if they feel you have a chance of getting approved.
The SBA will require you or your lender to submit a closing package. By understanding this process, you’ll satisfy the requirements. The lender you work with can explain the process and answer your questions.
SBA-approved lenders can also assess your situation and determine whether you’re a good fit for an SBA loan. This assessment can help reduce wasting time for both you and the lender.
The SBA Loan Application Process Isn’t Scary
Many business owners fear the SBA loan application process. They heard that it was too rigorous and time-consuming. However, the SBA exists to help spur business in the United States. Therefore, don’t be afraid of this funding option.
It won’t be an easy process, but it’s not impossible, either. The benefits of receiving this type of loan can outweigh the process. For instance, the interest rates for this loan type tend to be attractive.
It’s likely that you’ll need to go through similar procedures for other loan types. This means that you have nothing to lose by pursuing an SBA loan.
At Fora Financial, we have several loan options available to help you get the funding you need for your business. You can get a free quote to obtain the capital to grow your business.
Frequently Asked Questions
Can businesses with bad credit be approved for SBA loans?
While the SBA doesn’t specify a threshold for credit scores, lenders will implement their own score requirements. However, even if a business has less-than-perfect credit, lenders will consider other factors. It’s worthwhile to make an attempt for funding.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.