Some believe they can get grant money from the government. However, these loan programs are very competitive, especially right now as many businesses are struggling due to the COVID-19 pandemic. It's important to note that The Small Business Administration (SBA) has loan money available but doesn’t provide this money directly to businesses. It works with SBA preferred lenders, 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 SBA loan process.
An Overview of the SBA Loan Application ProcessTo start the SBA loan application, you must find a lending institution that partners with the SBA. Ask a bank employee if there’s a qualified lender on staff. If not, it’s possible they may know someone in your community who's 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. 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 and are serious about your loan request. The SBA guarantees most programs, which 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. In addition, 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.
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 loan funding for your business. To start, you should understand the loan programs and which are right for your business. Then, determine how to find a qualified SBA lender so you can get approved for the right small business loan.
1. Select The Right Loan ProgramThe SBA offers some grant money for select businesses, however, only particular types of businesses are eligible. The likelihood of obtaining capital with this option is small, but it's still worth researching. The following highlights the popular loan programs available via SBA lenders:
- SBA 7(a) – This is the loan type that most businesses choose because 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. Luckily, loans for disasters are available to help small business owners rebuild.
- SBA 504 – For the 504 loan program, the SBA works with Certified Development Companies (CDC). The loan is split between the SBA, the CDC, and the borrower.
- Export Loans – The SBA understands that getting loans for exporting businesses is difficult. They also know that exporting is crucial for our growth as a country so they offer loans to help exporters receive funding.
2. Determine If You QualifyWhile the objective of the SBA is to help support businesses, the organization doesn’t simply hand out money to business owners. It has eligibility requirements that lenders will follow. Plus, lenders have their own set of eligibility requirements and aren't required to approve SBA loans. The SBA specifies that if businesses can find funding sources, they should explore those options 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.
3. Select a Small Business LenderMost 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 SBA loan approval process. This lender may know what’s needed to get your business loan closing finalized.
4. Submit Your Completed SBA Loan ApplicationLenders 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 handle the repayment terms. The SBA website has a secure submission process that you can send the application and supporting documentation. Here’s an abbreviated SBA loan requirement checklist:
- Business Plan
- Amount of Loan
- How It Will Be Used
- Credit History
- Financial Projections
- Industry Experience