How to Apply for An SBA Loan
Let’s see what the steps are for applying for this popular financing product!
Applying for an SBA Loan:
SBA Loan Requirements
There are a few qualifications that a business must meet to qualify for an SBA loan. To qualify, you must…
- Be a small business, as defined by the SBA
- Be a for-profit establishment
- Conduct business within the U.S. or its territories
- Use funds for “sound” business uses
- Have no past-due payments on federal government loans, such as student loans and taxes.
- Have a fair amount of business equity
- Have exhausted other financing options
- Demonstrate need for loan proceeds
- Be officially registered as a business
Credit history is also very important when applying for an SBA loan. Both your personal and business credit scores are considered. If your credit isn’t great, but also isn’t poor, don’t rule out an SBA loan. Many other factors go into the approval process.
While there isn’t a strict number to follow, very poor credit is likely to disqualify you. Unfortunately, even if your business generates sales and has favorable cash flow, this won’t distract from your cash flow. Bankers will be concerned that even though you have enough cash flow, you’re still failing to meet payment deadlines.
The SBA Loan Application Process
The SBA loan application requires extensive paperwork because the SBA partners with traditional banks to supply financing. Traditional banks want to reduce their risk as much as possible, and do it by analyzing many forms of documentation. These documents include both personal and business information, because they want to ensure that you are financially responsible in all areas of your life.
Here are some of the documents you’ll need to complete the application process:
- Driver’s license photo
- Personal and business tax returns
- Business financial statements
- Personal and business bank statements
- Commercial/business lease documentation
- Documentation of management experience
- Financial projections
- Business plan
- Articles of incorporation
The above documentation will take some time to gather. If you already have financial projections and a business plan, you’ll probably need to update them.
Your business plan is very important and should be thorough. Have someone review it with you, so that you can consider their feedback. Ask them to point out any issues, because the bank likely will. If you’re well-prepared, you might be able to correct certain issues prior to submitting it.
SBA loan risk is split between the SBA and a bank. You’ll be working with a bank as you go through the process. It’s best to work with an SBA Preferred Lender to get the best terms and an overall smoother application experience.
SBA Loan Application Paperwork
In addition, the loan application is quite complex. Below, you’ll find a list of required application paperwork:
- 7(a) LGPC – Submission Cover Sheet
- SBA Form 1919 – Borrower Information Form
- SBA Form 1920 – Lender Application
- Lender’s Credit Memo
- Business Debt Schedule (for long-term debt)
- Draft Loan Authorization
- Personal Financial Statement
- SBA Form 912 “Statement of Personal History”
- Business Valuation
- Copies of all Notes & Leases to be Refinanced
- FYE Income Statements and Balance Sheets or Federal Income Tax Returns
- Cash Flow Projection
- Current Income Statement and Balance Sheet
- FYE Income Statements and Balance Sheets, or complete Business Tax Returns
- Up to 8 different sets of supporting documentation
An SBA loan is one of the most sought-after loans by business owners. Although they can be difficult to get approved for, don’t let this deter you from applying. Now that you know what the requirements are and how the process works, you’ll be prepared to apply for an SBA loan.
If you don’t have time to wait for an SBA loan approval, or don’t think you meet their requisites, consider applying for a business loan through an alternative lender. This way, you’ll be able to receive fast financing that you can put towards growing your business!
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.