How to Navigate the SBA Loan Underwriting Process
The SBA works with small business owners nationwide and aims to help them with their financing needs. Still, prior to applying, we encourage you to learn about their underwriting process.
Small business loan underwriting is the process in which a bank, loan provider, or online lender reviews your application and determines the risk and benefits to loaning you money. Beyond the time spent compiling your business plan and package of documents, the lender can take a minimum of 60 to 90 days to approve your application.
If you’re considering an SBA loan, read this post to learn about the SBA loan underwriting process, and how you can make it easier for yourself and the lender.
How Submit Your SBA Application:
When applying for an SBA loan, you should know that the SBA isn’t the entity directly supplying you with a loan. Instead, the SBA simply acts as your guarantor so that your business loan application is more attractive to the lender.
To qualify for an SBA loan, you’ll need to submit the following:
- Detailed business plan
- Financial records and projections
- Background information on the small business owner(s). This includes: resumes, personal statements, and personal credit reports.
- Written plan stating how you will use the loan.
- Business licenses
- Citizenship documentation
- Tax returns
- Any pending or active litigation paperwork
- Collateral appraisal paperwork
- Other supporting documentation, such as insurance documents and other legal or financial documents that could support your application.
This package of documents is your first impression with the business loan lender — so make it count. In addition, ensure that you have multiple copies, just in case.
Note that many SBA products aren’t available unless you first apply for other financing options and are rejected; this is referred to as the “Credit Elsewhere” test. The SBA wants to ensure that you can’t acquire funding from traditional sources before turning to them. In other words, an SBA loan should be one of your last options.
In addition, you should make sure you have a statement of experience, which outlines:
- The mediums in which you’ve applied for financing
- The loan amount you requested
- What the lender’s response was
The lender, who uses SBA as a guarantor, will likely ask for this information to determine if you qualify.
You’ll also want to consider any weaknesses in your application. This could include your personal credit score, business credit card debt, low annual revenue, or erratic cash flow. Be prepared to speak about these issues with the lender and ensure that your explanation is truthful and detailed.
The SBA Loan Underwriting Timeline for Specific Loan Products
To help expedite the underwriting process, you should ensure that you are submitting the correct documentation needed for the SBA loan product that you’re applying for.
Not all traditional banks offer every SBA product, so you should be aware of how the SBA loan programs differ prior to applying. Below, we’ll detail some of the differences between the loan products and how the SBA underwrites small business loans depending on the program.
- 7(a) Loan Program
Everything we’ve mentioned in this post is necessary for your 7(a) SBA loan application to be assessed. Still, it’s good to review the application process using the perspective of all sides. To do this, we suggest reading the Bankers’ Guide to the SBA 7(a) Program.
This product is the SBA’s line of credit option. To qualify for CAPLines, you must furnish collateral, and supply information on accounts receivable, inventory, purchase orders, and/or contracts. Depending on the type of CAPLine you’re applying for, you’ll also need to show that your business has seasonal waves of revenue.
- Export Working Capital Program
You can apply for this small business loan before finalizing an export contractor sale, but you should let your lender know when you need a disbursement. This is necessary because you’ll need to bring proof of a firm purchase order or foreign accounts receivable to qualify.
In addition, you must submit paperwork showing up-to-date financials from international business transactions. You’ll also be asked to sign a personal guarantee and show strong examples for collateral.
- Disaster Loan Program
This SBA loan program is unique because you don’t have to own a business to apply and qualify for the loan. Instead, you need to be affected by a natural disaster physically or economically. Due to this, you’ll need to detail everything you lost in your application, and the SBA must declare that your address is in a disaster area. To qualify, register with the Federal Emergency Management Agency (FEMA).
- CDC/504 loan program
This program is for businesses purchasing real estate, developing communities, and investing in equipment. One main specification is the need for you to put in 10 percent of the loan amount, typically using cash as a down payment. You’ll also need a list of employees you plan to hire and/or retain, since a stipulation of the CDC/504 program is that you must hire an employee for every $65,000 loaned.
- Microloan program
This SBA program allows non-profit lenders to receive money from the SBA which they can then lend to for-profit small businesses. You usually need collateral for this type of loan, so make sure you’ve outlined all your assets clearly and in detail on your application. In addition, you should submit a solid, well-rounded and researched business plan to secure this loan.
Conclusion: Understand the SBA Business Loan Underwriting Process Before Applying
Everything you provide to your business loan lender should be immaculate. This will help your business lender decide if you’re qualified for the loan that you’re applying for. When underwriting a business loan, the lender will need all information to be as organized and accurate as possible.
If your lender contacts you for clarification or more paperwork, respond quickly so that you can expedite the process. Follow the instructions in this post, and you should be able to receive the SBA loan that you desire!
Editor’s Note: This post was updated for accuracy and comprehensiveness in September 2021.
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.