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How to Get a Loan from the Small Business Administration (SBA)

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By Barbara Beauregard   |    April 22, 2015   |    10:00 AM

Securing a loan from the SBA – What Small Business Owners Need to Know

The Small Business Administration (SBA) is a governmental body designed to support entrepreneurs and small businesses across the country. These loans are offered through banks and credit unions that partner with the SBA, and there are a variety of loan programs available to help you spur your business's growth. Banks and credit unions like partnering with the SBA because they know that if the borrower defaults, the government will take care of the remaining loan balance.

While these small business loans are extremely helpful the process can be time consuming and daunting. Here are the things that you need to know to have the best chances of securing an SBA loan.

Decide Which Loan Program is Best For Your Business

There are a variety of SBA lending programs to choose from, so pick the one that's best for your business. The 7(a) program is the most popular and most often used program, and it tends to be the best fit for many businesses. 7(a) loans are given to eligible borrowers for starting, acquiring, and expanding a small business. You'll have to apply through a partner lender institution, which is your next step.

Most lenders don't like to work with smaller loans, but that doesn't mean it's impossible. The SBA also partners with nonprofits and community lenders for micro loans of up to $50,000, among other programs.

What business expenses qualify?

It's important that you can prove that the money you need will go toward qualifying expenses. Here are some common expenses that small business loans are helpful for:

  • Purchase of new equipment, machinery, parts, supplies, and other related expenses,
  • Financing leasehold improvements,
  • Commercial mortgage on buildings,
  • Refinance existing debt, and
  • Establishing a line of credit.

Start Gathering Documents Early

Different banks and credit unions use varying lending criteria, so the exact documents that you'll need will depend on the particular financial institution you plan on using. To begin, you should have easy access to the following documents and information:

  • Personal and business credit history,
  • Personal credit score and debt to income ratio,
  • Time in business,
  • Personal and business financial statements for existing and startup businesses, plus projected financial statements,
  • Strong, detailed business plan (including personal information such as bios of all partners, education of partners, and other character references for your team),
  • Cash flow projections for at least a year, and
  • Personal guaranties from all principal owners of the business.

For more specifics review the SBA's loan checklist. Beginning this document gathering process early is extremely important. A head start will give you time to work on improving your credit score, too.

Try to Work with Familiar Lending Institutions

Like any other business entity, banks prefer to work with people that they already know. When researching lenders begin by approaching your own bank or banks that you've worked with in the past. Speak to their lending officers to see what specific documentation they require, and begin the dialogue early by asking questions. The sooner you begin the more time you have to establish trust.

What type of lender should I work with?

There are a number of lending institutions that you can work with. Forbes details the following options that you're likely to come across:

  • Commercial banks are best for traditional loans.
  • Non-bank lenders are becoming more popular via websites like Fundera, and are a good non-traditional option.
  • Community banks and other regional lenders are also good options, especially because they like to promote economic growth within a certain region or industry.

Submit Your Loan Application

Once you've chosen a lender and have spent time speaking with it's lending officers it's time to put all of your documents together and submit your Loan Package. Once it's been submitted all you can do is wait while your information is reviewed. This can take several weeks, and if you're asked for further documentation, don't worry. That's all part of the standard procedure and it doesn't necessarily mean that you won't qualify.

If you've done your due diligence and all goes well you should be able to carry on growing your business within a few short weeks.

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