Getting an SBA Loan: A Simple Guide
Guide to SBA Loan Submission:
Determine your eligibility
Choose the best program for you
Lower down payments
Choose the best lender
Gather your paperwork
Fill out the application
Closing the process
You're thinking about getting an SBA loan. You're struggling to get approved for a loan. Your credit score is decent, but lenders remain hesitant. An SBA loan may be the answer.
The steps for SBA loan approval entail researching eligibility requirements, choosing the best SBA program, choosing the best lender, organizing all your paperwork, completing the application, going through underwriting, and reading over the loan agreement. The process may take longer than most loan programs, but the benefits of SBA loans are numerous.
This article is your comprehensive guide to SBA loan submission. Let's explore.
Determine Your Eligibility
Before applying for an SBA loan, determine if you're able to do so. Overall, the SBA imposes the following guidelines:
Your business must adhere to the legal definition of a small business (The legal definition is usually a max of 250 employees or a max of 1,500 employees, but the max number depends on your industry)
You have used all other financing options
You don't have a history of government loan defaults or delinquencies
Your business must be registered as a profit-based enterprise
You have invested time and energy into the business
The business must be registered in the United States
The business must operate within the United States
The SBA also has some income requirements, but income guidelines depend on what type of SBA program you're applying for. If you're applying under the 7(a) program, for example, your net operating income must be under $5 million. Overall, your business must have enough cash flow to satisfy debt obligations.
Besides SBA requirements, you must adhere to lending requirements as well. When it comes to credit scores, most lenders prefer a 640 score, but other lenders may prefer higher.
You'll stand a much better chance of approval if you have a score of 680 or higher. The SBA doesn't have minimum credit thresholds, but the lenders do. Further, lenders usually prefer minimum annual revenues of $100,000. Also, lenders usually want companies that have been in business for two years minimum.
Your personal financial history will fall under scrutiny as well. You could face denial if you have a history of bankruptcies, foreclosures, or tax liens.
Additionally, be prepared to provide a down payment and/or collateral if necessary. The down payment could be 10% of the balance. If you're borrowing over $25,000, you may need to provide collateral.
Choose the Best Program For You
The SBA has multiple programs, such as the:
504/CDC Program: This program is for borrowers who want to purchase assets in the form of large equipment or real estate. You can borrow up to $5.5 million, and the rates are usually around 5 or 6%. The terms last up to 25 years.
7(a) Program: This loan program allows you to borrow up to $5 million. The interest rates are from 8 to 13%. This is the most common and popular loan option.
Microloan Program: This loan option offers a max borrowing amount of $50,000. It can be used to purchase supplies or inventory. This program is more flexible and is a good option for startups.
Express Program: Choose this option if you need a loan of up to $350,000. The rates are the same as the 7(a) program, and you'll get a faster approval time.
The SBA offers other programs, such as SBA Disaster Loans, Community Advantage Loans, and lines of credit.
Choose the Best Lender
Since the SBA guarantees a portion of the loan, you must choose a participating lender. When looking for the right lender, look for one within the preferred lending network.
Preferred lenders have positive track records. Plus, they can process your application faster than non-preferred lenders. Additionally, ask yourself the following questions when choosing the best lender:
How long does the process take?
What is your pre-approval process?
What are your minimum credit score requirements?
Do you require any collateral?
What are your typical interest rates?
Will a loan rep guide me from beginning to end?
Gather Your Paperwork
A dedicated service rep is crucial for SBA loan help because they can tell you all the paperwork you need. You'll need basic documents such as:
A loan request letter specifying how much you intend to borrow and how you intend to use the money
Financial statements, business statements, and personal tax returns
Legal documents showing your company registration
You may need to provide other docs, such as a debt schedule, or any other type of documentation unique to your chosen program.
Fill Out the Application
The programs have different applications. Therefore, ask your loan rep which application is appropriate for you. Some lenders may offer an online application, but others may prefer a paper application.
Closing the Process
After applying, you'll usually hear back from the SBA within one to two weeks. If they proceed with your application, you'll get a letter of intent stating the borrowing amount, lending terms, and interest rate.
If you accept the terms, the process will continue. The underwriting process is the next step and will take between two to four weeks.
The SBA will verify the information in your application and may ask for additional documentation. If all goes well, you'll get a business agreement. Read over the agreement thoroughly before signing. A business attorney can read over the document on your behalf.
Is Getting an SBA Loan Worth It?
Getting an SBA loan will be easier if you have all your documentation in place. During the underwriting phase, make yourself available in case they need additional documents. Before applying, however, ensure that you meet the SBA's core requirements.
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