A Step-by-Step Guide on How to Get an SBA Loan
Looking to get an SBA loan?
Check out this step-by-step guide on how to get an SBA loan.
6 Steps on How to Get an SBA Loan:
Understand why you need the money.
Check your eligibility.
Choose the right SBA loan program.
Find a lender.
Prepare your paperwork.
Fill out the application form.
A whopping 29% of small businesses fail because of a lack of enough capital.
Are you planning to set up a business but don’t have enough funds? Do you want to add more cash to your existing business? Worry not; this guide will help you know how to get an SBA loan with ease.
SBA loans are government-backed. They have favorable interest rates, flexible repayment terms, and they are easy to get. Millions of entrepreneurs have benefited from the loan, and you can get it too if you are eligible, and you understand the basics.
Here is the step by step guide to help you acquire it:
Step 1: Understand Why You Need the Money
The first important step to get an SBA loan is to know why you need the money. Before you apply, you should ask yourself if the loan is necessary or you can do without it.
Some legit reasons as to why you need the loan might include:
To get new pieces of equipment
To acquire new land for business expansion
To refinance an old debt with a high interest rate
To hire new employees
To add new stock
You might also take a loan to buy a business or finance your startup. Don’t take a loan to finance your home projects.
The lenders will need to know your loan's purpose and might investigate further to know if that’s how you will use the loan. So plan well, and determine the exact amount to borrow.
Step 2: Check Your Eligibility
Check if you qualify for the loan. Though the SBA loans are meant for entrepreneurs, not all businesses qualify. Here are the standard requirements for most SBA loans:
Excellent credit score- some lenders check your personal or business credit score. You should ensure that it’s excellent to secure the loan
A business plan- you should create a valid business plan to enhance transparency
Business documents- they include your tax payments, balance sheets, profit and loss records, etc
Size requirements- your firm should meet the SBA requirements of a small business
Collateral- some lenders may require you to provide collateral if the loan is risky, or you are asking for a larger amount
Some lenders may require proof that you tried to apply for loans from other conventional banks and failed. Confirm that you have every important document to improve your chances of approval.
Step 3: Choose the Right SBA Loan Program
There are three main types of SBA loans. They include SBA 7(a) loans, 504 (a) loans, and the Microloan SBA loans.
SBA 7(A) Loans
They are the most popular. The common type of these loans is the community advantage loans, which are designed for low-income people. The average loan amount for the SBA 7(a) loans ranges from $250,000 to $5 million.
504 (A) Loans
They are great for entrepreneurs who wish to buy new business equipment, renovate buildings, or buy land pieces. The maximum repayment period is 10 years, and the maximum borrowing amount is $5 million.
Microloan SBA Loans
Microloans are smaller, with a maximum borrowing amount of $50,000. The interest rate is low too.
You can only choose the right type of loan when you understand the available options. What does the lender offer? Does the loan meet your needs? As you choose, you should consider the interest rates, the loan amount, and the repayment period too.
Step 4: Find a Lender
Many lenders offer SBA loans. A large number of lenders may easily overwhelm you if you are not keen. That’s why financial experts advise borrowers to take their time when looking for a lender, even when the financial need is quite pressing.
You can either search on your own or find a referral service. The referral services offer a list of the available lenders and compare the features to help borrowers choose the best. However, the referral firms might charge a small fee, which you should always be aware of before committing.
Here are the important considerations to observe when finding a great lender for your SBA loan:
Check if the lender offers the exact SBA loan program you need
Check the minimum amount that the lender offers
Look at the eligibility requirements and ensure that you meet them
Consider the interest rates- if possible, compare the rates offered by different lenders to get the most affordable
Ask about the down payments- some lenders require the borrowers to pay down payments before applying for the loan
Check the disbursement period
Lastly, consider customer service. The best lender should have a great customer care team to provide the best customer service. You might check the review and references too to know the firm's reputation and customer service.
Step 5: Prepare Your Paperwork
Assuming you now have a specific lender in mind, you should prepare the right paperwork required for the application. Your lender should give you a list of all the things you should have before you apply.
Here are some of the vital documents that you must provide to get an SBA loan quickly:
Your business licenses and permits
Your business plan- it should show how you will use the loan
Your personal documents such as the national identification number and so on
Your current balance sheet as well as the P&L accounts
Your tax returns forms
Proof of business ownership
Do not forge documents. Lenders conduct strict scrutiny to determine the truth in the documents you provide.
Step 6: Fill Out the Application Form
Having provided the documents and met the other eligibility requirements, you can now fill out the application form. The form should indicate all the relevant information regarding SBA loans. For instance, it should state the interest, the amount, repayments, and other terms.
Read the information carefully to avoid making mistakes. If possible, find someone to help you translate the information for easier understanding. Here are a few rules to observe when applying:
Avoid spelling or grammar mistakes
Provide the correct information
Don’t sign/ fill in any information if you don’t agree to the lending terms and conditions
Submit the applications at the right time
You can either submit your application online or offline according to your lender's preferences.
Seek Professional Guidance on How to Get an SBA Loan
The SBA loan application may be overwhelming to an entrepreneur who has never applied for another loan before. If this is your case, then you should seek professional help.
A great lender or business broker will help you know how to get an SBA loan quickly and guide you through the business acquisition journey.
BizNexus is your resource for connecting with opportunities and the professionals who can help you get your acquisition financed. The platform helps entrepreneurs acquire new businesses, buy a new franchise, and connect with the right professionals to help sell their businesses.
Intermediaries on our platform routinely advise entrepreneurs on their available options to help them make the best decisions. If you plan to buy or sell a business, get started by logging into your free BizNexus account to get matched with the right professionals to help.
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