Getting an SBA Loan in 2018
The Small Business Administration offers some of the best loan programs for entrepreneurs. The loans are guaranteed by the agency and that allows lenders (usually banks) to offer favorable terms. Small Business Administration-guaranteed loans therefore may be more flexible and offer lower interest rates than a conventional loan. For many, it’s a business lifeline to secure necessary growth capital.
SBA loans are varied, depending on the circumstances and the use of proceeds, but by far the 7(a) loan program from the SBA is the most popular type of loan. In addition, the SBA has increased the amount of loans in this program almost every year in the past decade.
That’s the good news. One of the downsides of an SBA loan is that it can be difficult to get and it does require extensive paperwork and documentation; and, it could take a long time to get a decision and get funded. Working with a banker or even better, working with an online provider can greatly reduce the burden of submitting your documents and reduce the time it takes to get funded.
In any case, getting an SBA loan is usually worth the trouble and time it takes to apply because of the flexibility and low rates offered by this program.
Once you have decided that an SBA loan is right for you, it’s important to take the time to focus on what is required to qualify and apply for your loan. Be aware that many banks will require a minimum personal credit score of around 600 and will ask any owner with more than a 20% stake in the company to personally guarantee the loan.
How Do I Get an SBA Loan in 2018?
There have been few changes from year-to-year in the requirements and application process for 7(a) loans from the SBA. If this is your first time applying for a loan, you would be well advised to go directly to the SBA web site and navigate around.
The SBA web site has a wealth of resource to help educate business owner on loan programs as well as other free counseling services for business owners. Also, the site has a resource called Lender Match, where you can find qualified lenders that can help you apply for an SBA loan. Biz2Credit has processed thousands of loan application for small business owners and will assign a dedicated specialist to assist you in the loan application process.
Gathering the required documents is a bit of a challenge. Presenting your application correctly can increase your chances of getting approved and cut the time it takes to get funded. Working with a specialist from an approved lender does not cost extra and is highly recommended as early in the process as possible.
What Will I Need to Apply for an SBA Loan in 2018?
Tom Blinder, Senior Sales Manager at Biz2Credit says, “organizing documentation is one of the most telling and important elements of the loan application process.” Many clients are unprepared to produce the required documentation. “We can provide a lot of guidance in this area”, added Blinder.
- A business plan – This is a must! Take the time to consider your formal business plan. Creating a formal business plan is a requirement and doing it well may enhance your chances of being approved and shortening funding time.
- Desired Loan Amount and Use of Proceeds – Determine how much you will need to borrow under the SBA 7(a) Loan program. Understanding the amount limits and acceptable uses for loans is important. For example, 7(a) loans cannot be used to flip a house.
- Credit History/Credit Score – There are things you can consider before applying for your loan to increase your credit score. Get a copy of your credit report. Discuss with your loan professional some things you might be able to do that can raise your credit score. The good news is, an SBA Guarantee allows lenders to be more flexible when it comes to personal credit rating.
- Financial Projections – Creating financial projections for your business is critical. It shows what your expectations are and how you will be able to repay your loan. Remember to be realistic in your assumptions, your financial projections are as much for your own benefit as they are for the lender.
- Collateral – Be prepared to pledge collateral. In certain circumstances lenders may require that you put up collateral in the event of default. This could be a car, a home or other property that you use to guarantee repayment.
- Industry Experience – Having experience in the industry for which you are borrowing money seems like common sense. If you are entering a complex business for the first time with no experience, chances are you will be at a competitive disadvantage versus more experienced business owners. Therefore, your chances of success and of repaying the loan are less.
What Are the Eligibility Requirements for an SBA Loan in 2018?
Eligibility requirements for the 7(a) loan program are based on several key characteristics of the business and its owners. According to the SBA, eligibility is based on how the company earns its revenue or industry classification, the background or experience of its owners and where it physically operates.
The SBA does not specifically list companies eligible to receive 7(a) loans. However, they do provide a list of industries that are ineligible for these types of loans. See SBA ineligible companies). However, there are some basic requirements to be eligible for assistance.
- Operate for profit
- Be small, as defined by the SBA
- Be engaged in, or propose to do business in, the United States or its possessions
- Have reasonable invested equity
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for the loan proceeds
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
Now that you understand the eligibility requirements of the 7(a) SBA Loan program and the main requirements for loan documentation, you should have a better understanding of whether an SBA loan is right for you and if you will qualify.
Remember, an SBA 7(a) loan is a difficult process and is generally designed for healthy businesses that have some operating history. If your business is struggling or you are a start-up, this is not likely the right loan program for you.