Secrets to Securing SBA Loans

Small business owners should consider applying for SBA loans, or U.S. Small Business Administration loans. Specific requirements, most importantly good credit, must be met if companies are to be approved for SBA loans.

The SBA Loans Guarantee

It is important to note that SBA loans are not funds from the government. The Small business Administration "guarantees" the loans to lenders, meaning that they believe the borrower will be able to repay the loan. When you apply with the SBA, you are actually networking with thousands of lenders. In order to obtain an SBA guaranteed loan, you must apply through the SBA and meet their requirements.

Basic Requirements of SBA Loans

Applications for SBA loans require specific documentation related to your business. These include a business profile, a formal loan request, collateral, business financial statements, and personal financial statements. Here are the descriptions of each of these documents:

  • Business profile: A description of your business including the type of organization, location, product or service, brief history, proposed future operation, customers, and suppliers.
  • Formal loan request: Details about the amount of the loan, the type of loan desired, and how the funds will be used.
  • Collateral: This is a statement that outlines what you will pledge to secure the loan, in the event your loan is defaulted. This may include equity, real estate, or available cash.
  • Business financial statements: The past three years of balance sheets, income statements, and cash flow projections.
  • Personal financial statements: A list of the personal assets and past three years of tax returns for you and any partners owning 20% or more of the company.

Having all of the appropriate documentation is crucial when applying for SBA loans. Be sure to submit copies of any legal document related to your business such as your Franchise Agreement, Purchase Agreement, Letters of Reference, Partnership Agreements, etc.

Strong credit is also a basic requirement for SBA loan approval. Remember that the SBA works with lenders, and traditional credit standards will apply when your application is reviewed. You financial relationship to your company will be closely examined.

Credit Considerations for SBA Loans

Getting approved for SBA loans relies heavily on your credit history. Lenders want to be sure that the loan will be repaid according to terms. Your business cash flow will be examined as well as your payment history on any other loans, lines of credit, and credit cards that are in your business name and your personal accounts. Any source that you may use for repayment should be disclosed.

The equity of your business will also be examined. The amount of your capital investment into the business will be compared with the amount you request. It is important that you invest a sufficient amount into your company because this will show the lender you are committed to the business.

Little or no equity accompanied by high debt can dramatically decrease one's chances for getting approved for SBA loans. However, if you have strong support for your projected profits, this will increase your chances for approval.