EDITORIAL FEATURE
These Five Tips Will Improve Your SBA Loan Application Success BY ALAN THOMES
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ew small businesses survive without an extra line of credit or a loan at some point. Thankfully, there are options. Guaranteed by the federal government, SBA loans help small businesses expand operations, build or renovate existing properties or buy other companies.
Traditional banks tend to be highly selective in choosing who to lend money, preferring borrowers who have borrowed at least once and have paid back at least one loan on time. But SBA loans offer some unique benefits, including lower payments over a longer period. That’s not to say getting an SBA loan is a walk in the park. To add to the daunting challenge, many prospective borrowers who want to expand are often seeking their first business loan. As a result, a large number are unprepared and risk being denied. Still, while the process can be challenging, getting approved is not impossible. The following tips will help those looking for an SBA loan for their business. 1. SBA Loans Can Help Y oung Companies. Entrepreneurs who are expanding their businesses are good candidates for SBA loans. Often, small business owners see their company become successful and grow past their personal financials, creating a need for extra capital to open a second location or otherwise expand. SBA-backed loans can be the perfect fit for these types of entrepreneurs, as their track record for success is a good indicator of low risk and a strong business model.
Traditional banks tend to be highly selective in choosing who to lend money, preferring borrowers who have borrowed at least once and have paid back at least one loan on time. But SBA loans offer some unique benefits, including lower payments over a l onger period. 2. A Detailed Business Plan Is Essential. Business owners need to provide a written business plan showing how they plan to use the proceeds from their loan. An SBA lender will want to see invoices, quotes, and estimates to show applicants have done their homework and understand their request. Without these details, the application may be rejected. It’s not uncommon for prospective borrower to have vague, abstract reasons for needing capital, which will lead to disappointment on both sides of the table. 3. Be Ready to Provide Collateral and Other Personal Guarantees. The US government is prepared to guarantee this loan, but it expects the borrower to guarantee it, too. To obtain the loan, a small business owner may need to allow the SBA to place a second mortgage on a home that has equity or pledge other personal assets. 4. Understand Your Company’s Financial Condition. Small business owners need to avoid a combination of poor credit and insuffi-
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cient equity or collateral to receive loan approval. Lenders will often work with the owner to overcome one or two issues, such as a start-up with little collateral. But if the business also has a small amount of equity or questionable credit, it will be difficult to gain approval. Conversely, a business that has little equity but generates good cash flow and has strong collateral may qualify. 5. Provide Detailed Tax Returns and Personal Records Be prepared to provide lots of documents to qualify for a loan. The SBA requires each applicant provide three years of personal and business tax returns verified by the Internal Revenue Service. They must also complete a Statement of Personal History to verify that they do not have a criminal background. People often have passionate ideas or goals for their business, but sometimes have trouble developing a sound business plan with projected cash flow, revenues and profits. But by preparing yourself adequately for the application, and by taking the above-listed considerations into account, you will be in a much better position to secure your capital and get an SBA loan.
Alan Thomes President of SBA Banking State Bank & Trust Co. alan.thomes@statebt.com; 678-495-1650 https://www.statebt.com/sbaloans/