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:

1. Understand why you need the money.

2. Check your eligibility.

3. Choose the right SBA loan program.

4. Find a lender.

5. Prepare your paperwork.

6. 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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Petition to Save the SBA 7(a) Loan Program

Save Small Businesses & SBA 7(a) Loans

The U.S. Economy depends to a great extent on our small business community. The welfare of small businesses affects each and everyone of us directly or indirectly as this makes up 50% of our GDP.

The Payroll Protection Program (PPP), although necessary, as written in the bill, is depleting all available monies allocated for the standard SBA 7(a) loan program. This is causing a situation in which the program will soon run out of funds, with no further SBA 7(a) loans available through June 30, 2020.

Without the SBA 7(a) loan program, new business opportunities, expansion, and acquisitions could be greatly affected. If it is true, as many believe, that small businesses will lead us into an economic recovery, the absence of these loans could hamper the U.S.’s ability to have a rapid financial recovery and could potentially cause many small businesses to close their doors for good. We are petitioning for the reallocation of the source of the PPP funds in order to protect the resources originally intended to help all small business owners through the end of the government’s fiscal year, September 30, 2020.

In 2010, the SBA recognized the importance of small businesses by passing a recovery act allowing SBA lenders to receive a 90% guarantee on loans funded during the recovery period, while waiving all borrower fees. The resulting credit enhancement gave lenders incentive to provide small businesses with financing that they typically would not have entertained during an economic downturn. In addition, the waiving of borrower fees made it much more affordable for business owners. This provided many new jobs and stimulated the markets, shortening U.S. recovery time. This petition urges Congress to initiate and pass a new recovery act that includes the 90% SBA guarantee for loans made by lenders for at least through the end of 2020 as well as a waiver of the SBA guarantee fees for at least the same period.

-James Parker - Boss Group InternationalBoss Group International

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The Top 5 Loans to Finance Your Business Acquisition

Finance your business acquisition

Here are top 5 loans to learn about

Looking for the right type of loan to finance your business acquisition? There are a lot of options. Read on to learn a few of the best.

Finance your business acquisition

A record $2.5 trillion in mergers was announced in the first half of 2018.

If you are looking to acquire a business, there may not be a better time.

The acquisition gives you access to experts, capital, and market power that can grow your enterprise and build your brand. Yet you may be wondering how you can make it happen.

There are a number of ways to finance your business acquisition. Here are five of the best loan options.

1. Small Business Administration Loans

Small Business Administration (SBA) loans are known for their competitive interest rates and long repayment plans. The SBA does not loan money directly. Instead, they partner with select banks and lenders to secure loans to business owners.

It is easier to get approved for SBA financing if you are an established business rather than a startup. This is because the lender can use your existing repayment history to prove your credibility.

It may take longer to qualify for an SBA loan than other loans. In addition, you will likely be required to provide a down-payment of at least 10%.

Interest rates on SBA loans vary depending upon the current U.S. prime rate. A repayment schedule will vary depending upon the type of business you are purchasing. It is shorter for working capital and longer for real estate.

2. Startup Loans

If you are a new business owner hoping to finance your business acquisition, a startup loan may be best for you. 

These loans may be easier for new business owners to qualify for, but you will still need a solid business plan and a good credit history. One downside of startup loans is that they can restrict cash flow. And don't forget that you could be putting your own credit reputation at risk if the business doesn't work out.

3. Rollover for Business Startups

Rollovers for Business Startups (ROBS) allow you to access the money from your retirement to start a business without paying taxes or early withdrawal fees. The funds can be used for acquisition, working capital, or as a down-payment for other forms of financing.

A ROBS is not a loan, so there will be no debt to repay. It is also quicker to acquire than a typical business loan.

A ROBS usually requires a setup fee and a small monthly management fee. The biggest obvious drawback is that you will risk your retirement funds.

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4. Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a line of credit secured by the equity you have in your house or apartment. You will likely need at least 20% equity in your home.

A HELOC can be a more inexpensive way to access your credit than other methods because they offer interest-only payments for the first few years of repayment. The downside is that you are risking your home if your investment does not work out.

5. Term Loans

A term loan offers a lump sum that can get repaid in fixed installments for a predetermined period of time. Generally, they are quicker to acquire than an SBA. You may, however, get held personally liable if your business stops making payments.

The Best Way to Finance Your Business Acquisition

The best loans to finance your business acquisition will depend on your experience, credit history, and type of business.

For more information on business acquisition options, read our blog today.

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BUSINESS ACQUISITION

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.