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How to Apply for Small Business Loans Backed by the SBA

How to Apply for Small Business Loans Backed by the SBA

If you plan to start your own business or expand an existing one you surely would be looking for financial assistance to get things going. If you have trouble getting a loan in the traditional way you can go in for business loans that are guaranteed by the SBA. SBA is dedicated to assist small entrepreneurs to gain access to funds for their businesses. SBA does not give loans directly. Instead you get a loan from a bank which participates in SBA financing. SBA guarantees a portion of your loan and will repay it to the lending company in case you default. This guarantee covers for some risk of the lenders and gives them a greater incentive to lend to small businesses.

So in case you do not meet the bank’s loan eligibility you can take the SBA route. But they are not so easy to get either. A long and complex process is involved and here we present to you the steps involved in applying for one.

1. Understand the various loan types and choose a bank

Find out about the various SBA options available to you so that you can select the one that suits your needs and goals. The most common is the 7a General small business loan that suits most business needs. You can use the loan proceeds for various purposes like buying equipment, machinery, furniture, renovating the building, refinancing debt acquiring another business etc. 7A Express Loan offers a faster application process. Real Estate or equipment loan aims to facilitate large capital investment including land or building. They cannot be used for working capital or inventory. Disaster loans are for businesses that are affected due to a disaster in the area. These low interest loans can be used to replace or repair the damaged property, machinery, inventory and other business assets.

Find the banks in your locality that participate in the SBA Lending program. Talk to an SBA officer at the bank to find out whether your business is eligible for a particular loan program. It is a good idea to approach a bank that regularly works with SBA loan, as they have a streamlined application process in place. Find out about the interest rates and the approximate time it takes for approval and loan disbursement.

2. Application process

A lot of paperwork is involved in justifying your request for an SBA guarantee. When you approach the bank you will be required to complete an extensive loan application form indicating the reason for loan request, how the funds will benefit your business, exact purpose for which loan proceeds will be used for and how you intend to repay the money back. You will have to furnish a lot of documents including the details of your business, your income tax returns and personal financial statements. If you have an existing business you will need to submit the business license, financial statements, profit and loss statements, list of your suppliers, creditors, members of the management team etc. Ask the bank for a comprehensive document checklist. If your documentation is complete your application process will become easier and faster.

3. Underwriting process

The bank analyses the application and the information you provide to either approve or decline your request. The most important factor that they consider is your CIBIL score. You need to have a positive track record of meeting your credit obligations and demonstrate your ability to repay the loan back. If you have a strong borrowing history then the chances of your securing this loan is high. Generally a credit score of 750 and above is considered to be a good score. If your credit score is not in good shape you may have to work on improving credit score. If you can bring some personal collateral to the table then things will work in your favour.

The bank will also analyse your business plan to see whether you have a clear vision and understanding of what you are getting into, whether you are confident about running the business and repaying the loan back. You should include strategies that you will use to increase the profits and sales in the future. If you have some prior industry level experience and knowledge about the competitive market then your startup will have some added advantage while securing an SBA loan.

SBA basically wants to fully protect itself from losing out on its money. It will approve an application only when it is fully confident that loan will be paid back with interest.

4. Closing process

If the loan is approved you will be notified and required to sign the loan papers. You will get a checklist of the documents needed to close the loan. You will receive complete details relating to the down payment required, interest rates and payments along with the due dates and the fees that you need to deposit. Once you submit the closing documents and pay the closing costs and fees to close the deal, you will receive the funds.

By now you must have understood that the process involved in securing an SBA loan is a long and comprehensive one. It requires a lot of time, energy and patience. But things can become simpler if you get yourself organized and do your homework relating to the paperwork beforehand. The long repayment terms and the low interest rates makes it worth the wait.