Being well-prepared will make the SBA loan application easier


When it comes to small business lending, Small Business Administration loans are hot. In fact, in fiscal year 2019, the SBA guaranteed more than $28 billion to entrepreneurs that otherwise would not have had access to capital to start, grow or expand their small businesses. Business loan approval, in general, is the highest it’s been post-recession.

Gerri Detweiler

Gerri Detweiler is a leading nationally-recognized financing and credit expert with more than 20 years of experience. During the 2008/2009 financial crisis, Detweiler was interviewed hundreds of times, providing insightful expertise and actionable advice for traversing the turbulent landscape and unknown change. Today, she is education director at Nav, the trusted financial partner of more than 1.2 million businesses, where she gives Nav’s customers certainty in an uncertain world through expertise and actionable advice.

SBA loans appeal to entrepreneurs because they tend to have longer payment terms and lower interest rates than many other types of business financing and loans. But, like any low-cost business loan, getting an SBA loan can seem overwhelming. Don’t let it be.

“The biggest misconception is that there’s a lot of paperwork, but this is just a regular business loan,” says Bob Coleman, publisher of The Coleman Report, a leading SBA intelligence report for lenders. “The bank deals with the government, not the entrepreneur.”

Here are five things you should know to help land one of these coveted loans.

1. Do Your Homework
The more you know about your financial situation [i.e. your credit history, credit scores, risk factors] as well as your industry and competition, the better-positioned you will be to apply for — and get approved for — that SBA loan.

Dr. Kathryn Primm, owner/veterinarian of Applebrook Animal Hospital, took out an SBA loan to remodel a residence and equip it as a functional animal clinic.

“I did a lot of demographics studies myself before even applying,” she says. “I knew it was a low-risk loan because I know what a hard worker I am, and I know what a good veterinarian I am. The area was able to support a veterinary hospital as well, according to my research.”
Primm was able to pay off her loan in five years.

“The SBA was like my behind-the-scenes investor and I bought them out,” she says.
It’s also helpful to understand how SBA loans work and applicants should familiarize themselves with the basic requirements. The SBA doesn’t make loans; it guarantees them.

Each lender must meet the SBA’s minimum requirements, but beyond that the lender may have its own requirements as long as it doesn’t discriminate on a prohibited basis.

2. Know How Much You Need
There are several different SBA loan programs, each with specific uses. The 504 loan is for land, building and renovation, for example, while Export Express loans help small businesses develop or expand their export markets with streamlined financing. The most popular, by far, is the 7(a) loan program, which allows you to borrow up to $5 million with a 10-year repayment period [loans for equipment or real estate may be extended to 25 years].

Maximum SBA Loan Amounts
Up to $5 Million: 7(a), CapLines, Export Working Capital Program, International Trade, 504 loans*
Up to $2 Million: Disaster loans
Up to $500,000: Export Express loans
Up to $350,000: 7(a) Small Loans
Up to $1 million: SBA Express loans [SBA Express loan limits have been raised to $1 million through the end of 2020.] Up to $250,000: Community Advantage
Up to $50,000: Microloans

*Note: There is no project size limit for 504 loans, but the maximum SBA debenture [loan amount] is generally $5 million. Certain small manufacturers or energy projects may qualify for up to $5.5 million.

If you haven’t already, write out a budget for what you’ll do with the money if you secure a loan. Not only will this help you really dive into understanding how that money can best benefit your business, but it may also come in handy when talking to a lender who, naturally, will want to know you have a plan for the funds.

3. Know Your Numbers
Good credit and solid financials are often key to getting an SBA loan. Chester Gordon is president of M.A.C.-Tech Fabrication and Repairs Inc. in Queens, New York, a custom fabricating shop specializing in architectural metals and finishes. He recently closed on his second SBA 504 loan.

The first loan allowed him to purchase the building where he operates. The second allowed him to expand by building a second adjacent building and doubling the square footage of the enclosed space. He says his SBA loans “gave me the capability of expanding.” In addition to the physical space, the financing allowed him to hire more employees and to grow his business.

When it comes to the application process, Gordon recommends that applicants keep their credit in good standing because the SBA is very thorough. He says his loans required three years of financials, so he’s very methodical in his approach to keeping his financial information organized, relying on his accountant, his office manager and his wife, who works in the business and handles administrative duties.

The SBA generally doesn’t have a minimum personal credit score requirement, but individual lenders may. In addition, certain SBA loans — 7(a) loans up to $350,000 and Community Advantage loans — require lenders to prescreen applications using the FICO SBSS score. This score can take into account the owner’s personal credit data as well as information from a business credit report, and financial data. The SBA requires a minimum score of 155 [on a scale of 0-300] though many lenders require a score of 160 or above.

And speaking of numbers, make sure you’re keeping up with taxes.

“Producing fair and reasonable profits should always be the primary goal for small business operations, please ensure the business taxes reflect these profits,” says Tom Kindred, regional director of the Florida Small Business Development Center at Indian River State College.

“Lenders will focus on business profits as they evaluate the business’s ability to satisfy debt service requirements.”

4. Ask for Help
Entrepreneurs tend to try to do it all themselves, but if that describes you, know you don’t have to go it alone in applying for your SBA loan.

Chris Petropoulos of General Auto Recycling in Tiverton, Rhode Island, took a commercial loan for an employee stock ownership plan for $5 million. He quickly realized he would need to provide a lot of reports and documents for the loan. That’s why he recommends bringing a financial expert on to streamline your application process.

“A commercial financial consultant walked me through the process,” he says. “I would not recommend doing this without a representative who has experience with this type of loan.”
There are a variety of professionals who can help. These include:

• An SBDC [Small Business Development Center such the Florida SBDC at Indian River State College] adviser. Professionals from this organization can provide free assistance to entrepreneurs.

•A certified public accountant, enrolled agent or accounting professional who works with small business owners. They can help make sure your financials are well-organized and lender-ready.

5. Invest in Key Person Insurance
Insurance might be the last thing on your mind when applying for an SBA loan, but it could be the tool that ensures that your business thrives, no matter what might happen to you.

Sa El, co-founder of Simply Insurance, says that one of the requirements of an SBA loan is a life insurance policy that is greater than or equal to the amount of your loan and that you have a term length that is greater than or equal to the term of your loan.

This requirement applies to loans where, per SBA guidelines, the lender determines the viability of the business is tied to an individual or individuals. In those situations, the lender must require life insurance. Getting a life insurance policy on yourself, however, doesn’t provide the same benefits that a key person policy does.

“Getting a loan through the SBA is a great idea for any small business; however, it is critical that you have a plan for paying it back,” he said. ”If you have a key person that your business couldn’t survive without, then you need to get a key person insurance policy. Without this, you open your business and yourself up for financial ruin, especially if you can’t pay back the loan.”

You should also consider an updated life insurance policy. Lenders want to be sure their loans will be paid back in the event of your death. They do that by having you buy life insurance that assigns the death benefit to them. But loan applicants, in their scramble to form a business plan and arrange financing, typically fail to notice the life insurance requirement until closing time is right around the corner.

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