Ready to grow your business and need capital? If you’re hoping for an SBA loan, you’ll need to have a few basic things in place before you pursue funding.
What is an SBA Loan?
The SBA does not make loans, but is an agency of the federal government that protects small businesses and their role in our economy. The SBA guarantees financing with government backing once a business has been approved.
SBA loans can only be applied for and funded through SBA-approved lenders, such as Horizon Community Bank.
Be sure to select a lender who provides access to significant expertise. They can navigate and simplify necessary paperwork – such as a Top Ten SBA Lender! We’re very proud to be one.
1. Confirm your business meets basic SBA loan criteria
For-profit businesses must meet certain criteria to be eligible, and you want to be sure you fit them before investing time in the loan process. For example:
- The business must be for-profit (not nonprofit), qualify as a “small business” according to government specifications, and not be an excluded type of business
- The loan must be for a sound business purpose, as defined by the SBA
- All founders/partners must have experience, a good credit history and the ability to pay back the loan
- Owners must have personal equity invested in the business, showing their level of commitment
Learn more about criteria and steps directly from the SBA, and different types of SBA loans here.
2. Have an immaculate business plan already put together.
A well thought out business plan is an opportunity to showcase your experience, intentions and strategy you plan to follow to help your business be successful. It shows a lender exactly how serious you are about your business, how deeply you understand your industry and business operations, and should be completed before you approach a lender.
If you’ve never written a business plan, expect to invest a significant amount of time researching and writing your plan. Its quality is an essential part of loan approval decision.
The Arizona Small Business Association provides a helpful PDF, packed with resources on tips for building your business plan. Download it here.
The content is critical, but appearance matters, too, since it adds subliminal cues for the same attention to detail mindset that influences a business. Don’t forget to make sure it is completely free of spelling and grammatical errors, easy to read with a simple font that is at least ten points in size, and professional in appearance (both digital and printed).
3. Check your personal credit report, and make sure it is as clean as possible before applying.
Personal credit history is extremely important. It tells the lender if you are likely to pay off your loan on time, and how you handle debt as a consumer – which is directly tied to how you would be expected to handle business debt.
If your business has multiple owners or partners, each one should scrutinize their credit history and, if it is poor or erroneous, take steps to repair it before applying for an SBA loan. Useful resources include MyFico.com for consumer repair tips, and Experian for information on understanding, building or repairing business credit.
4. Prepare a thorough information packet on your personal/business financials.
At a minimum, most SBA lenders would expect to see financial profit and loss statements for the last two years, personal financial statements that reflect cash and other assets, and cash flow projections for the next 12-24 months.
Inc. magazine has a smart article of use called, “Cash Flow Projections Made Easy” that we like. Click here to read it.
Your lender might have preferred templates they’d like you to use, but having them already prepared before you meet is beneficial. It shows them you are thinking ahead and helps them complete a quick assessment of your viability for the loan.
Before you go, here are a few more resources worth the read:
- SBA Loans For Your Startup via Entrepreneur.com
- Ten Things That Could Keep You From Getting a Small Business Loan via business News Daily