HOW TO APPLY FOR AN SBA LOAN IN 7 STEPS

7 October 4 MINS READ
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Small Business Administration (SBA) loans are government-ensured business loans for independent companies or small businesses that struggle to qualify for bank financing. Regularly, banks utilize the term SBA loan as a short-hand for the SBA 7(a) loans program. It's the most famous choice since you can utilize an SBA 7(a) loan for practically any business reason.

As a small business owner, you might have considered applying for a loan through the U.S. Small Business Administration (SBA) because there are a ton of benefits to taking out an SBA loan. These loans can come with low financing costs and fees. Yet, they are notoriously challenging to qualify for. More often than not it requires somewhere around three weeks to get approved, all depending on the lender.

Whether this is your first experience with business loans or you’ve been through a lending process before, applying for an SBA loan is going to take a lot of your time and effort. So you need to have a plan before you apply. That's why, in this article, we’ve provided the means to apply for an SBA loan.

Here are 7 steps you should take to apply for an SBA loan.

1. Ensure Your Business Is Qualified

Check to ensure you meet the SBA's definition of a small business, which can vary depending on the industry. To qualify, lenders regularly prefer to see no less than two years in business, solid yearly income, and a decent FICO rating, which begins around 690.

If your business is struggling, an SBA loan is most likely not feasible. Also, on the off chance that it is a charitable or religious institution, you shouldn't even bother applying.

2. Assemble Your Application Documents

One of the most time-consuming aspects of applying for an SBA loan is all the paperwork that's required. If you think you qualify, the best spot to begin is the SBA site, which incorporates a loan application agenda. Utilize this to assemble every one of the documents you need to submit with the application. You'll require the information on these documents to finish the application and supplemental formation that the SBA needs for 7(a) loans.

While some lenders might have different requirements, you typically need the following business financial statements and forms to apply for an SBA 7(a) loan:

•SBA’s borrower information form (SBA Form 1919)

•Statement of personal history.

•Personal financial statement (SBA Form 413).

•Personal income tax returns.

•Business tax returns.

•Business certificate or license.

•Your resume

•Projected financial statements for a year

•Records of any past business loan applications.

•Profit and loss (P&L) statement current within 180 days of the application.

•Supplementary P&L schedules for the past three years.

All Check? Let‘s move on.

3. Pick A Lender

Get everything rolling on your SBA 7(a) loan application by comparing lenders. It's a good idea to contact multiple lenders. Some offer SBA loans directly, while others can assist you with the application process. In case you're applying through a conventional bank, it helps to work with one that has a history of preparing SBA loans. You can ask your potential lender these questions:

•How many SBA loans do you make?

•How often do you fund SBA loans?

•How experienced is your staff in the process?

•What is the dollar range of the loans you make?

As a rule, a lender with several years of SBA experience will likely aid you, including telling you your odds of being approved. The lender will adhere to SBA rules yet utilize their underwriting measures to assess loan applications.

4. Complete The Application

An SBA 7(a) loan application also varies from lender to lender. However, you should be prepared to provide the following information:

  • An overview and history of your business and its challenges
  • A breakdown of all owners and affiliates, with contact information
  • Details on other government-issued debt, like other SBA loans or USDA financing
  • Specifics on why your business needs an SBA loan and how it will use the loan proceeds
  • Details on how your business plans to pay it back

After applying and your lender has gotten an opportunity to review your whole application, it'll send your business a letter of intent(LOI) if it qualifies.

The LOI lets you know the potential rates, terms, and how much money you are eligible to receive. If you're happy with these likely terms, sign and return your LOI to your lender straight away so it can get everything rolling on guaranteeing your loan. Commonly it requires possibly 14 days to get your LOI, subsequent to presenting your application. Your lender may likewise request a deposit of around $2,000 alongside your signed LOI.

5. Wait

Once you sign and return the LOI, the underwriting process will begin. It can take up to a little while for your lender's underwriting team to review your SBA application, though the specific time it will take depends upon the lender you pick. With a bank, the whole process can take from 30 days to two or three months. Commonly, there's nothing for you to do except to wait or be on standby. You may be approached to give extra documents or details on your business' financials.

6. Sign The Commitment Letter

If the underwriters give your business the go-ahead, you'll get a commitment letter that gives you more insights regarding your loan terms. If you acknowledge these terms, you may need to put down another deposit, typically 5% of the credit loan which you'll get back if you end up retreating from the arrangement.

7. Close The Loan

Once you accept the terms in the commitment letter, it will be time to close on your loan. Closing can take some time for loans that require reviews or audits by 3rd parties, similar to real estate loans. When your lender has finalized every single detail, it'll send your business the loan arrangement. Now, you'll audit and consent to the arrangement and pay any closing-related expenses and the SBA guarantee fee. Then, your business gets the funds!

BOTTOM LINE

Your smartest choice for success with an SBA loan is to pick the right program, track down the right lender, feature your business' up-sides in your loan application, and give as much information about your business as the lender needs.

Albeit the SBA loan application interaction might be intricate, tedious, and on occasion, frustrating, if you succeed and get approved for an SBA loan, your persistent effort would have paid off.

Looking to land an SBA loan? Start here.