How To Get a Small Business Administration (SBA) Loan

Starting a small business is a challenge that requires hard work and a will to succeed. When the business proposal is convincing and meets certain norms, finance can also come in from various sources. One such source of funds for small business is through the Small Business Administration (SBA). The SBA puts a vetted business proposal, or an eligible loan application from small businesses or start ups, through to lenders, who make loans to such businesses.

A bank normally seeks to give loans to businesses with an SBA guarantee; this is the best way to go. To be considered for a loan through the SBA, you need to know how to do the following for your business.

  • Prepare a robust business proposal or plan. In the business plan, the SBA wishes to see that the entrepreneur's understanding of the business is good, the plan is based on strong research findings, and the ability of the business to generate cash flows is sufficient to fund the loan repayments and business growth.
  • The proposal should also indicate the qualifications and experience of the key management team. This is for the underwriters to see that the people who are going to run the business know how to run it well enough to make it work and earn money.
  • Submit a financial statement showing capital sources and details of the investment made by the entrepreneur himself. This will give evidence to the SBA that the entrepreneur himself has invested his money in the enterprise. The personal investment SBA will want will be in the range of 25% - 50% of the loan applied for.
  • SBA will also need a personal guarantee from any partner with a 20% or more stake in the business.
  • Establish good credit history. This needs to be there not just for the entrepreneur but also his partners or investors with a more than 1/5th stake in the enterprise. Credit score is a result of good credit behavior throughout one's life, and can be maintained through regular payments on loans and credit cards.
  • SBA looks for a guarantee on the repayment of the loan disbursed. Hence, the entrepreneur would need to submit some collateral as that guarantee.
  • The purpose of the loan, the period for which it is needed, and the amount applied for is also of interest, as the SBA will be inclined towards a loan that has a guarantee on an asset.
  • Choose a preferred lender of the SBA. Some banks have been given preferred lender status by the SBA, and if your application is submitted through any of these banks, the entire process of screening, underwriting and approval takes much less time than through a different bank.

After all this, if the SBA is convinced, there is a good chance that it will guarantee your loan from the bank. Remember that the SBA does not directly give loans but only guarantees them. The bank has to now approve your application. The best aspect about an SBA guaranteed loan is that the bank would extend the loan term longer than in the absence of the SBA guarantee.


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