If you own a small business that has trouble getting a conventional bank loan, a small business administration or SBA loan might be the right choice for you. Here are some tips for applying for this type of loan.
The Types of SBA Loans
There are two types of SBA loans: the 7(a) loan and the 504 loan. 7 (a) loans come from other banks and then get guaranteed by the SBA. The guaranteed amount varies but generally ranges from about 75% to 85%.
The best things about these type of loans are a large number of financial institutions where you can find loans like this. Almost every bank in the country is a preferred lending partner of the SBA so they can generally approve these loans in-house.
A 504 loan is more like two loans in one. About half of the loan comes from a traditional bank based on the cost of the project in question. Most of the remainder of the amount is from a government-guaranteed loan with something called a Certified Development Company or CDC. Usually, the traditional loan gets paid off first, then the CDC loan.
How To Apply for the Loan
The first step in applying for this type of loan is to get all your relevant documentation together. This documentation will include items such as three years of both your personal and business tax returns.
You will also need to fill out a loan application so any lenders can seek a personal credit report for all the company owners. You must submit a wide array of business financial statements, plus it may be a requirement that you submit a personal financial statement as well.
Once you have all your documentation together, you will want to meet with several business bankers. It would be best if you found a banker with experience with SBA loans. If you work with a larger financial institution, they may have employees who specialize in this type of loan.
The final step in the process is underwriting. Underwriting is the process where the financial institution goes through all of your documentation and reasons for a loan to decide about giving you a loan. This process generally takes around 2 to 3 weeks.
While obtaining SBA loans can often be more challenging than conventional loans, they are often the only option for some businesses. If you ensure you’re well prepared for the process, you run the best chance of getting an SBA loan.