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How to Apply for an SBA Loan: The Pre-Application Process
Before applying for an SBA loan, you need a clear vision and business plan mapped out on paper. If you want help with that first, check out Our Resources page, which gives you a ton of start-up resources for Entrepreneurs. After completion, secure funding!
Remember, the bank wants to mitigate their risk, and they want to see that you know what you are doing. In fact, that begins with a good cover letter and a clear & detailed business plan.
How to Apply for an SBA Loan: Are you Eligible?
The first real step in the process is determining eligibility. If you don't do this, you'll be wasting your time! In order to do this, you must meet all requirements.
- Credit Rating of 650+
- Downpayment - Min is 10% but we recommend 15%.
- Collateral Requirement - Periodic.
- Time in Business - 2+ years. Startups can be successful but more hoops to jump.
- No defaults to the U.S. Government in the form of student loans or government-backed loans.
The "7a SBA Loan"
- Be a small business (generating less than $5million in yearly revenue).
- Industry must be eligible to apply (excluding gambling, life insurance, and religion etc)
- Business must be for-profit and engaged in doing business within the United States.
- Show intent to use alternative funding methods before seeking a loan.
- Creates or keep employee positions that lineup with SBA goals with your business - i.e. outsourcing.
*Information sourced from sba.gov
How to Apply for an SBA Loan: Locate a Lender
After meeting the above requirements, it's now time to locate an SBA lender. This means contacting banks and making calls.
Find out the time-frame of when you need the funds, and how do you plan to use them. You need to ensure the lender is part of the SBA program, moreover, they need to be certified by the Small Business Administration. In fact, find out if they are a Preferred Lender, which is part of a Preferred Lender Program. PLP lenders have extensive experience and usually, loans are approved faster through them.
Questions for the Lender
- Can you tell me your total SBA loan volume in a year?
- Can you tell me your average SBA loan amount?
- What is average time to review the file?
- What's the average time-frame from review to successful approval?
- Are there any re-payment penalties?
- Please tell me the average rates based on this type of loan.
How to Apply for an SBA Loan: Get Organized
The next step prior to application is organizing paperwork. Collect all of your documentation to support your application. The main documents required by a direct lender or loan broker include:
- Purchase Price and Letter of Intent of Allocation (where are the funds going)
- YTD Profit and Loss Statement Statement (minimum 3-years)
- YTD Balance Sheet
- Projected Financials (2-years+)
- Ownership Proof / Business Certificate
- Loan Application History
- Personal Financial Statement
- Business Overview and History
*Note if applying for an existing business - obtain full financials during your due diligence including a signed purchase agreement.
How to Apply for an SBA Loan: Submit the Application
Furthermore, after organizing your documentation, you'll need to submit a complete application to the lender. Moreover, the speed and approval of the application is entirely dependent on how fast you can provide documentation when requested. Ensure a faster turn-around time by being prepared!