There are currently almost 30 million small businesses in the United States.
Are you getting ready to open one? Do you need help securing funding and getting your company off the ground?
Unless you have a wealthy relative who can give you a small loan of a million dollars, chances are you’re going to need to borrow money from a bank or credit union. Of all the different loan options available to you, an SBA (Small Business Administration) loan is one of the best options.
Read on for some tips that will help you get your SBA loan application approved.
What Is an SBA Loan?
An SBA loan is a business loan that’s secured by the Small Business Administration. The SBA itself does not loan money to business owners. Instead, it works with certain approved lenders to provide business owners with the capital they need to get their business started or help it grow.
Because the SBA works with these lenders to secure the loans they provide, borrowers can get lower interest rates and better loan terms. In exchange for these favorable rates and terms, the SBA has specific guidelines in place that borrowers must meet before they can have their applications approved.
Common SBA Loan Application Mistakes
The SBA loan application process can be daunting for small business owners. However, knowing what mistakes to avoid can help simplify the process and ensure you do everything correctly.
Here are some of the most common mistakes people make when applying for an SBA loan:
Not Providing Enough Details
When you’re applying for an SBA loan (or any loan), the lender with which you’re working will value your transparency. If you don’t provide sufficient details about your finances and it seems that you’re trying to hide something, they may be less inclined to work with you.
Not Knowing Your Business Credit Score
Some people don’t even realize that they have a business credit score separate from their personal credit score. Both scores matter a great deal when applying for an SBA loan, though.
The higher your credit score is, the easier it will be for you to get approved. Make sure you know it and know if you need to work to improve it before beginning the application process.
Not Having Collateral
Having collateral can make all the difference when applying for an SBA loan. If you have something to back you up that the lender can take if you default on the loan, they’ll be more interested in giving you a chance.
Not Proving Your Business’s Value
It’ll be much easier for you to secure an SBA loan if you can prove that your business has value.
Many business owners make the mistake of not showing what they have to offer and not presenting their product or service in the most positive light possible.
Not Having a Plan for the Funds
It’s important for business owners to show that they have a plan for the funds they’re hoping to borrow, too.
If a lender can’t get a clear idea of what you will do with the money they give you, there’s less of a chance that they’ll actually loan you that money.
How to Get Your Loan Application Approved
Okay, you know what not to do. Now, let’s get into what you should do. Here are some specific steps you can take to increase your chances of having your application approved.
Start Building Your Business Credit Score
Have you looked up your business credit score? Are you satisfied with it? If you’re not, start working to build it up before you begin the loan application process.
It might take a while to build credit and get your score to a good place. Because of this, it’s better to start sooner rather than later.
Understand the Minimum Requirements
Make sure you know what the minimum requirements are for the lender with which you’re working.
Do your research and find out what they want to see from their applicants, as every lender has a slightly different process. The more you know before you begin, the less likely you’ll be to have to redo things or change your application later.
Gather All Necessary Documents
There are a lot of documents that you need to have on hand when you apply for an SBA loan. Make sure you have all these documents ready to go:
- Personal tax returns
- Business tax returns
- Balance sheet
- Income statements
- Business bank statements
- Personal bank statements
- Commercial leases
- Business licenses
- Articles of incorporation
- Financial projections
If you have all of these available, it’ll be easier for you to make a strong case for your business and why you deserve funding.
Have a Solid Business Plan
Go over your business plan with care to ensure it’s rock solid before applying for an SBA loan. If your plan is well written and represents your business, your lender will be more interested in what you offer and will understand your value.
Make Sure You Have Collateral
It’s best if you have some kind of collateral when you apply for a business loan, too. The Small Business Administration requires “adequate” collateral for everyone applying for a loan, and a personal guarantee of at least 20 percent of the business.
Talk to a Professional
Consult a professional, or a group of professionals, when applying for an SBA loan. Having people like an attorney, an accountant, or members of an SBA protection law group on your side will help to give you peace of mind and ensure that you’re doing everything in the proper way.
Apply for an SBA Loan Today
Filling out an SBA loan application can be tricky. If you follow the guidelines listed above in mind, you’ll have an easier time navigating your way through it and getting your application approved.
If you want to learn more about securing funding for your business, we have plenty of resources available on our site. Check out some of our business articles today for additional tips and tricks.