5 Steps to Taking Out an SBA Loan
Loans can help you quickly access the necessary funds to invest in either building or expanding your business. Although you may be eager to jump at the prospect of quickly acquiring "starter money," navigating the lending process can be daunting.
Before you step forth to conquer the mountain of paperwork and bureaucracy that it takes to acquire an SBA loan, you want to review your application qualifications and get organized. Keep reading to learn the five easy steps to finding a working capital provider and getting your loan approved.
1. Review Your Qualifications
Lenders want the assurance that they will get paid back their loan. They take a calculated risk by providing financial assistance to a company in need of assets. However, if you can provide the correct documentation your business can qualify to receive a loan.
In order to acquire a reasonable loan to help you invest in your business, you will need to have a good credit score, a strong business history, projection of annual revenue, and collateral. These factors reduce the risk of the lender.
Before entering the loan process you need to run a credit score report. If you have a bad credit score you may still be eligible for a loan, however, you will have to pay it back at a higher interest rate. If you spoke to a merger & acquisition advisor or financial advisor they would tell you to shoot for a score above 700 to acquire a low-rate loan.
Once you have been in business for over a year you are likely to qualify for SBA loans. Your business history is a strong indicator of potential success and why a lending agency should approve you for a loan.
In order to protect their loan, lenders require a minimum annual revenue. This gives the lender the assurance that you will be in a financial position to afford monthly payments.
Secured loans require that you offer business collateral. This can be property or equipment, or any other asset of value, that the lender can claim if you are unable to repay your loan. Lenders may even require a similar guarantee if you are seeking an unsecured loan.
2. Determine Your SBA Loan Needs
The type of loan you will file for and the claim is dependent upon your intent for the money. For example, you can apply for start-up financing options if you are looking to start a new business.
SBA loans are designed for business owners to expand and grow their pre-existing businesses. Although funds can be used to manage day-to-day expenses, these financial responsibilities are usually managed by a business line of credit.
Your lender will want to know why you are in need of a lump sum of money. This is why you should also have a clear plan for how you will spend your loan. For example, if you are looking to expand your business by acquiring property you should meet with a commercial real estate acquisition consultant to build a plan for how you can increase your profits.
3. Compare Potential Lenders
When you are meeting with lenders you want to find a party that you trust and works with your given financial situation. If you are meeting with a Fort Lauderdale financial advisor you can look over your business finances and determine what kind of lender is best for you.
If you are seeking collaboration with an online lender there are more relaxed restrictions. Businesses typically opt for this because you can qualify with little business history and get money quickly.
Similarly, microlenders can help you to get a short-term loan if you are rendered unable to get a traditional loan. These lenders profit off of working with small businesses and start-ups.
When it comes to getting a loan from a bank you typically have to be in business for two years and go through an extended process of applying. These traditional loan options take longer to get access to your funds.
The SBA does have a 504 loan program that allows you to take out funds to promote a communities economic development. These kinds of loans can be beneficial if you are looking at growing further in a certain community.
4. Compile Necessary Documents
Before you formally submit your application for your SBA loan you will need to compile all of your personal and business documents. This will streamline the application process.
These documents can slightly vary based on what lender you opt to work with. However, the following documents are important to keep compiled throughout your loan application process.
- Tax returns
- Bank statements
- Financial statements
- Articles of incoproation
- Commercial lease agreement if applicable
- Franchise agreement if applicable
When you are meeting with lenders you want to ensure that your personal finances are in order, as well as your business documents. These are viewed the same in the eyes of the lender. This documentation serves as an example of how you do business.
5. Apply for Your SBA Loan
Once you have gathered all of the necessary documents and have a plan for the loan you can begin your SBA loan application. You will want to consider which loan option is best for you based on the length of the loan and the annual percentage rate.
You want to find a loan with a low APR that has a manageable monthly payment. This allows you to pay the least amount possible when paying back your loan.
Invest In Your Business, Apply for An SBA Loan
When you file for an SBA loan you open yourself and your business up to tremendous opportunities for growth. Typically these can help you greatly reduce your monthly payment requirements, while you are actively working to increase your annual revenue.
Connect with us to learn more about how you can apply for an SBA loan.