5 Tips For Getting An SBA Loan

Banks and other mainstream financial institutions are often wary of lending loans to small businesses. For this reason, most small businesses turn to SBA loans to fund their operations. SBA loans are specifically designed for small businesses and are issued for a variety of purposes.

This article will give you an insight into some of the common uses of SBA loans as well as tips to get your SBA loan request approved.

What Can You Do with an SBA Loan?

The SBA loan lender you approach will demand to know what you intend to do with your loan. Most businesses take out loans to fund four common needs:

1. Acquiring a Small Business

The SBA 7(a) loan is the ideal option if you are looking to acquire a small business. The terms of an SBA 7(a) loan are friendly to a business acquisition, and loan limits are set at $5 million. However, you are required to meet certain qualifications.

For starters, you will need to put a down-payment of 10-20% of the amount needed. You will also need to prove that the business you intend to buy is viable and profitable – this will necessitate a strong business plan.

Considering the risk and uncertainty involved, SBA 7(a) loans are not easy to come by. You may wait for up to 4 months to get your loan request approved.

2. Buying a New Office Building

The SBA 504 loan is the ideal option if you are looking to renovate, construct, or buy a new building for your business’ operations. Loan limits are set at $5 million for ordinary businesses and $5.5 for manufacturing businesses and those operating from “green buildings.” However, applicants are required to fund 10-20% of the loan amount to qualify.

3. Buying Equipment

The SBA 7(a) and SBA 504 loans are the ideal options if you are looking to buy new equipment for your business. Both options guarantee as much as $5.5 million as long as you fund 10% of the total amount. Interest rates range from 4-8% depending on the type of loan as well as the amount granted.

4. Buying Out a Partner

The SBA 7(a) loan is the ideal option if you are seeking to buy out your business partner(s). This loan’s flexible terms make it ideal for using to finance goodwill needs. The loan limits vary depending on the amount required – additionally, you will need a 25% equity injection to qualify for this loan.

Tips to Qualify for an SBA Loan

SBA loans are popular for their flexible terms, but approval is not always guaranteed. Your preferred lender will assess some aspects of your application to determine whether or not you qualify. To this end, prudence demands that you be prepared by:

1. Keeping Your Documents in Order

The transparency of your business’ finances is determined through financial, accounting, and tax records. As such, it is necessary to have all these documents updated and accurate. Keeping your documents organized will not only earn your lender’s confidence but also save you both a lot of time, hence leading to faster approval periods.

2. Demonstrating Sufficient Cash Flow

Every lender needs assurance that a business has a healthy cash flow as this demonstrates repayment capabilities. Lenders examine a business’ tax returns and existing debts to determine this for established businesses. New businesses, on the other hand, are required to show detailed financial projections. As such, it helps to have your financial documents and projections in order before assessment.

3. Maintaining Good Credit

One of the primary requirements for qualifying for a loan is a good credit track record. Do you pay your bills on time? Do you have any outstanding loans, and if so, do you finance them in a timely manner? Lenders determine an applicant’s credit record through different means. Having said that, there are several requirements that you must meet: avoid bankruptcy, late payments, charge-offs, and foreclosures.

4. Knowing the Exact Type of Loan You Need

Small business loans are highly scrutinized and, as highlighted above, they are categorized into different types depending on the intended purpose. As such, you need to know the exact type of loan you need before even approaching the lender – otherwise, the process will be prolonged or even discarded. It is hence prudent to take some time to study the different types and terms of SBA loans.

5. Studying Your Preferred Lender

There are thousands of SBA lenders competing for small business loan applicants. Each lender has unique terms and conditions that determine important aspects such as terms of qualification, interest rates, repayment periods, and so much more. As such, it is important to take some time to know your lender intimately before submitting your application.