At some point in the life cycle of a business, a commercial loan will be needed. The first place many business owners start is their local bank, but if it is their first loan request, they may be unprepared. By following a few simple tips, small businesses can be more prepared, make themselves more attractive to banks, and increase their chances of getting approved.
For many borrowers, an SBA 7(a) loan could be exactly what they need. The SBA 7(a) loan program is structured so that the Small Business Administration (SBA) assumes part of the risk that banks accept when lending money to small businesses. This is turn allows banks to be more flexible and consider loans that they cannot approve conventionally.
With that in mind, you can increase your chances of getting an SBA 7(a) loan approved if you follow a few simple tips:
- Be Professional. Impressions matter. The lending officer will need to seek approval from the SBA and the bank’s management team before providing the loan. That loan officer can be your company’s biggest advocate inside the bank. You make the loan officer’s job easier if you represent your businesses professionally, organize the necessary documents, and are prepared to discuss the reasons you applied for an SBA loan.
- Be Prepared. Lenders will want to understand your business and why you are asking for a loan. Help them. Be prepared to clearly explain your company’s story and financial statements. Also, know the size of the loan you think your business needs and specifically how you intend to spend the loan proceeds.
- Be Proactive. To streamline and avoid potential delays later in the application process, it is a good idea to proactively compile certain basic documentation. The following are a few things that can easily be prepared before the application process begins:
o Income Tax Returns: Lenders will request business income tax returns for the previous 3 years along with personal tax returns for all owners.
o A Business Plan: A well-prepared business plan will explain your business operations and why it needs a loan. It should include current financials, a current profit and loss statement, a recent cash flow statement, a balance sheet, and projections that are based on reasonable assumptions.
o Management Background: Next, the lenders will want to know the personal background, business history, and management experience of your company’s leadership team.
o Personal Credit Report: It’s a good idea to review your personal credit report before you apply for an SBA small business loan. Pull credit reports from the major credit reporting agencies and be sure to proactively clear up any inaccuracies you find.
o Personal Financial Statements: Typically, owners with 20 percent or more ownership in the company will be required to submit signed personal financial statements to the lender. The SBA has a specific form they require that your lender can provide. Compiling your personal assets and liabilities beforehand can expedite the process.
o Bank Statements: Lenders will typically ask for at least one year of personal bank statements (for the company’s owners) and business bank statements to be submitted as part of a loan application.
o Corporate Documents: Most lenders will require, at a minimum, the business to provide Articles of Incorporation, Corporate Bylaws, Operating Agreements, and copies of key contracts or leases with third parties.
With a focus on presentation, preparation, and proactive organization, a small business owner can streamline the SBA 7(a) loan application process and increase the chances of approval. If you are interested in exploring if a SBA loan can benefit your company, visit us online at www.valley.com/sba.