If you're looking to get financing for your business, you may have heard of SBA loans. SBA loans are loans guaranteed by the U.S. Small Business Administration (SBA), which reduce risk and make access to capital easier for small businesses. There are a few different type of SBA loans, depending on what you need - from regular business needs to equipment to micro-loans.

Benefits of SBA Loans

Direct from the SBA website:

Competitive terms: SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans.
Counseling and education: Some loans come with continued support to help you start and run your business.
Unique benefits: Lower down payments, flexible overhead requirements, and no collateral needed for some loans.
Stay Safe: Some lending agencies have predatory rates and agreements, offering unfair contract terms and conditions. An SBA loan will help ensure your safety and lower risk for you and your business.

Preparing for your SBA Loan

3-6 months prior to applying:

First, you'll need to develop a strong business plan (we can help!) that outlines your goals and how you intend to achieve them. A business plan is required in order to receive an SBA-loan. You can build one yourself or hire Local Union to help. Bonus: most lenders / banks offset any costs spent on your business plan towards your loan! Win-win!

As an SBA lender recently told us, a bank cares about the story you are telling - and that story is told through your business plan. A lender needs to see your vision, your history, and the goal of what that money will be used for (and how you’ll be able to pay off the loan). A great story can convince a banker and the government (through that approved lender) to take a risk on you!

Haven’t been in business long or just starting out? A business plan can tell the story of your experience and convince lenders that you’re previous jobs / employment will provide the skills needed to make your business a success!

2-3 years prior to applying (if applicable):

There are two basic needs that usually need to be met before applying for an SBA loan:

You’ve been in business for 2 years (though some banks and SBA loans have flexibility with this & specialize in startups, especially if you have previous experience in that industry)
You have strong financial history and documentation within your company, and show increasing cash flow

We’ve seen many business owners denied SBA loans and it almost always points back to one fundamental issue in their business: cash flow. What does cash flow mean? And why is it important to get a loan? Cash flow is the amount of money transferring in and out of your business.

A bank wants to see positive and increasing cash flow over time. They want to see you are PROFITABLE.

And not just profitable in theory, but profitable in your taxes and income statement!

Why do we stress this point? Almost all business owners hire accountants to help with their yearly financials and taxes. An accountant’s job is to organize your books and reduce your tax liability. They have completely different goals than bankers (their goal is to have you pay as little in taxes as possible). Because of this, accountants will sometimes organize your financials in a way that shows low profitability OR recommend strategies to “save you money” that ultimately prevents you from getting a loan in the future.

Here’s an example:

An accountant recommends you treat non-business items as business expenses (e.g. car payments, meals, etc.) to offset costs
An accountant recommends you increase inventory or expenses to offset revenue gains
They recommend you invest your left over cash versus saving it

We recommend you host joint meetings with a banker and an accountant on a yearly basis to discuss your goals. If you plan on getting a loan in the future, this is crucial! Banks will ask for 2+ years of financials (or 2 years of projections) which includes everything your accountant is putting together for your business.

How to Apply for an SBA

When you feel ready to apply for a loan, your first step is to find a bank that processes SBA loans. We recommend reaching out to 3-5 different banks and interview each one. While the SBA loan process is similar, each bank lender will have different levels of risk and business they are allowed to take on. Some banks prioritize startups, women-owned or minority-owned businesses, while others focus more on specific industries.

It’s important to find a lender you respect and trust, as they will be your guide in the process!

Once you select that bank and lender, they will work you to review your business plan (and Local Union, if you’ve hired us) and lead you through the process.

Sometimes a loan takes 3-6 months to process. So be sure to communicate your goals and expectations!

Helping you Get a SBA Business Loan

Local Union can help you write a business plan that is strong and persuasive enough to get you an SBA loan. We know the ins and outs of the process, so let us take the stress out of it for you. With our expert advice and guidance, you'll be well on your way to success! We provide business planning services and support, and will help you every step of the way, from creating a business model to writing a great loan proposal.

In addition to our general storytelling, we provide 36 months of financial statements in our business plans (which are required for business loans).

So, whether you are just starting out or looking to expand your existing business, an SBA loan can give you the boost you need. Contact us today to get started!

How to Get Financing for Your Business through SBA Loans