Is an SBA Loan Right for Your Business
Where to get started with SBA Loans?
Is there a more exciting time than when you’re ready to make your business dream a reality? The main hold-up for many businesses though is securing funding. Time to see if an SBA loan works for you, but where do you start?
SBA 7(a) loans are a great option for some businesses to get up and running. The loans can be used for working capital, buying assets to start a business or purchasing an existing business to name a few. The eligibility requirements are:
1) Be a for-profit business
2) Do business in the US
3) Owner invests own capital (typically >15% of loan amount)
4) The owner has not been able to getting funding from other means
Source: Loans (sba.gov)
So what is the application process like? The SBA department publishes a 17 step-by-step guide to the application process and can you guess step 1? A Business Plan.
Why is a business plan the first step in the SBA loan process?
A business plan is foundational to the process because it organizes all of the ideas you’ve considered into a concise, easy-to-follow document that allows all parties to answer basic questions. The plan shows how much money is being requested, how the money will be used, and how the business will generate cash flow to repay the loan. This gives the lender (e.g. typically the bank) confidence that the person requesting funds knows what they are doing.
Without a business plan, conversations with a potential lender will be disorganized and frustrating because there are too many loose ends. Once a lender has a business plan, there can use that as a starting basis of the loan application process and refine the plan depending on the needs of the loan.
How to apply for an SBA loan?
You can view the entire list of the SBA loan application process here, but below is the first five steps to help you get started. Once you have a business plan and go to a lender, they should be able to assist you from that point onward.
Create a business plan (see previous section) - you can either create a plan yourself or contact Local Union for your needs
Find a lender - you can go into any local, regional or national bank. They’ll be able to talk through lending options and let you know if an SBA loan or other loan options make sense
Complete loan application - the lender will assist you, but you’ll take the information from the business plan with any supporting documents as part of the loan process
Lender reviews application - the lender will review the application and address any concerns and they will also pull your existing credit history
Lender approves application - If all of the information and personal credit analysis are solid then the lender can approve the loan.
Steps 6-17 involve working with the SBA as a guarantor, underwriting the loan, business appraisal if you’re buying an existing business, etc. These are definitely important steps to note, but steps 1-5 are the beginning of the process. Depending on the complexity of the SBA loan, it can take anywhere from 60-90 days on average.
What other types of SBA loans are available or other loans options?
SBA microloans exists for businesses seeking $50,000 or less. This is a great option for someone who just needs an up-front loan to getting started.
Additionally, you can use a SBA 504 loan to repair real estate, machinery, or equipment.
For some individuals, a bank may opt to offer an unsecured line of credit to fund your business idea. It all depends on the unique circumstances of the ask and your personal situation.