Many of us have always wanted to own our own businesses. However, one of the key factors holding us behind is a lack of funds. Years ago, lenders like banks and other financial institutions have set very high requirements which most of us cannot meet. Issues like poor loan documentation, low personal credit scores and lack of collateral have denied you different types of loans.
When it comes to securing a loan, the small business administration has made it easy for loan applicants to get different types of loans. This is because, when you apply for a loan backed by the SBA, banks are more willing to consider the loan because in the event of default a portion of the loan is backed by the SBA.
It is good to note that SBA-backed loans are also not that easy to get approved for. The loan applicant has to meet all the minimum requirements as set by the SBA. Most loan applicants do not know how to navigate and ensure that their loan gets approved by the SBA. Despite this, there are those who know how to properly navigate their way through the SBA business loan process. If you are not aware of how to make sure that your loan is approved and guaranteed by SBA, here are five key tips.
1. Research Potential Lending Institutions
As a loan applicant or rather an entrepreneur who wants to start a business, it is good to do background research about the most viable lenders. It is advisable to look out for lenders that have a good reputation and give out SBA-backed loans. Did you know there are some financial institutions that do not give SBA-backed loans?
Many experts advise you to visit different lenders before choosing the most appropriate one. You may want to consider an SBA Preferred Lender as they can process SBA loans much faster. Compare and contrast the interest rates as well as the terms and conditions of various funding programs. Doing so will make you decide and choose a program with low-interest rates and less strict terms and conditions. The easiest way to do this is to visit the SBA website and check on the grants and loans tool and compare different lenders.
2. Prepare Your Loan Application
If you are really in need of an SBA-backed loan, you want to make sure that your loan application and documents meet all the requirements. To start with, you must ensure that you state the amount of money you need and what you intend to use the money for. If you need a loan for working capital, always clarify that in your application. Be short and precise for easy and faster loan approval.
There are some issues that must also be incorporated in your application like your personal credit score. If you have a good FICO score, the lender will actually process your loan faster than you even expected. Remember, the SBA does not give loans directly but rather all loan applicants submit the applications to lenders who forward the documents to SBA for approval.
3. Meet the Essential Basics of a Business Loan
Different banks and lenders could be having different demands when it comes to SBA-backed loans. As stated earlier, it is good to choose a SBA Preferred lender since they can expedite loans much faster. This will end up simplifying the loan application process for you. However, since all these loans are backed by the SBA, there are some common demands that have to be met by the loan applicant. For instance, the loan request form, the list of your assets and your personal financial statements.
It is also good to state in your application how you want to spend the loan you applied for. You need to state how you plan to repay the loan as well. Among other issues, we also have personal credit rating and your past financial statements for your business. Meeting all these demands will help the SBA to approve your loan within a short time.
4. Gather All Your Documentation
For you to get a loan backed by the SBA, you must ensure that you have each and every document pertaining to your business. You must present the annual financial documents for the past several years. This is to assess the position of your investment and whether it has the ability to repay the loan you have applied for.
You should also make sure that the documents are up to date and accurate. You can visit the website Business.gov for more information about the proper loan application documentation.
5. Thorough Interview Preparation
Most of the time, lenders could call you for an oral interview before giving you a business loan. It is good to present yourself in a very professional manner. Be in a position to back up the information contained in your loan request form with tangible facts. This will obviously make the lender grant you the loan without fearing default in your repayments.
Furthermore, financial experts do advise that you clearly state your repayment plan. The plan should be very viable and have a burden of proof. Your business plan should also be vividly described. There are financial professionals and business plan guidelines offered by the SBA. Look out for them and come up with a business plan that can be accepted by lending institutions.
When you have the above, there is a very high probability for your loan to get approved. Just make sure that you have all the proper documents as required by the SBA. Have the past financial statements for your business, make sure that your personal FICO scores are good enough and also follow the legal procedure as stipulated by the law.
If you fulfill all the above and the business loan does not get approved, you will need to go through the documents and verify what they contain. Correct any errors and send back the application to the lender you had identified. In case you fail to notice any errors, contact the lender and inquire about what the problem could be. It will be easier than trying to identify the problem after the fact. Follow the directives given and later resubmit the loan application once more