The Ultimate Guide to SBA Loans

 The Ultimate Guide to SBA Loans

The pandemic has badly affected small businesses. So, SBA has set out new trends in loan strategies. Here is your ultimate guide to SBA Loans. The federal small business loan program has introduced EIDL (Economic Injury Disaster Loans) to assist small businesses with accessible and borrower-friendly capital.

For EIDL assistance, private non-profit organizations and small businesses must have endured economic damage and be in a disaster-prone or surrounding countries. Businesses can receive up to $2 million in disaster relief through SBA. It includes both physical disaster and EIDLs. SBA doesn’t charge upfront fees or early payment penalties.

SBA Loans Programs

There are three types of SBA loan programs.

  • 7(a) loan program
  • The 504 loan program
  • The microloan program

These loans range from small to large and can be used for various business purposes. SBA also provides export assistance, operational, and short-lived loans.

Types of Lenders

The SBA itself does not participate in the individual business lending program. Therefore, they have created a network between banks and lenders in a community that provides SBA loans. These lenders are in three categories and will greatly help you choose one of the 22,000 lenders associated with the SBA.

These lenders are:

 

  • General Lenders
  • CLP Lenders
  • PLP Lenders

 

General Lenders

 

General lenders are licensed lenders who have been found trustworthy by SBA. They are the most common lenders in a country. Their financial analysis, including your historical documents and review of your application, is done through the SBA. Most lenders, therefore, have a two-stage process when considering your application.

CLP Lenders

 

SBA-accredited lenders are part of the Certified Lending Program (CLP). These lending institutions have been recognized as successful and are thus given direct responsibility and rights. Their responsibilities include all financial analyses that must be done before the transaction. There are almost 800 lenders in a CLP program.

 

PLP Lenders

 

PLP lenders are the most successful lending institution identified by SBA. They have full-on decision-making power and can grant loans without consulting SBA. Having full internal and final decision capabilities allows PLP lenders to provide borrowers with faster processing times. In addition, unlike other SBA lenders, they confiscate your property directly in the event of a mistake instead of first applying to the SBA.

 

Application Requirements

To submit your SBA loan application, you have to provide detailed documentation. With us, you can be approved through either RSV 7(a) or the SBA 504 programs. The SBA seven program offers you loan amounts of five hundred thousand dollars to 12 million dollars. This program is ideal for you if you want to buy a new business or franchise. It is also a great program for partner buyouts, inventory expansion, opening additional locations in leased space, build-outs, and renovations. Some of these will be depending on your mortgage and loan plan, but here are the very frequent documents and forms you have to provide:

  • SBA Form 1919, Consumer Information Form
  • SBA Form 912, Statement of Personal History
  • Personal financial statement
  • SBA Form 148, Unconditional Guarantee (or equivalent credit provider). The SBA requires anyone who owns 20% or more of the business to provide an unlimited personal guarantee. Owners with less than 20% ownership can provide a full or limited warranty (SBA Form 148L).
  • Business financial statements, such as income statements, balance sheets, and cash flow estimates
  • Income taxes
  • Collateral with collateral details
  • Existing debt schedule, if any
  • Business licenses and certificates
  • History of a loan application
  • Resumes for each business owner
  • Overview of business
  • Leasing a business

SBA 504 program also requires you to provide a bill of sale balance sheet and profit and loss statement for the purchase of an existing business. Secured SBA loans are a perfect way for you to get large amounts of money for your business.

You can be approved for as much as 1 million dollars in financing in as little as four to eight weeks, and you will get some of the best payback terms and low-interest rates available today versus all other types of business finance. Contact us to learn more, and you are on your way to protecting your own new SBA loan.

SBA Loan Process

This process usually takes at least twelve weeks from beginning to end. Here are the basic steps one should follow while obtaining an SBA loan.

  1. The owner makes a business plan
  2. The owner meets with creditors
  3. The owner concludes the loan application
  4. The lender reviews the loan application
  5. Lender analyzes

Reasons for Denial

A common reason for SBA loan application denial is credit scores. A score too low or not long enough or a credit history containing other red flags like recent bankruptcy, character issues, e.g., a criminal record, not enough business revenues, or capital to repay the debt can result in SBA loan application denial.

Also, you must meet the eligibility criteria to avoid application denial. For example, to apply for SBA 7(a) loan, your business must have fewer than 500 employees and less than 7.5 million average revenue each year for the past three years. Your net income must be under 5 million after taxes and not counting carryover losses. And your tangible net worth must be below 15 million dollars. For the approval of the application, you must meet these criteria.

In short, it’s easy to apply for an SBA loan, but it’s not so easy getting approved if you are not careful with your application.

The main reasons for rejection of your SBA loan are:

  • Inability to repay
  • No collateral to offer
  • Credit history

How to Strengthen your Application?

Financial statements are essential for the success of a business. They are an important requirement for any loan application. These can be submitted as part of your business plan, but it’s a good idea to prepare and have them ready in case you are required to submit them individually.

The important financial statements you need to prepare as part of your SBA loan application include a balance sheet, profit and loss statement (also known as your income statement), and cash flow forecast. Equity, commercial, or residential real estate, and most other business assets your business owns. They will also need to show positive trends and sales growth. Reflected by your business tax return, your business should be open for at least two years to secure an SBA loan. To qualify, all business owners who owned more than twenty percent of the business should have personal credit scores at 620 or higher.

Most importantly, there shouldn’t be any derogatory items on your credit within the last 12 months. You and your partner’s credit should also not have any open judgments, collections, or unpaid status. Moreover, you shouldn’t have any bankruptcies on your credit report to be approved for both SBA 7(a) and SBA 504 programs because they are full documentation programs.

Why Adding Partners and Family Members to the Application Will Help?

By adding family members and partners, an applicant gains the trust of the SBA on the applicant to build new records and financial dependency and fellowship in the company. You can obtain money to purchase real estate for an owner-occupied business. You can also receive funding for renovations expansion, major equipment, and even ground-up construction. So, you can get the money you need to buy your new office or even build a new office for the company that might be approved.

SBA secured programs and obtained low rates, typically 2 – 2.75 percent over the prime interest rate.

Types of Loans

 

Here is our ultimate guide to Types of SBA loans:

 

1.    SBA RightChoice 504 Loan

The SBA RightChoice504 loan program is designed to provide small business owners with long-term, fixed-rate subsidies used to acquire tangible assets for development and modernization. No doubt, it’s the right program to choose. Very often, 504 projects have a transaction secured from any kind of private lender with the help of a senior lien. A loan is secured from any CDC with the help of a junior lien covering up to 40 % of the total cost and an additional 10 % equity by borrowing.

2.    SBA GreenChoice 504 Loan

The SBA GreenChoice 504 loan program is beneficial for the same applicant’s larger and multiple SBA loans. This program helps finance projects of small businesses, including renewable energy solutions or solar projects. SBA 504 GreenChoice Loan provides up to $ 5.5 million per project from SBA. You can protect multiple SBA 504 Green loans, each with a maximum value of $ 5.5 million and a total of not more than $ 16.5 million in SBA funding.

3.    SBA 504 RightChoice Refinance Loan

By choosing the SBA 504 RightChoice refinance loan program, small business owners can refinance their existing debt into a 504 loan. An important thing to remember while refinancing debt is, it should be a commercial loan. It should not be some type of SBA loan. The proceeds of the original business must have been used for fixed assets.

4.    SBA 7(a) RightChoice Working Capital Loan

The applicant should meet the eligibility criteria to get SBA 7(a) right choice working capital loan. Along with the repayment ability from the cash flow, he should have excellent character, hostage, the capability of management, and worth of contribution. SBA’s primary program offers loans of up to 2 Lac dollars. The maximum amount that can be guaranteed is generally 1 million dollars.

  1. SBA 8(a) Business Development Certification Program

SBA offers a business development program known as 8(a) Business Development Certification program. This program is designed to help individuals who own small businesses by providing them access to government contracting opportunities. This program provides a wide range of services to firms managed and controlled by 51 % socially and economically disadvantaged people.

References:

  1. AICPA & CIMA
  2. Benefits.gov
  3. Fundera by Nerdwallet
  4. First Bank SBA