Whether you are starting your new business or want to expand the existing business, you require funding to get the process going. The most reliable source of funding a small business is the U.S. Small Business Administration (SBA). The SBA is a government agency formed to help small business, so they can gain full access to small business loans.
A common fallacy regarding the SBA is that it lends cash directly to the small businesses. That is not true. The truth is that, businesses get an SBA loan from a financial institution that participates in SBA financing program or SBA preferred lender program (PLP). The SBA guarantees a portion of the loans to the lender; therefore the lenders have more reasons to offer financing to small businesses.
However, as majority of small businesses need an SBA loan, it is pretty helpful to understand what steps you have need to take to apply for it. Here’s a complete set of information that will make the applying process simpler.
Different Types Of SBA Loans
Before going further, find out different types of SBA loans given by the SBA. There are four types of SBA loans available:
- 7(a) General Small Business Loan
The 7(a) General Small Business Loan program is suitable for majority of small businesses. If you want to purchase a franchise, equipment or want to acquire business you can use this loan.
- SBA Express Loans
The SBA Express Loans are somewhat similar to the 7(a) General Small Business Loans; however the only distinction is, the Express Loans offer a quick application process.
- CDC/504 Loans – Real Estate & Equipment Loans
The CDC/504 loan program is a particular type of the SBA loan, intended to facilitate the businesses with large capital investments.
- SBA Disaster Loans
The SBA Disaster Loans are for businesses that are damaged by a natural disaster in a disaster area.
Determine Your Eligibility
The first step you need to take is to determine whether your small business is eligible for an SBA loan program. You can also discuss about your eligibility for SBA loans with an SBA representative at a bank who will evaluate your business for different SBA financing programs and determine which one suits your requirements.
Choose An SBA Preferred Lender
The next step is to find a bank that will offer you loan. When you visit banks, you need to find out the total SBA loan amount plus if they participate in the SBA Preferred Lender Program. It’s always suggested to find a bank that offers SBA loans as they have proper SBA application process in place. You need to find out about the interest rates as well.
Collect And Organize All The Paperwork
Once the bank gives you the green light, try to collect and organize all the paperwork necessary for the SBA loan process. You should understand that Small Business Administration has a complete checklist and some of the primary documents include business profile, business lease, business financials, projected financials, tax returns, and loan application history.
Apart from all the necessary documents, SBA requires you to provide you some information regarding yourself like who are you, what your business history is, and your business type, the amount you apply for and the reason of your loan request, you’re requested repayment terms, how the SBA loan will help your business, and how you will repay the amount. If you complete the documentation process effectively, your possibilities of getting approved for loan will increase.
Fill Out The SBA Forms
After organizing the paperwork the next step is to fill out all the required SBA forms. These are: Form 4, Form 912, Form 413 and Form 159 (7a).
Once you’ve got filled out all the forms, you need to go to the bank to finalize your application. This is the underwriting phase where the bank will comprehensively examine all the details you’ve given on the application. Normally, this process takes about 1-2 weeks.
A Quick Outline Of SBA Bank Loan Process
Here is the 4-step SBA bank loan process;
Pre-Qualification Phase: This is phase where the borrower’s primary details are examined to determine whether the borrower meet the bank’s standards.
Proposal Phase: After prequalifying for a loan, your bank will offer you a proposal
Underwriting Phase: In case you accept the bank’s proposal, you will enter the underwriting phase
Closing Phase: In closing phase, the terms of the loan are finalized and signed
It is true that the SBA loan process is time consuming and difficult thing as well, but by getting yourself organized, you can save both your time and money. Before you go to a bank for an SBA loan, you need to be clear on what you actually need.