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Your SBA loan checklist… how to get the highly-coveted SBA loan

Published By Janet Gershen-Siegel at September 27th, 2017

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The Small Business Administration isn’t a lender; they just guarantee loans from conventional lenders, such as banks and credit unions.

The Small Business Administration truly wants your new small business to succeed. They know from experience that your business’s funding sources might not be perfectly reliable, particularly if your business is a new one. You might be trying to get a trade line but cannot get one, at least for the time being. Your parts supplier might end up with a strike at the factory. The weather could make your fruit supplier’s crop fail. Or your competitor might get to market first.

No matter what your reason for wanting a Small Business Administration loan, here are the specifics of what you will need:

Excellent credit, both business and personal

The SBA and the bank want to see your personal credit score, particularly if your business is a new one. Your personal credit score runs from 300 to 850. The number is dependent upon several factors, including:

  • How fast you pay your bills
  • How completely you pay your bills
  • The length of time you have had credit
  • How much of your overall credit you are using (called your credit utilization rate)
  • How many recent inquiries you have had on your personal credit reports
  • The type of credit you’re using (credit cards, mortgage, etc.)

Payment history and amount owed are the two biggest factors in figuring your personal credit score. You can’t have bankruptcies or other big blemishes on your personal credit report.

More established businesses will also have meaningful business credit scores, and the SBA and your lender want those to be excellent as well. Your business credit is also based on your payment history, amount owed, and credit utilization rate. However, it’s also based on whether there are any liens or judgments against your business, or any UCC filings. Your business credit score also has a basis in your revenue and cash flow. Credit inquiries don’t impact your business credit score like they do your personal credit score. Your excellent bank credit will also include keeping over $10,000 liquid in your accounts, and a PAYDEX score of 80 or better.

Know and follow your lender’s minimum requirements and amounts

For one thing, your business must meet the SBA’s size standards, as these loans are only meant for small businesses. You will need to be current with any government loans, and that includes personal student loans.

Documents, documents, documents

Of course you’re going to need paperwork! Traditional lenders will generally request a wide variety of legal and financial documents during the application process, which can include:

  • Your personal and business income tax returns, generally for the most recent 3 years
  • Your business’s balance sheet and income statement
  • Business and personal bank statements
  • A photograph of your driver’s license
  • A copy of any commercial leases your business has
  • Copies of contracts you have with third parties
  • Copies of your business licenses
  • A copy of your articles of incorporation
  • A resume which demonstrates relevant management or business experience
  • A set of financial projections if your small business has a limited operating history
  • A profit and loss statement current to the past 90 days
  • Your loan application history
  • Your business credit report

A good business plan

You’re not done with the documents yet. Good business plans show the following:

  • A description of your company
  • A description of your product and/or service
  • The names of the people on your management team
  • An analysis of your industry
  • Your facilities and operations plan
  • Your promotional, marketing and sales strategy
  • And what’s called a SWOT analysis (strengths, weaknesses, opportunities, threats)

Collateral or a personal guarantee

You will also, most likely, need to put up collateral. Collateral is assets which the lender can seize in the event that you default on the loan. These kinds of assets include inventory, equipment, vehicles, and any real estate the company may own.

Another species of collateral is what’s called a blanket lien. These liens give the lender the right to take assets covered under the lien in the event of nonpayment.

In the absence of collateral, the lender will want a personal guarantee.

If you can follow the SBA loan checklist and provide all of these documents and fulfill all of these requirements, then an SBA loan just might be in your small business’s future.

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