Published By Janet Gershen-Siegel at September 27, 2017
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:
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:
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.
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.
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:
You’re not done with the documents yet. Good business plans show the following:
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.