SBA Loan Process

When a small business owner or entrepreneur needs capital for a startup, growth initiative, or operating expense, they often turn to the Small Business Administration (SBA). The SBA helps power thousands of businesses through its loan programs — including businesses that may not be able to secure other sources of funding.

However, it’s important for business owners and entrepreneurs to fully understand the SBA and its loan offerings before getting started.

What is the SBA?

The SBA is a cabinet-level agency of the United States government. It was formed in 1953 to provide financing for business owners who may not meet conventional lending policies. The SBA’s lending affords thousands of small business owners the opportunity to start, grow, or sell their businesses by providing capital that may not be available to them otherwise.

What is an SBA Loan?

The SBA has a broad range of active programs, including counseling, low-cost training, and advocacy (among other helpful services). However, the administration’s most well-known resource is its flagship product: the SBA 7(a) loan. This is the SBA product American Bank of Missouri specializes in.

With an SBA loan, the SBA typically guarantees up to 75% of the amount borrowed from approved lenders, which are generally banks. In other words, the bank makes the loan, and the SBA covers a percentage of the loan (usually 75%) to protect the bank if the borrower — in this case, the business — defaults on payment.

In turn, banks have more flexibility and incentive to give an SBA loan to small business owners who don’t qualify for a conventional bank loan. This can boost the local economy and create jobs.

The SBA’s loan program grants businesses a unique opportunity to succeed, and its 7(a) loan is less restrictive than a conventional loan. One primary requirement is that the borrower cannot obtain conventional financing. A knowledgeable SBA lender will determine whether the borrower meets the SBA’s loan qualifications early in the process.

In total, the SBA’s loan program facilitates more lending to small businesses and encourages economic growth at the ground level.

How SBA Loans Work

As mentioned above, the most popular SBA initiative is the 7(a) loan, which provides capital of up to $5 million. There are six different 7(a) loan programs that can fit specific lending needs. Beyond the 7(a), which has numerous purposes, the other loan programs were designed to meet specific needs. A link to those other programs can be found below.

  • The SBA provides working capital of up to $5 million.
  • Repayment terms depend on how borrowers use the loan.
  • Terms range from 10-25 years.
  • Processing generally takes around 30-90 days.

The maximum SBA 7(a) loan amount is $5 million, and monthly repayment terms vary based upon how borrowers use the proceeds. Terms generally range from 10 to 25 years. The processing time for an SBA 7(a) loan is usually 30 to 90 days, but it can take longer in certain situations.

There’s no required minimum loan amount under the SBA 7(a) loan program, but many lenders won’t consider loans of less than $100,000. There are microlenders that specialize in loans of lower amounts. Besides this, the SBA has various other types of business finance programs that can be found here.

How Do Banks Approach SBA Loans?

This is often one of the first questions prospective borrowers ask. Because SBA loans involve a government agency in addition to a bank or lending institution, the SBA loan application process appears more involved than obtaining a standard loan.

Many banks offer SBA loans. However, their SBA loan offering is usually an insignificant part of a larger catalog of financial products and services. At American Bank of Missouri, we take a highly specialized approach to SBA lending.

We devote more focus to SBA loans, so our expertise and resources can expedite the SBA loan process. We lead in regional SBA lending, successfully approving $25 million in lending through the SBA 7(a) program in both 2018 and 2019. We were the leader in SBA lending in Eastern Missouri (primarily in St. Louis) in 2018, and we led both Eastern Missouri and the entire state of Missouri in 2019.

Because we have an entire division dedicated to SBA lending, we can eliminate confusion and streamline the SBA loan application process.

Easing a Difficult Process

Studies suggest that many businesses choose not to seek financing of any sort, and their reasoning includes wanting to avoid complicated bureaucratic processes. If business owners and entrepreneurs are already worried about bureaucracy with traditional private lenders, it’s easy to see why a government program such as the SBA can be more intimidating.

American Bank of Missouri excels in removing the hassle from the SBA loan process. Before asking how much you need to borrow, we want to know your business objectives. That’s where your focus should be. Our focus on SBA loans — particularly the SBA 7(a) loan — allows you to devote more time to your business.

Why Secure an SBA Loan?

There are many reasons to seek and apply for funding under the SBA’s loan program, and the benefits of an SBA loan are numerous:

  • SBA loans are not based on collateral. In many cases, collateral shortfall is the reason American Bank of Missouri issues SBA loans.
  • SBA loans may provide lower payments due to longer terms and amortization than a bank would tend to provide without a guarantee.
  • The purpose of the SBA loan determines the term of the loan.
  • SBA loans often require a lower cash injection than conventional loans.
  • SBA loans can be projection-based.
  • SBA loans never include a balloon payment because all loans must be fully amortized.

SBA Loans Versus Conventional Loans and Private Equity

As mentioned above, the SBA’s guarantee means banks have more flexibility and incentive to give an SBA loan to small business owners who don’t qualify for a conventional loan or private equity. This is often a boon to the local economy and helps create job opportunities.

Additionally, if you can obtain an SBA loan, you may not have to give up your equity or take on partners.

Understanding ‘Credit Elsewhere’

One of the first requirements in the SBA loan process is that the borrower does not have access to credit elsewhere: loans from conventional sources. If you can acquire conventional financing from another financing source on reasonable terms, you do not meet the SBA’s loan eligibility requirements.

What Can an SBA Loan Be Used For?

There are additional benefits of SBA loans aside from affordability and flexibility with repayment terms. Whereas other types of traditional loans may impose restrictions on how you can use the funding, there is more flexibility with SBA loans (versus conventional loans).

So what are SBA loans used for? You can put SBA loan funding to work on all business project expenses, including (but not limited to):

  • Ownership transitions, including partner, family, long-term employee, outsider, and employee stock ownership plan (ESOP) buyouts
  • Working capital needs beyond normal collateral support
  • Machinery, equipment, furniture, fixtures, and leasehold improvement investments
  • Debt refinancing for improving cash flow
  • Commercial real estate purchases
  • Franchises and startups

This flexibility is one of the many benefits of an SBA loan.

SBA Loan Eligibility Requirements

The list of businesses and industries that don’t meet the SBA’s loan program requirements is small. If your business is currently in operation on a for-profit basis, you have already met the most basic SBA loan program requirement. There are also size limits based upon industry.

Businesses that don’t meet SBA loan eligibility include (but are not limited to):

  • Businesses engaged in illegal activities
  • Loan packaging
  • Speculation
  • Multi-sales distribution
  • Gambling
  • Investment or lending
  • Businesses with an owner on parole

During the evaluation process, experienced lenders can pinpoint and take advantage of the nuances of the SBA’s requirements. For example, you may think a pawn shop wouldn’t be able to meet SBA eligibility requirements because it’s a lender. However, a pawn shop could also function as a retailer, meaning it can secure an SBA loan.

SBA’s Preferred Lenders Program

If you meet the SBA’s loan eligibility requirements, working with an SBA preferred lender can speed up the SBA loan approval process. First, what is an SBA loan preferred lender?

When a bank is in the SBA’s Preferred Lenders Program (PLP), it has attained preferred-lender status. This means the lender has met stringent SBA requirements and the SBA has delegated its approval authority to the lender. Nonpreferred lenders must send SBA loan application packages to processing centers to gain approval, which slows the process considerably.

If you work with a preferred lender, you’ll still need to meet SBA loan eligibility requirements and go through the SBA loan approval process with the bank — but your business will benefit from the accelerated approval process.

American Bank of Missouri has preferred-lender status, which gives you an advantage if you decide to partner with our lending experts during the SBA loan process. We typically send commitment letters out while other banks are still considering terms.

Our Approach to the SBA Loan Process

If you choose to partner with us, the first step will be a conversation to determine your needs and how we can help. Once we’ve confirmed that your business meets the preliminary SBA loan eligibility requirements, we can move on to more detailed conversations. Among other things, we’ll consider:

  • Your industry: As mentioned above, most businesses can secure SBA loans. However, we’ll ensure that your business doesn’t fall under the SBA’s ineligible list.
  • Your collateral: Although full collateralization isn’t necessary for an SBA loan, the SBA lender must take all available collateral.
  • Your business plan: A well-thought-out business plan is an essential part of securing your SBA loan. It gives your lender the confidence that you will use your funds wisely.

You can read more about our checklist here.

After considering the above factors (as well as any other concerns), we have enough to make an informed projection about your SBA loan eligibility. Although we can’t approve every applicant, we promise to deliver on our word.

Again, we specialize in the SBA loan process, especially when it comes to the SBA 7(a) loan. When you combine that focus with our experience, our preferred lender status, and our uniquely personal approach to streamlining the SBA loan approval process, you can see why we’re more than qualified to be your preferred lender.

Are you ready to have a conversation about the SBA loan application process? American Bank of Missouri’s SBA experts can help you every step of the way. 

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