When small businesses do well, communities do well. We’ve seen it firsthand, and so has the U.S. government; that’s where the Small Business Administration’s lending program comes in.
The SBA program is a U.S. government initiative that began in 1953. The program helps connect Americans with funding to start, buy, or grow a business through its flagship 7(a) loan guarantee program. With an SBA loan, the SBA typically guarantees up to 75% of the amount borrowed from approved lenders, which are typically 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 — the business — defaults.
This means banks have more flexibility and incentive to give an SBA loan to small business owners who don’t qualify for a conventional bank loan, which can boost the local economy and create jobs in the process.
The SBA loan program can give businesses a unique opportunity to succeed, and it’s less restrictive than a conventional loan. A primary SBA requirement is that the borrower cannot obtain conventional financing, and a knowledgeable SBA lender will determine whether the borrower meets the SBA’s loan qualifications early in the process.
If you’re wondering whether an SBA loan could be a good fit for your business goals, our quick-look SBA loan checklist (outlined below) can help. If you want to learn more about what an SBA loan is, continue reading.
The Bank’s SBA Loan Eligibility Checklist
If you’re interested in securing an SBA loan, it’s helpful to consider it from the lender’s perspective. Below are a few things thorough SBA lenders keep in mind with potential clients:
1. Industry guidelines: Nearly all legal for-profit businesses are eligible for SBA loans. The most notable exceptions to SBA loan eligibility include businesses that engage in lending, provide life insurance, or deal in real estate development.
2. Collateral: An SBA loan doesn’t require full collateralization, but the SBA lender must take all available collateral. This generally means the SBA lender must take a lien on personal assets — primarily equity in real estate — if the business’s assets don’t support the loan. If unavailable, the lack of personal collateral should not impede the loan’s approval.
3. Business plan: Business plans can range from a few paragraphs to numerous pages, but they should always be well-organized and well-thought-out. A highly strategic business plan will give lenders confidence that your opportunity is carefully planned. Components of a successful business plan include:
- A clearly stated summary of your request: The business plan should clearly state your business’s overarching objective.
- A detailed description of your business opportunity: Share the needs/demands that your business will meet. How do you intend to fill that need/demand?
- A detailed history: If you have an existing business, provide a detailed history. Truly tell your company’s story.
- Personal experience and qualifications: Do you (or other members of your team) have personal experience that will help you meet your business’s objective and increase your odds of success? Be sure to share this information.
- An industry analysis: This should be aligned with the complexity of your request.
- A sources and uses of funds statement: Where do your funds come from? Consider both equity and debt. Share how the funds will be used and provide a wish list of what you want.
- Financial information or income statements and balance sheets: If you have an existing business, provide three years of historical information, current year to date, and two years of projections. For a new business, provide two to three years of projections. All projections should include assumptions.
Preparing for the SBA Loan Process
The preparation for securing an SBA loan may seem cumbersome. However, it helps you clarify your thoughts and gives the lender confidence that you have a well-planned vision of what needs to happen.
If you want to increase your chances of getting your SBA loan application approved, remember this: You need to ensure both you and your SBA lender understand what needs to happen for you to achieve success. The SBA lending process can be complex, and talking through the nuances will give you the best odds of success.
The truth is, different banks approach the SBA loan application process differently. For instance, some want to see every document filled out before they’ll talk to you, while we’re more focused on learning what you want to achieve first.
To get on the right track, talk with the SBA experts at American Bank of Missouri. Email David Ruby (firstname.lastname@example.org) or Brian McCarthy (email@example.com) to get started. Business owners and entrepreneurs in Indiana can email Anthony Bill (firstname.lastname@example.org) and business owners out of Kansas City can email Randy Puckett (email@example.com).