The term SBA loan is somewhat misleading because the Small Business Administration does not provide loans to business owners directly. Instead, the government organization offers a guarantee to lenders willing to approve loans for small business owners who struggle to obtain financing from other sources. If you took out an SBA loan from a local bank for $100,000, for example, the SBA would provide the lender with a payment guarantee for most of the loan. That means the SBA repays business loans that owners cannot pay.
While SBA backing reduces the risk to lenders, the SBA itself takes on a significant risk. For this reason, the criteria you must meet to obtain an SBA loan can be strict. We outline what to expect with the process below.
You Will Need Extensive Documentation
Both the lender and the SBA need to feel confident that you operate or will operate a successful business because that reduces their risk. Before you apply for an SBA loan through a local bank, we recommend that you locate these documents:
- Business and personal bank account statements for at least the past year
- Debt schedule for your business
- Business and personal tax returns for at least the past three years
- Balance sheet
- Current income statement
- Real estate appraisal, if applicable
- Copies of lease agreements, if applicable
- Cash flow projection for the next 12 months
- Business valuation
Keep in mind that each lender has different documentation requirements. This list represents only the typical documents requested by banks that offer SBA loans.
Speak with an SBA Consultant to Find the Right Type of Loan
The Small Business Administration offers numerous types of loans from the microloan valued at under $100,000 to disaster loans and business expansion loans. You should understand your own financial needs and have a plan for how to use the money before applying. If you don’t feel certain, look for resources on the SBA website or reach out to a representative to help you.
Prosper Lending Firm is available to provide additional information on SBA loans along with several other types of alternative financing. Please contact us today.