There are many reasons to consider a Small Business Administration (SBA) Ioan. An influx of capital can allow greater expansion, secure new real estate for building or finance an upgrade of equipment. It can also provide the cash you need to survive a disaster. But, there are important considerations and a serious commitment of time and effort you must make to even apply for an SBA loan. Planning is critical to determining the right loan choice for you and what you’ll need to move ahead.
First, take an honest look at where your business currently stands. What do you hope to accomplish? Is a loan really your best option? Is the SBA your best route, or is a loan from your bank a viable choice? Taking time to think this through now will save you hours of work later — or help you set the stage for a smooth, successful loan.
What are my SBA loan options?
Many different types of Small Business Administration loans are available. Your lender can provide advice and help you select the one that best fits your plans:
- 7(a) loans: SBA 7(a) loans are the most common ones. They’re popular primarily due to their terms and flexibility. However, there are several different types to consider, each of which comes with different maximum loan amounts, interest rates and terms.*
- 504 loans: The 504 Loan or Certified Development Company program is designed to provide financing at attractive rates for the purchase of fixed assets, which most commonly refers to real estate, buildings and/or machinery.
- SBA microloans: The Microloan Program offers small loans (up to $50,000) to new or growing small businesses. SBA makes funds available to non-profit, community-based lenders to extend to eligible borrowers. While banks generally do not make microloans, odds are good that your business banker knows or can help you find a micro-lender.
The SBA also offers disaster assistance in the form of low-interest loans to businesses, renters and homeowners located in regions affected by declared disasters. If insurance and funding from the Federal Emergency Management Agency (FEMA) doesn’t fully cover your disaster assistance needs, disaster loans may be used for any number of purposes.
What do I need to do before applying?
You’ll be required to provide detailed information when you make application for a Small Business Administration loan, so it’s best to be prepared in advance. Having this information on hand is a good start:
- Credit rating: Know your credit score; your SBA lender will check it. Visit Experian®, TransUnion® and/or Equifax® to see how your credit looks. You can also go here for a free review of all three.
- Personal background: You’ll want to describe your education, past work experience and other background details. If there are old “bumps in the road,” such as bankruptcy or even criminal convictions, they’re not necessarily deal-breakers, but you’ll need to explain them.
- Business structure: Be able to clearly describe the day-to-day structure of your business and its management. Making an objective review of how your company is currently structured allows potential lenders to see how you strategically run your business.
What will I need to present to potential lenders?
There are bank forms to be completed that collect a variety of information; the requirements and length will vary from bank to bank, but you can expect to need these:
- Your business plan: Your formal business plan is one of the most important parts of your application. A lender will want to understand what your business is and does, your reasons for the loan, what goals and objectives you have and whether the growth you anticipate from the loan will include additional employees. If you’re purchasing an existing business, you will need to provide documentation of the asking price and other terms of the sale. If you need help with your plan, your local or statewide Small Business Development Center (SBDC) offers free assistance.
- Statement of intent: A detailed explanation of how the funds will be used is nearly as critical to a potential SBA lender. Whether you plan to expand your square footage through expansion of your current space, envision new construction, add needed equipment to increase production, or add staff, be ready to explain what you intend to achieve with your loan.
- Business history: Prepare an overview and history of your business. Possible additions to the basic timeline could include a client list; detailing past successes and community involvement can also be advantageous.
- Debts: Just as it would be if you were seeking a personal loan, your current company debt load will be important to any lender. Be able to provide a complete and current accounting of liabilities.
- Your personal financial involvement: The financial stake you have in your business will also be considered by lenders. Their willingness to make the loan is at least in some part based on what you’ve been willing to invest in its growth. Inform them of your personal assets and liabilities.
- Ownership: It’s very important that you fully disclose all ownership in your business and any ownership you have in other companies. SBA requires banks to obtain this information in order to make sure that loan amounts don’t exceed legal maximums. If another company holds ownership in yours, you’ll need to provide full ownership details for that company also.
What additional documentation is required?
As in any financial transaction, plenty of additional documents are required to satisfy lenders. Here’s – at a minimum – what you’ll need to provide:
- Financial statements: One year of personal and business bank statements is common. You’ll also need to provide the current balance sheet and income statement for any company you plan to purchase with the loan.
- Credit reports: Here’s where your previous check of the credit rating services pays off. Not only will SBA lenders review these closely, but you’ll quite likely be asked to explain parts of them.
- State/Federal tax returns: Both your personal and business tax returns for the last 3 years will be required. If you’re purchasing a business, lenders will also want to see the previous 2 years of income tax returns.
- Business legal documents: Different documents are required for the different types of legal entities (corporations, sole proprietorships, partnerships, limited liability companies and limited liability partnerships). It will be necessary to produce any state licensing documents indicating your ability to legally conduct business, your business Employee Identification Number (EIN) and insurance information. Other materials may be required depending on the nature of your business and the type of loan you seek.
- Loan application history: Have you previously applied for a loan from the SBA? Whether or not the loan was approved, this information will be required by potential lenders. Be sure to have any past loan paperwork available for review.
- SBA forms: The SBA forms you’ll need to complete will vary due to the type of loan you pursue (7(a), 504, microloan). These forms can be found on the Borrower Information Forms page on the SBA website. Your lender can provide them or assist in making sure you select the correct ones.
Need a lender? We’re ready to help!
The First Internet Bank Small Business Administration Lending team has the expertise needed to help provide custom financial solutions that preserve capital and lower monthly payments while delivering future flexibility with payment certainty. And — with our SBA Preferred Lender status — we’re able to deliver a faster, streamlined loan process, letting you focus on what matters most: growing your business.
Want to learn more about our history and SBA programs? Check out our digital guide.
*Rates are blended between lending market rates for about 50% of the loan and debenture (bond market) rates for roughly 40%. You contribute 10%, although this amount can vary (upwards, 10% is the minimum equity injection you would make).