How To Qualify for an SBA Loan
Preparation is a critical factor of qualifying for funding backed by the Small Business Administration. Understanding the requirements and knowing your strengths and weaknesses ahead of time increases your ability to obtain an SBA loan and saves you time and frustration during the application process.
Collateral
You do not need collateral for SBA approval, but you may want to consider it if your credit is poor. You can use business or personal assets to secure lending, such as:
- Real estate
- Savings accounts
- Equipment
- Inventory
Create Your Business Plan
A detailed plan regarding how you intend to use the borrowed capital is a vital element of the application process. Ensure the steps to your goals are clear and thorough to convey how the funds will benefit your bottom line. Include sections presenting your plans for finances, marketing, management and operations.
Your ability to show the bank that you have outlines, procedures and timelines for your professional objectives is essential to approval success. A lender feels confident providing money when you have thought through the possibilities and taken the time to make an action plan.
Ensure Your Creditworthiness
Your personal and professional credit scores are vital components of an SBA loan application. The SBA does not dictate a score minimum, but financial institutions have requirements you must meet. Before you apply, obtain free copies of your credit scores from the major credit bureaus and check them for inaccuracies. You should also check any accounts you currently have for other financing or business credit cards.
Know the Minimum Qualifications
Meeting or exceeding the SBA and bank requirements is the best way to obtain approval for funds. Take the time to understand the minimum criteria regarding cash flow, revenue, business history and credit scores ahead of time. This knowledge allows you to address any issues before applying, increasing your ability to secure the needed funding.
Use a Familiar Bank
You have the best qualifying chance when you currently have an established relationship with the lending institution. A lender you know already has information regarding your financial history and reliability. This connection increases the likelihood of approval and also saves you time.
Explain Any Cash Flow Fluctuations
When reviewing applications, banks assess your ability to manage working capital. The SBA and the lenders want to know you can effectively manage cash flow and operating expenses. If there are any red flag issues, be prepared to explain the extenuating circumstances.
An SBA loan aims to help small businesses achieve success by providing the resources and money necessary for growth. While terms and qualifications vary depending on the lender, if you spend time preparing your credentials, you maximize your approval chances.
