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How To Apply For SBA Loans For Business Owners

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How To Apply For SBA Loans For Business Owners

This Blog On How To Apply For SBA Loans For Business Owners Was UPDATED And PUBLISHED On July 20th, 2019

There are 7 simple steps on How To Apply For SBA Loans. Gustan Cho Associates is a one-stop-lending-shop where our viewers can get you the latest information on the following:

  • All types of residential lending with no overlays on government and conventional loans
  • NON-QM Loans where homebuyers can purchase properties with no waiting period after bankruptcy and foreclosure
  • Bank statement loans and no income verification loan programs
  • All types of commercial lending
  • Hard money and private money loans
  • SBA Loans are becoming more and more popular for business owners needing commercial financing and seeking a government-sponsored commercial loan program to help them where they do not qualify for traditional types of commercial lending

In this article, we will cover and discuss How To Apply For SBA Loans For Business Owners.

Commercial Versus Residential Lending

The commercial lending industry is so complex that many business owners do not know where to turn to for guidance on how to apply for SBA Loans:

  • Gustan Cho Associates was created and launch just for that purpose where commercial and residential borrowers can contact us
  • We can help them directly or indirectly by referring them to one of our referral partners
  • Gustan Cho Associates consists of licensed mortgage loan originators
  • Gustan Cho Associates is a five-star national mortgage banking firm headquartered in Lombard, Illinois
  • We are licensed in most of the 50 states
  • Gustan Cho Associates Mortgage Group is known nationally for being able to close on residential home loans in 21 days and where lenders cannot close

Gustan Cho Associates Mortgage Group

Gustan Cho Associates is known nationwide for its no lender overlay policy:

  • Gustan Cho Associates Mortgage Group consists of licensed loan officers nationwide
  • Our licensed and support personnel is available 7 days a week, evenings, weekends, and holidays where we can help you get qualified for any types of residential lending
  • Gustan Cho Associates Commercial Lending Information Resource Center is the commercial lending arm of Gustan Cho Associates
  • We consist of active members of commercial real estate lending professionals who are guest writers for Gustan Cho Associates
  • Many of our contributing associate editors are veteran commercial investors and commercial lenders who can guide you on how to apply for SBA Loans

Small Business Loans by the SBA is a phenomenal government loan program for business owners who need business loans. Gustan Cho Associates has prepared the 7 Steps On How To Apply For SBA Loans.

How To Apply For SBA Loans: Does The Business Qualify?

Now if the SBA Borrower meets the minimum qualification and eligibility requirements, the business needs to meet the Small Business Loan Requirements.

Here are the bullet points in the business meeting the U.S. Small Business Administration eligibility requirements:

  • Is it a small business  as defined by SBA (generally means under 500 employees or less than $7.5 million in annual sales)
  • Is it a for-profit small business planning in doing business or doing business in the United States?
  • Has the SBA borrower have skin in the game where he or she is willing to put his or her own down payment?
  • Has the SBA borrower tried using other financial means of his or hers that includes their own financial resources and/or personal assets before seeking assistance from the government lending programs such as the U.S. Small Business Administration?
  • SBA borrower needs to show the need for the loan proceeds and for what purpose do they need the funds?
  • Is it bailout?
  • Is it reserves?
  • Is it an expansion?
  • Is it the inventory?
  • Is it due to cashflow problems?
  • SBA would like to know the purpose of the funds and is it for good business reasons?
  • SBA borrowers cannot qualify for an SBA loan if they are delinquent on any government debt and if the debt is in collections or not in good standings

SBA borrowers can view a more complete explanation of the SBA’s 7a eligibility requirements here.

Step 1: Determine Eligibility To See Whether Or Not Your Qualify For Small Business Loans With SBA

The first step in applying for an SBA loan is to determine whether or not you are eligible as well as whether your business is eligible to qualify for a small business loan with the U.S. Small Business Administration, also commonly known by many as an SBA Loan.

SBA has requirements that an SBA borrower must meet in order to qualify for a U.S. Small Business Administration Loan, also known as SBA Loan.  The following are the minimum eligibility requirements that SBA borrowers need to meet:

The U.S. Small Business Administration mandates a minimum credit score of 680+ FICO score for all primary business owners:

  • If you qualify with all other aspects but do not meet the minimum credit score requirements, contact Gustan Cho Associates at gcho@gustancho.com
  • Commercial Lending Division will help you boost up your credit scores so you can meet the minimum credit score requirements.

There is a minimum down payment requirements:

  • Down payment of 10 % or more is required if you are using the loan proceeds to purchase a business or real estate property

Collateral:

  • The SBA Loan doesn’t need to be 100 % collateralized
  • However, it will definitely be much easier to get the SBA Loan if you can show skin in the game by bringing in more collateral and/or down payment so it will provide that you are showing strength and less risk to the SBA Lender

Risk By Lenders

SBA Lenders want you to show that you are a good risk and that failure is minimized.

  • By having more than two years experience in your line of work
  • Showing documentation of business experience, licensing, payment history with vendors, and character and credit reference, it will make the lending process easier
  • Business startups can qualify for an SBA 7(a) Small Business Loan
  • However, history proves that startups come with major credit risks
  • If you are an SBA borrower with a start-up in mind, it is best to show strength by providing as much collateral and down payment as possible
  • This as well as strong business experience and success in your field of business as well as a solid business plan and proven track record
  • Your management experience in the field of business you are starting up is extremely important and will be a deal maker/breaker
  • A proven track record that your business is and has been profitable for a period of many years is extremely important

Step 2: Finding A SBA Approved Bank/Lender

Once you have determined that you meet the minimum eligibility requirements for an SBA Loan, your next step is to find a commercial mortgage lender that can help you on how to apply for SBA Loans.

  • If you are an SBA borrower who is seeking for an SBA 7(a) Loan with a business loan amount of $350,000, you can contact us by emailing us at gcho@gustancho.com
  • One of our commercial loan officers will contact you and we can help you get your SBA Loan process started
  • If you are looking for larger SBA Loan amounts, email us at gcho@gustancho.com with your business plan
  • The amounts you are applying for and we will have one of our commercial loan officers take a look at your business plan and get back to you within 24 hours with a lender that can help you

Step 3: Assemble and Organize Your SBA Loan Paperwork

If you decided that an SBA Loan is the right business loan program for you, you now need to get your paperwork and documents ready to submit to your commercial SBA Loan Officer.

Below is the list of documents you need to get prepared to submit to your commercial loan officer:

  • Three years of corporate and personal tax returns
  • Business Financials for the past 3 years
  • Profit and Loss (P&L) Statement
  • Projected Financials and/or Pro-forma and prior three years of financials
  • Partnership Agreements, LLC Paperwork, Corporation Paperwork, Ownership and Business Certificate/License
  • Loan Application History
  • Résumé of principal shareholders and key employees and management staff
  • Business Overview and History as well as business goals and mission statement
  • Business Lease and rental payment history

Buying An Establish Business

If you are planning on using an SBA loan to purchase an existing established business, the following documents will need to be provided to your SBA Lender:

  • The most recent Profit and Loss Statement and Balance Sheet of the proposed business that is being purchased
  • Previous three years of the federal income tax returns of the business that is being purchased
  • Proposed Bill of Sale of the business and property if applicable as well as Terms of Sale of the business
  • Proposed purchase price and/or contract price along with an itemized list of inventory, accounts receivables, heavy equipment and/or machinery, leases, furniture and fixtures, and other assets/liabilities

A business plan on how you expand to continue the proposed new business purchase, changes, scope of work, addition/elimination of employees and staff, company’s management structure and vision for the next three to five years, and pro forma financial projections should be included with your SBA Loan Application.

Step 4: How To Apply For SBA Loans: Completing The Proper SBA Loan Forms

Once you have completed the above steps, you are now ready to complete the official paperwork to officially apply for the U.S. Small Business Loan from the U.S. Small Business Administration.

Below are the links to the necessary forms required for you to complete and Gustan Cho Associates have outlined on how to apply for SBA Loans by outlining and streamlining the comprehensive guides on each form and how to complete them below:

SBA Form 1919 Guide:

  • Borrower Information Form For SBA – This form is used for all SBA 7(a)  Loans
  • This is the actual SBA Form where you complete the borrower information

SBA Form 912 Guide:

  • Statement Of Personal History – This form is required by the SBA to analyze and review your character and personal profile

SBA Form 413 Guide: Personal Financial Statement – This form is required by the SBA so they can review your personal financial and credit background and where you stand with your current financial position

SBA Form 159 Guide: Fee Disclosure Form and Compensation Agreement – For many SBA borrowers who are using a commercial loan officer to help them secure an SBA Loan or any other commercial financing, the Fee Disclosure Form and Compensation Agreement needs to be completed:

  • This is how your loan officer gets paid and the commercial mortgage broker who is your loan officer employer

Processing And Underwriting SBA Loans

Upon completion of all necessary paperwork and once you have submitted all of your documents to your loan officer/lender, your SBA Lender can now proceed with the processing and underwriting of your SBA Loan.

  • Most underwriting processes take no more than two weeks
  • It is leading up to the underwriting phase that takes most of the work
  • An experienced commercial loan officer and commercial mortgage loan processor will not submit your SBA commercial mortgage loan application to underwriting if they had an ounce of doubt that your mortgage loan application will not get approved
  • Commercial Loan Brokers are paid by the borrower at closing, unlike residential mortgage loan originators where they are paid by the lender
  • Commercial loan officers are agents representing the borrower so whatever the fee agreement is, it is arranged and negotiated prior to the start of the commercial loan process
  • Commercial loan officers will charge anywhere between 1.0% of the loan amount to 5.0% of the loan amount
  • Residential mortgage brokers will get compensated by the wholesale direct lender through yield spread premium which is disclosed on the Closing Disclosure or CD which by law cannot be greater than 3.0%.
  • The mortgage broker company will get this yield spread premium or commission
  • The mortgage loan officer will take a percentage of the mortgage broker fees and the rest will go to the mortgage broker himself which owns the mortgage broker shop
  • Residential mortgage bankers are exempt from disclosing their comp plan
  • Residential mortgage banking companies and residential loan officers who work for residential mortgage bankers get compensated their commissions by the mortgage rates they charge the borrower
  • Prior to proceeding with your commercial loan process, make sure you have your fee agreement signed
  • Make sure there are no misunderstandings on how much your commercial mortgage loan broker will make on your transaction because that amount will be paid by you, the borrower

What Is The Typical SBA Loan Timeline From Loan Submission To Closing

Commercial mortgage loan process is much longer than the residential mortgage process.

  • A typical Small Business Loan with the SBA will generally take between 60 to 90 days from the time all docs and paperwork is signed to the clear to close and closing of the SBA Loan

Here is the typical SBA Loan Process:

Pre-Qualification Stage Of The Mortgage Process:

  • Pre-Qualification Stage:  Preliminary phone interview
  • Borrower normally applies online and loan officer collects all the necessary docs
  • Once the docs and all letters of explanation and credit are pulled, the loan disclosures get sent out to the borrower for signature
  • Once the disclosures are signed and prepped, a letter of intent to proceed is prepared by the loan broker and the company he or she represents
  • All this is normally accomplished in seven days or less

Proposal

  • Proposal:  A letter of intent will be prepared by your loan officer which is issued by the direct SBA Bank/Lender stating that you meet all of the criteria and a deposit will be requested

Processing And Underwriting Stage Of Mortgage Process

  • Processing and Underwriting:  After reviewing the letter of intent to proceed and once you accept it and sign it, your mortgage file will then get submitted to processing
  • The mortgage processor will package up your file and get it ready for it to get assigned to a commercial mortgage underwriter
  • The underwriter will then make a determination of whether your mortgage file has been approved or not
  • Most cases, an experienced loan officer and/or mortgage processor will not submit your file into underwriting if they have an ounce of doubt that your mortgage file will not get approved
  • This whole process will take less than two weeks

Conditional Loan Approval

  • Conditional Approval: Once the mortgage underwriter sees that your file meets all of the SBA Lending Guidelines and feels confident that you are a good credit risk, the underwriter will issue you a conditional approval
  • The processor will then take charge and gather all of the conditions and submit it back to the mortgage underwriter for the underwriter to issue a clear to close

Clear To Close And Closing

  • Once a CTC, clear to close has been issued, the lender is ready to send docs and wire out and the title company
  • Then takes charge in arranging the closing and figuring all the figures from both sides and prepare a final closing statement where the cash to close from the borrower will be provided
  • Closing: It is at the closing table that title changes hands, funds by the lender gets wired in to the title company, and keys are exchanged

If you would like more information on SBA Loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com  Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have.

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