Small Business Loans With SBA
This Blog On Small Business Loans With SBA Was Written By Gustan Cho Of Gustan Cho Associates Commercial Lending Resource Center
Small Business Loans:
- The U.S. Small Business Administration ( Commonly referred to as SBA) is one of the most popular and leading sources for small business loans
- The United States Small Business Administration, or SBA, is similar to what the Federal Housing Administration is to home buyers when applying for FHA residential mortgage loans
- Similar to the FHA program for residential clients who are planning on buying their first home or those who have a little down payment and less than perfect credit, the SBA, U.S. Small Business Administration, the role is to provide low-interest business loans to small business owners who may not qualify for traditional commercial loans
In this article, we will discuss and cover Small Business Loans With SBA.
The Role Of The SBA
FHA encourages home ownership to hard-working Americans who have a stable income and have established themselves
- FHA promotes homeownership to hard-working Americans with little down payment and less than perfect credit
- FHA loans are perfect for homebuyers who can afford the monthly housing payment but may not have the 20% down payment for a conventional home purchase
- Homebuyers who have the 3.5% down payment to purchase a home and are able to afford the monthly housing payment can qualify for an FHA loan with a 580 credit score
The function and role of the SBA are to encourage entrepreneurship. Hard-working Americans who want to fulfill their American Dream of business ownership but do not have enough down payment and credit profile to qualify for a traditional commercial loan by a commercial bank can now qualify for a small business loan with the SBA.
Applying For Small Business Loans
Applying For Small Business Loans is streamlined.
- Whether you go to one SBA commercial business lender or another SBA Lender, the forms that you need to complete are similar in nature
- You do not have to complete totally different forms when applying for Small Business Loans
- All documents that are required for Small Business Loans are similar
- So if you do not qualify with one particular SBA Lender for Small Business Loans, you already have the whole application and document package
- It will be easy for you just to submit your whole file to a different SBA Lender
- Your commercial mortgage broker will help you package up these loan documents that are required for you
- the chances are that you need to complete one generic Small Business Loans application and have one standard Personal Financial Statement
- Each Small Business Loans program has its own specific forms that need to be completed by the borrower
- However, the majority of the documents and forms that are required are the same as every Small Business Loan lender
The hard part is to make sure that you have gathered all of the information ready for processing.
Starting The SBA Loan Process
Some of the typical items required for business loans are:
- Commercial Application – Similar to residential applications
- Personal and Business Tax Returns for the past three years
- Personal Financial Statement
- Profit And Loss Statement on your current business or if a new business, a current and past profit and loss statement, and Pro-forma profit and loss statement
Resumes – This is needed for evidence of management’s business experience, technical training, certificates earned, licenses that are active, and educational background.
Preparing Business Plan For Small Business Loans
Business Plan – All loan programs require a business plan for start‐up businesses. This plan should include projected financial statements, including profit and loss, cash flow, and balance sheet.
- Personal credit report – The lender will review credit heavier for individuals starting a business
- Explain periods of bad credit, prior bankruptcies, prior foreclosures, judgments, and periods of bad credit
- Letters of recommendations by vendors, lending institutions, colleagues, and professionals in your industry
- Tax Returns ‐ If they are already in business, most commercial loan programs will also require the previous year’s tax returns for the business and the person
- This is usually true for anyone that owns at least 20% of the business
AR/AP ‐ Depending on the loan type, accounts receivable and accounts payable information may be required.
Collateral Requirement For Small Business Loans
Collateral ‐ Collateral requirements vary greatly.
- Collateral is what the lender goes after when borrowers default on their commercial loan obligations
- The more collateral the borrower has, the more skin in the game the borrower has and the less risk the commercial lender has
- Loan To Value is the loan balance divided by the market value of the property
- The lower LTV, Loan To Value, the safer the lender is because of the amount of equity the borrower has
- There are some commercial loan programs that do not require collateral
- Commercial Loans that have a higher degree of risk for defaulting will require collateral by the commercial lender
- Again, every case on commercial loans is a unique case and there are many factors a lender will assess risk on a borrower plus the deal at hand
- There are many types of paperwork that are required for a borrower who is applying for an SBA Loan
- Your commercial loan broker will help you prepare the necessary paperwork that the SBA Lender will require
Besides the standard docs, there are certain types of docs that are necessary for you to submit when it comes to SBA Loans.
Documents And Paperwork Required On Small Business Loans
Legal Documents Required ‐ Depending on a business loan’s specific requirements, your Commercial SBA Lender will most likely require you to submit one or more legal documents in order to proceed with your request for an SBA Loan for your business.
These documents will most likely include the following:
- Business licenses and registrations required for you to conduct business as well as a business plan
- A short summary of the history of your business, your experience, your goals, and why they should give you the funding and how you are planning on making the success of your business
- Business Lenders love a good story backed by facts; Exhibits, proven track record, experience, growth statistics, and proposed realistic goals
- Articles of Incorporation of your business
- Copies of contracts you have with any third parties, vendors, business affiliates
- Franchise agreements, partnership agreements, LLC agreements, if applicable
- Commercial leases and other liabilities that your business has as well as assets and accounts receivables
- SBA borrowers need to keep the fact that there are many commercial loan options, there may be more documents that may need to be provided by your SBA Lender and forms that need to be completed, and information required
- You will receive the necessary proper documents that need to be provided by your SBA commercial loan officer and other forms that may need to be completed depending on your Small Business Loan Program
- Your SBA loan officer will provide you with proper instructions on your submission requirements and specific instructions for each deal
- Your loan officer can do the work with his or her commercial loan processor or may just direct you to the Small Business Lender directly where the direct SBA Lender may do all of the work
If you are interested in knowing more about SBA Loans or if you need to know whether a specific business loan qualifies for an SBA loan, please contact us at Gustan Cho Associates at [email protected] or call Gustan Cho at 262-716-8151. Text for faster response.