They may be in for a bit of luck. Small Business Administration (SBA) loans are available. And, while it might take more work to obtain one today than in years past — due to the amount information banks currently require — the following seven steps can help create a successful SBA loan application.
1. Provide Details on Exactly How Much is Needed and How it Will Be Used. Banks like specifics, so be prepared to provide a precise dollar amount and give details of how the funds will be used. For example, if seeking $125,000 to expand the business, explain to the lender how the money will be allocated, for instance, using $75,000 for working capital to support three months of expenses and another $50,000 for seven networked computers and a server.
Banks are impressed by research, so provide a written quote for the equipment. If planning to consolidate debts and refinance for a longer term, provide copies of promissory notes and state how much can be saved through the refinance. Detailed loan amounts with copies of bids, promissory notes or proposals can help strengthen the loan package because the lender can understand the facts backing up the request.
2. Provide Information About Company Management. When banks lend money, they like to understand who runs the company and be familiar with the managers’ backgrounds. This is a key factor in presenting the loan for approval.
Help your lender by providing a resume for each owner or key employee and describe their functions and responsibilities. If certain key positions have not yet been filled, include a thorough job description of the type of person being sought. This will confirm for the lender that needs have been analyzed and position requirements have been determined.
3. Be Prepared to Offer Collateral. The SBA requires collateral to fully secure a loan, to the extent that it is available. If the applicant owns a home, the SBA will ask that it be pledged. It may also request a lien on business assets and may require life insurance on sole owners of a business. Most loans made by banks are secured loans. Therefore, approval may be contingent on a guarantor who is willing to offer collateral.
4. Detail Your Credit History and Credit Score. Credit score is an integral part of the loan process because it illustrates the ways in which other obligations are handled. The lender will eventually run its own credit report, but if information is provided prior to that, issues can be discussed ahead of time.
If your credit score is unknown, take the time to research it on the Internet, where low-cost reports are available. If there have been previous problems such as identity theft, bankruptcy or divorce, they'll need to be discussed with the lender up front and proof must be provided that shows the issues have been resolved or discharged.
5. Provide Complete Copies of Tax Returns, Financial Statements and Bank Statements. While it can be timeconsuming to gather these documents, the bank will want to know everything about the business if it is to become, in essence, a financial partner. One way to streamline the process is to scan financial documents and provide them to the lender in the form of a disc or a flash drive. The lender might even be willing to accept documents via email.
6. Explain How Projections Will Be Achieved. Now is the time to brag about the business and to sell the lender on a vision and forecasted success. If customers have expressed a desire to do business with the company, give the lender a copy of the correspondence. Prove that a market for your product or service exists, and demonstrate the validity of sales and expense figures.
If your cost of goods sold (COGS) has historically been 65 percent and can be lowered to 55 percent, provide details of the calculations. If the loan being sought is intended for a new piece of equipment that will reduce staff needs, describe how it will occur and supply the math.
7. Expect Questions, and Be Patient. The lender needs to connect with your story and business and will appreciate any assistance in doing so. Take the time to thoroughly explain the business. The banker likely will be presenting the loan approval to other parties, and will need help in making the case.
The process may be time-consuming, so it helps to be patient. Feel free to request an estimated timeframe for approval and respect that the projected date may slip. It's best not to call or email the lender frequently. Remember, in lending, no news is often good news.