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6 tips to successfully apply for an SBA loan

Guest post by: Andrew Rogerson

Article Overview: Though the ability to apply and receive an SBA loan used to be difficult, the process is much easier these days. To help make your loan application find more success, this article offers a few tips like management experience, profit and loss statements, tax returns and others.

6 tips to successfully apply for an SBA loan

The SBA has successfully funded many small business acquisitions over the years. Since August 2008, it had become increasingly difficult to successfully apply for an SBA loan as approval criteria was tightened in response to more loans performing poorly. In recent weeks, however, the SBA has become more “user friendly” in a bid to try and help kick start small businesses which in turn will lower unemployment.

If you are a potential business buyer and applying for an SBA loan to help fund part of your business purchase is one of your strategies, to make your loan application more likely to succeed, consider the following:

1. Management experience is one of the more important criteria for an SBA lender to approve a loan. During 2008, the SBA did some research on the reason loans were failing and one of the consistent reasons was a lack of management experience. The bottom line is that you will need a resume to submit with your loan application. Make sure your resume is up to date and make sure it highlights real managerial experience including industry experience in the same industry you plan to buy your business.

2. Something an SBA lender likes to see on a loan application in addition to management experience is also experience managing a Profit and Loss Statement. A P&L reports the monthly flow of income and expenses of a business. If a borrower shows they have this skill and therefore understands cash flow, this is a great asset.

3. Part of the review and approval process for your loan will include looking at your 1040 tax returns, credit report and resume. Therefore, make sure they are consistent with each other.

4. If the business is the sole source of family income this will need to be presented clearly. If the business has a current cash flow, you will need to explain what cash flow you need to support and pay for the family’s personal needs such as mortgage, weekly groceries, car payments, transportation costs and other household expenses. You will also need to show how the loan and any interest will be serviced.

5. To make sure you are a reasonable credit risk, the SBA lender will require a copy of your credit report and credit score. Before you make your SBA loan application, review your credit report to make sure it is accurate and has no errors on it. Mistakes on credit reports are not unusual but make sure you remove these mistakes or it could mean the difference between loan approval and rejection.

6. The SBA lender will want to see you have cash to use as part of the down payment to buy the business. The SBA lender will not allow the down payment to be borrowed. If the down payment or some of the down payment is being borrowed from a family member, they will require the family member signing a letter saying they will make no claim for the money at some point in the immediate future.

7. Obtaining an SBA loan has never been easy. If an SBA loan is approved then it means a lot of things have been researched and studied and put in place to enable the borrower to be successful. Equally, if an SBA lender rejects the loan it should be for good reasons and help the borrower know what they need to do next time to be successful.

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Article Tags: Andrew Rogerson, Business broker Sacramento, business escrow, business opportunity, business plan, business transaction, due diligence, Murphy Business and Financial Sacramento, Sacramento Business Broker, Sacramento business ownership, SBA 7a loan, SBA Loan



Related Forum Posts
Financing - Actually, his suggestions will work for any business. A few details were adjusted to fit the content and subject of the book, but the tips to prepare for a loan application, acquiring financing etc are consistent. What sort of business venture are you working on? You could easily take that article and insert almost any business where it says "pizza shop" and the principles are the same. To apply for a loan, people need to have good credit, the same documents need to be collected and its a great idea to know how much you need and to have a business plan to support your numbers etc. Chris
Re: Meltdown in the Financial Markets - I just saw on CNN this morning that Americans will need credit scores between 750-780 to apply for a loan now (I think it was a home loan), but more than 60% of people fall below this threshold.
Women getting financed - Spouses shouldn't be co-signers, they should be part of the loan. Lenders prefer married couples to apply together, it stregnthens the loan because the female can show outside income while she's managing her new business. Outside income means showing a lender there is other income aside from what she is drawing on her new business. A lot of women apply alone and only show their assets and do not include their husbands which is a mistake. All assets, regardless of who's name they are in are considered joint assets in a lenders eye. When you show all assets it stregnthens the loan because you are showing stronger net worth / collateral making for easier loan approval. We understand that the woman prefer to do it alone, but she has to ask herself what's more important getting financed or trying to do it alone? A husband can be on a loan application at a very small percentage (5%) and doesn't ever have to take part in running the business. And when listed on the application (under 20%) the lender will not look into the husbands credit or personal history (so he is pretty much kept out of the loop) but can help stregnthen that loan in order to obtain approval.
federal Stafford loan via college - I already got federal Stafford loan via college. I want this loan to be sent to me and I don't want the financial aid office to be involved. I have a credit worthy cosigner. It's a community college but I need my own computer and to pay for rent that doesn't get paid by my part time job. I need to apply immediately. Please help me.
Re: home loan - Hello, It's hard to say whether or not a bank would be willing to give a loan with those credit scores. Typically in the past it would still be possible to get a loan, you would just end up with a higher interest rate. But with the turn the economy has taken and the extra restrictions lenders are imposing, I'd say your best chances of getting a loan in a year would be to continue working on increasing your credit score in the meantime. It's possibly to turn your credit score around in 6 months to a year, so I would suggest doing a search on "how to increase your credit score" and start putting some of the tips to use now. Best of luck to you! Stephanie Horne


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