How to get a loan from the Small Business Association (SBA)

If you are trying to put together financing to start a small business or even expand your existing business, you may want to consider applying for a SBA loan.

Instructions

How to get a loan from the Small Business Association (SBA)

1. It is important to determine if you would qualify for an SBA loan if you applied for one. To qualify, you will need to demonstrate your business has the capability of repaying the loan. Therefore, your application will have to state whether your business maintains a cash flow that will help repay the debt or whether you have the income to pay it back. Other factors taken into consideration when determining if you qualify for an SBA loan are your character, management abilities, if you have any collateral with which you hope to secure a loan and even the amount of equity you have in your business. Moreover, if you own at least 20 percent of the business, you must personally guarantee the SBA loan. If that happens, the financial institution from whom you are seeking the loan will obtain and review your credit report, FICO score and income history.

2. Find a local lender that offers SBA loans. To locate a local lender either visit the SBA's web site or call the SBA's local branch office. You can also conduct an online keyword search using the keyword 'SBA loan lenders,' for starters. Another idea is to contact your personal bank, or even the financial institution with whom you maintain your company's business checking account to inquire whether they offer SBA loans.

3. Download a SBA loan application and supporting information or pick one up from your local lender.

4. Read the application thoroughly, making a check list of all the information you will need in order to complete the loan application.

5. Create and organize all of the business and financial reports requested on the application. This may include some or all of the following:
   * Personal financial statements
   * Copies of your last three years' tax returns
   * Owner's Capital Report
   * A personal credit report dated no earlier than 90 days prior to the loan application
   * Resumes from your business' principals, partners, and proprietors
   * A copy of the company's Articles of Incorporation or assumed name certificate
   * The business's credit reort
   * Cash flow projections for one year on a month-by- month basis
   * Cash flow projections for the second and third year of the company's existence, on a quarterly basis
   * A projected profit and loss report for the business's first year, on a month-to-month basis
   * A projected profit and loss report for its second and third years, on a quarterly basis
   * Notes about financial projections, balance sheets, profit and loss statements for the interim period
   * Balance sheet and a profit and loss statement for the last three years
   * Copies of your business's filed tax returns from the three years prior to the loan application
   * Copies of the company's existing facility lease, if it exists
   * A schedule of all business term debt, overdue accounts receivable, and aged accounts payable
   * A schedule of fixed assets to be purchased with the loan and their approximate cost
   * Real estate appraisal as well as the most recent tax appraisal
   * Franchise agreement and FTC disclosure report
   * A copy of the construction contract, performance bond, partnership agreement, employment agreements, change of ownership/business acquisition agreement, real estate acquisition agreements, hazardous waste assessments report(s), real estate refinancing or debt payment contracts
   * An industry-specific business plan.

6. Create your SBA loan proposal.

7. Present your neatly completed loan application to your prospective lender.

How to organize a SBA loan application

1. Follow the instructions provided by your prospective lender to determine which forms, documents and reports are needed for your loan proposal.

2. Create your cover letter or executive summary. This introductory communication should explain who you are, why you are qualified to run your business and the type of business you operate, the amount of money you hope to borrow and based on what loan terms and rates, how you intend on using the money if your application is approved, how the funds will benefit your company and how you intend on repaying the SBA loan.

3. Write a detailed description of your business. This should include the type of business you operate as well as your company's address, the business's work product, a short history of the business, a brief projection of the company's future, a realistic description of your competitors, a description of your targeted customers or audience and a description or list of your supplies and/or inventory.

4. Create a section in your loan application that includes the resumes and credentials of your business's owners and key managers.

5. Create a section in your loan proposal that accurately depicts your personal financial position. This section should include your personal tax return from the most recent filing and a personal financial statement drafted within the last 90 days.

6. Create a section in your loan proposal that explicitly details how you intend on repaying the loan. Your proposed repayment plan should be supported by cash flow schedules, budgets and any other financial-related documents that will bolster your claims you will repay the loan on-time and as agreed.

7. Create a section in your loan proposal that presents your business's current financial position. This section should contain the financial reports listed previously in this article. It is also a good idea to demonstrate the business's financial activity from the last three years. Be certain to follow the instructions provided by your lender since they apply to the formatting of your financial reports.

8. Create a section in your loan proposal that describes your proposed business. This section should also include a pro-forma balance sheet that demonstrates the financial performance of the combined business equity and loan funds.

9. Create a projected business performance section. These projections should encompass at least one year, but a three-year projection is preferable.

10. Create a section that describes the nature and location of any collateral you are offering as security for the SBA loan. It is important to list and describe the collateral in detail followed by a list with contracts, receipts, and insurance forms

Tips & Warnings

• Read the information provided by the Small Business Administration thoroughly.

• Read all of the information provided by your lender before you start filling out any forms or creating any reports.

• Make sure to follow the report formatting instructions provided by your lender.

• Not every business or applicant qualifies for a SBA loan.

• The SBA no longer has direct funds to lend to small businesses.

• SBA loans need to be repaid.