At some point in its existence, a small business will need some extra capital. This can be for any number of reasons. If you’re a small business owner who has considered financing for your business, you have some great options available. One of the best options on the market is an SBA loan.
If you’re considering a Small Business Administration (SBA) loan, then you probably know that these are some of the most sought-after loans in business financing. Great rates and accommodating terms are just two of the various reasons that businesses enjoy this method of financing. However, these loans come with some drawbacks. Because of their ideal terms, the qualification standards for SBA loans are some of the highest on the market. Also, the application process can take longer than most other types of loans.
What is an SBA Loan?
Perhaps you’ve heard a little about SBA loans but don’t know much about them. Let’s briefly review what they are before moving on to the process.
SBA loans are backed by the Small Business Administration, hence their name (SBA). The Small Business Administration can provide up to an 85 percent guarantee on these loans through lenders. They also boast many benefits, including excellent terms, flexible payments, low rates and helpful counseling. The lender offers these ideal terms with a tradeoff. The inquiring business has to show that they are stable and have a solid history. SBA loans typically require for the business applying to have at least a 640 credit score, two years in business, and at least $100k in annual revenue. Then, there’s the fact that SBA loans take longer than most of the other business lending options.
How long does it take to get an SBA loan?
In short, SBA loans can take anywhere from 60 to 90 days, although it can be somewhat longer or shorter. Also, the amount of time will vary depending on the business’s situation. When figuring out how long the application process will take, you have to account for the applying business conducting research, making a plan and collecting the necessary paperwork. Then, the lender has to complete the underwriting, approval and finalization, which can vary in length depending on the case and loan amount. In reality, the most time-consuming part of the application process is prior to filling out the actual application; it’s all the preparatory work that the business must do beforehand including collecting relevant documents and drawing up a solid plan.
Perhaps you’re still interested in acquiring an SBA loan, and you’re wondering how the process will be. Let’s take a look at what you can expect.
The SBA Loan Process
When applying for an SBA loan, it’s required that business owners provide the lender with plenty of information about themselves and their company. They must provide profit and loss statements, a comprehensive business plan, personal and business credit score, and any other supplementary documents. Candidates who apply must not only submit this information to the business lender, but the information must show that the candidate is in great financial standing and has a solid history.
You might be wondering about the steps it takes to acquire an SBA loan and how long each takes. Let’s go through them. First, the borrowing business gathers all relevant documents and information, and applies for the loan. This can take anywhere from one to 30 days. Next comes the underwriting process. The lender will take anywhere from 10 to 14 days to underwrite the loan. Then, the lender will come to a decision, whether it be to approve or reject the application. This can take ten days to three weeks, as the lender has to make a decision and send a letter to the applicant notifying them of their decision. Finally, the lender must close the loan, which can take one or two weeks to happen. After the applicant has received approval for the loan, the lender may still request that they complete some additional paperwork to finalize the loan. After that, the lender will process the paperwork and send the business its SBA loan money. At that point, the SBA loan is finally secure.
What will you need to apply for an SBA loan?
As we mentioned before, lenders require the applicant to collect and submit a substantial amount of documentation for an SBA loan. So, after you’ve selected a lender and SBA loan program that works for your business, you’ll have to get all the required paperwork together. This can take a few weeks to collect, due to the number and variety of documents. These documents include the previous two years of financial statements, a business plan, the previous two to three years of business and personal income tax, business and credit report, resume and personal background statement. In addition to this, you’ll need to draft a business loan request, a summary of how you intend to use the loan, and a report detailing your business’s age and size.
Depending on what lender you go with, there be more, or less, paperwork involved. It’s always better to strive to have all of the necessary paperwork, or even a bit extra, as business lenders tend to look more favorably upon applicants that are prepared.
In addition to the paperwork you will submit, you will need to fill out the lender’s application for the loan and the required SBA forms. Some applicants like to have the help of their accountant and/or attorney when collecting some of the documents and filling out the application paperwork.
Underwriting and Closing Processes
You’ve prepared and submitted all the documents on your end and now it’s time for the lenders to do their work. The next step in acquiring an SBA loan is underwriting. This part of the process entails the underwriting department of the lending firm reviewing your and your business’s financial history. In doing this, lenders are essentially assessing the creditworthiness of the applicant and the risk of financing them. They are determining the likelihood that you, the applicant, will be able to pay off the loan in full and by the pre-specified time. Although the SBA guarantees most of the loan, the lender still must go through the standard procedure to ensure that the candidate is financially safe to lend to.
If, after one or two weeks, the lender passes you on the underwriting phase, you move on to the approval and loan commitment phase. This means you’re close to finally getting that SBA loan! The lender will send you a letter of commitment detailing the interest rate, terms and loan amount. To accept, sign it, follow the instructions provided, and send it back to the specified address.
Now we arrive at the final stage on the road to getting an SBA loan. The lender will check that all paperwork has been completed and filed, as well as all research work has been done on their part. After the SBA authorizes the government guarantee and assigns their file number to the loan, the funds will be transferred over to the applicant. This final part of the process can take one to two weeks. Once you have received the funds from the lender, you may use them how you choose (as long as it’s for a pre-specified business purpose).
So, is an SBA loan worth the wait?
As we’ve detailed in this article, it can take 60 to 90 days to attain an SBA loan. There are a lot of documents to collect, as well as follow up information. Just planning the first part of the application process is important. However, this is the sacrifice you make for a top-notch loan. Just think of it as a tradeoff for getting the best possible product and industry experience on the market. Of course, if you need financing a bit quicker, there are plenty of options there too. Overall, with SBA loans (and with all financing options), it’s mainly important to be prepared, so that both you and the lender can have the best experience possible.
If you’re interested in getting an SBA loan, or any other type of business financing, Crestmont Capital can help. We offer a diverse portfolio of lending products at competitive rates and have helped countless businesses get the funding they need. Don’t hesitate to fill out a quick quote or contact us today!