When it comes to business lending, SBA loans are still very popular among business owners. SBA is appealing for small business owners because they tend to have longer payment terms and lower interest rates than many other types of business financing and loans. However, getting an SBA can be overwhelming for most but it is important to not let it be.
There is a big misconception that there is a lot of work and paperwork to get an SBA loan, but it is just a regular business loan. The bank deals with the government, not the entrepreneur.
Do Your Homework
To get approved for the SBA loan, you need to know your financial situation such as your credit history, credit scores, risk factors and more. This will allow you to be in a better position to get approval.
It is also helpful to understand how SBA loans work and familiarize yourself with basic requirements. The SBA does not make loans; it guarantees them. Each lender must meet the SBA’s minimum requirements, but beyond that may have its own requirements as long as it doesn’t discriminate on a prohibited basis.
Know How Much You Need
There are several SBA loan programs which have specific uses. The 504 loan is for land, building, and renovation. The most popular is the 7(a) loan program which allows you to borrow up to $5 million with a 10-year repayment period.
Write out a budget for what you will do with the money if you secure a loan. This will help you dive into understand how that money can best benefit your business but also come in handy when you are talking to a lender who will want to know what your plan for the funds is.
Know Your Numbers
The key to getting an SBA loan is good credit and solid financials. It is important to keep your credit in good standing because they are very throughout when it comes to the application process.
The SBA generally does not have a minimum personal credit score requirement, but individual lenders may. In addition, certain SBA loans—7(a) loans up to $350,000. This score can take into account the owner’s personal credit data as well as information from a business credit report, and financial data. The SBA requires a minimum score of 140 (on a scale of 0-300) though many lenders require a score of 160 or above.
Ask for Help
Entrepreneurs try to do it all themselves, but know that you do not need to go at it alone to apply for your SBA loan. Having a financial expert help you streamline your application process can be very helpful.
Invest in Key Person Insurance
Insurance is a tool that can ensure that your business thrives, no matter what happens to you. One of the requirements of an SBA loan is a life insurance policy that is greater than or equal to the amount of your loan and that you have a term length that is greater than or equal to the term of your loan.
You should also consider a life insurance policy. Lenders want to be sure their loan will be paid back in the event of your death. Many loan applicants will scramble to form a business plan and arrange financing and then fail to notice the requirement for life insurance until it is too late.