Important considerations when applying for an SBA loan

If you’re a small business owner, you may have questions about the best type of loan for your needs. Whether you’re just getting started or have been in business for years, you may be able to benefit from an SBA loan.

“SBA loans can be a valuable financing alternative,” says Kirk Jacobson, Senior Vice President of Small Business Lending at Northwest Bank. “With an SBA loan, you get longer terms and more flexible structures than conventional financing. However, in order to secure financing, preparation and working with an experienced SBA lender is key.”

Smart Business spoke with Jacobson about how businesses can leverage an SBA loan for their needs.

What qualifies a company for an SBA loan?
Securing an SBA loan isn’t much different from obtaining a conventional loan. There are a few steps a business should take to help the financing process go smoothly.

  Build your personal and business credit scores. Your personal credit score is important because it demonstrates your level of commitment to your business. However, it’s also important to include financials statements, tax returns and projections with your loan application, which give your bank a full picture of your business.

  Check with your bank to see what they require as part of the loan process. This may include a personal guarantee, collateral, insurance documents and accounts payable information.

  Gather financial and legal documents to prove ownership.

  Develop a business plan that shows your bank how you will use the loan and gives them an idea of what your repayment terms might look like.

What can companies do to increase their chances of obtaining an SBA loan?
When applying for an SBA loan, organization and preparation are key. The more prepared you are, the easier it will be for your bank to understand and process your loan. The SBA’s website, sba.gov, also has resources you can use to prepare before you meet with your bank.

Your banker should be seen as a trusted advisor that you can rely on to help your business succeed. The more information you provide them, the more likely they’ll be able to help you secure financing.

How does your current status or the nature of your plan impact whether an SBA loan is right for your company?
If your company is still relatively new, your loan request could require an SBA enhancement. SBA loans also require borrowers to provide all available collateral, but many times there’s not enough to cover the loan. In this case, SBA loans are excellent financing alternatives because they can help offset the required collateral.

What are some misconceptions business owners have about SBA loans?
Many busy business owners assume it’s time consuming and expensive to get an SBA loan. However, when you work with an experienced SBA lender, the process should be relatively smooth and efficient.

Most SBA programs also give you the flexibility to incorporate any fees and other costs right into the loan, so there’s less you have to worry about upfront. This not only makes SBA loans an attractive financing alternative, but it also enables you to keep operating costs available for your daily expenses.

Never assume your business doesn’t qualify for an SBA loan. Talk with your lender about the current state of your business and any future plans for expansion. They’ll be able to help you decide if an SBA loan makes sense for you.

Northwest Bank is Member FDIC. Equal Housing Lender.

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