Question: I understand it’s easier to obtain a loan from the Small Business Administration than from a commercial bank. What do I need to do in order to be considered for the SBA loan?
Answer: The Small Business Administration (SBA) does not make loans. Rather, if you qualify, they guarantee between 75% and 85% of the loan proceeds, due to default, to participating banks. You will pay an additional 3 to 3 ½% interest for the guarantee, added to the interest charged by your bank.
Suffice to say you should first attempt to secure a direct loan from your bank. Failing that, you should inquire if they participate in the SBA loan guarantee programs.
In order to be considered for a SBA loan guarantee, you will need to provide the following:
- A well written Business Plan that outlines your company’s goals and how you intend to achieve them. SCORE provides a business plan outline for both start-up and established business that can be accessed at https://naples.score.org/resource/business-planning-financial-statements-template-gallery
- Your plan should state the amount of money you want to borrow and how the funds will be used to grow your business. If you are a start-up, be sure to request enough to cover both initial and ongoing expenses incurred until you reach a break-even point.
- Check your credit history and do whatever you must to improve your credit score. The higher the score the better chance you have of obtaining a favorable interest rate.
- Your lender must be convinced of your ability to repay the loan. Your business plan should include a 12-month cash flow analysis and a 2-year profit & loss projection. These forms are also available from SCORE
- In addition to your business plan you should come prepared with three years business and personal income tax returns. Also, a personal financial statement available from SCORE
- The SBA will require you to personally guarantee the loan. Having collateral, like equity in a home or other property, inventory and equipment, will both reassure the lender of your ability to repay the loan and qualify you for a lower interest rate.
If you are unable to comply with all of the above, you still may be deemed eligible for a SBA loan guarantee. The SBA delivers a significant percentage (33%) of its 7 (a) loans to women and minority-owned businesses compared to traditional lenders.
Gray Poehler is a volunteer with the Naples Chapter of SCORE. To learn more about management issues facing your small business, contact SCORE Naples. Counseling is provided FREE of charge to all U.S. citizens and legal aliens. To register call 239-430-0081 or visit our web site http://naples.score.org/mentors . A counselor will contact you within 48 hours. Please include your name, email address and a contact phone number.