Working capital is the lifeblood of any business, but it can be challenging for small business owners and entrepreneurs to obtain conventional financing. SBA loans were created to fill that void. Contrary to popular belief, SBA loans aren’t just for startups or businesses that are turned down for conventional loans. SBA loans offer a variety of benefits, such as more flexible loan terms, and can be a gateway to future conventional financing. In this article, we’ll explain everything you need to know about SBA loans and how to apply for one.
Small Business Loan Application Requirements
Basic requirements for the 7(a) and 504 loan programs are set forth in the SBA SOP. To be eligible for an SBA loan, applicants must meet these requirements throughout the entire application process, from the time of application through loan closing and disbursement. Below is a list of basic requirements:
- It must be an operating business, organized for profit.
- Located in the US and operating primarily in the US.
- Pay taxes to the US
- Purchase only American-made equipment and products with SBA loan funds (to the extent possible)
- Not to exceed SBA small business size standard (including affiliates) for your industry
- If your business meets the FTC’s definition of a franchise, this status must be disclosed on your SBA loan application
- You must demonstrate an inability to obtain the same amount of funding on reasonable terms from non-federal, state, or local government sources.
In addition to these basic requirements, you should also consider the following:
Collateral and personal guarantees
SBA loans must be guaranteed by at least one person or entity. Business owners with a 20% or more ownership interest in the applying business must provide a full personal guarantee.
If the guarantees are backed by collateral (assets that can be seized if the loan is not repaid), the SBA typically takes a second lien position.
Owner’s credit score and financial history
As mentioned above, SBA loans sometimes require a personal guarantee from the homeowner. As such, your personal finances are intertwined with those of your business. Businesses applying for an SBA loan must provide a personal financial statement for all individuals guaranteeing the loan.
You may also need to give your SBA lender permission to check your credit score and history. If requested, you will also need to provide your personal tax returns for the last three years.
Business plan and financial projections
Small businesses applying for an SBA loan must have a business plan with insights into your target market, competition, marketing strategies, and a clear understanding of how the loan will be used to help grow the business. If you don’t already have one, you can get free help writing a business plan from one of the SBAs. Small Business Development Centers–find the nearest one in Vermont or New Hampshire here.
You will also need to prepare financial projections for at least the next two years and provide business tax returns for the past three years. Sole proprietors can provide their Schedule C.
So what do SBA lenders look for in your business plan and financial documents?
- Strong and constant cash flow that will cover your debt
- Demonstrated good handling
As applicable, the following insurance policies may be required:
- Risk insurance on all assets given as collateral
- Maritime insurance on any vessel
- flood insurance
- Life insurance for the principal(s) of the business
- product liability insurance
- Liquor Store/Liquor Store Liability Insurance
- Disability insurance
- workers compensation
- malpractice insurance
Common Small Business Loan Application Mistakes to Avoid
When applying for an SBA loan, it’s important to take your time and make sure all the information you provide is correct. Providing incomplete or inaccurate information on the loan application may result in a loan being denied or delayed. Union Bank has been an SBA Preferred Lender since 1987, so we can help you with the application process. In fact, Union Bank’s Susan Perry was recently recognized as “New Hampshire 504 Lender of the Year” for originating the most SBA 504 loans in New Hampshire in 2022.
Another common mistake is not addressing potential obstacles. Business owners must address any possible obstacles and provide an explanation in the loan application.
Finally, you must provide a solid business plan with your SBA loan application. A clear, concise business plan it is essential to demonstrate the viability of your business and the purpose of the loan.
Documentation Required for Small Business Loan Applications
If you’re wondering how to prepare for a small business loan application, one of the best things you can do is organize your documents before you start your application. This will help make the process as smooth and fast as possible. Some of these have been mentioned in previous sections, but here is a full list for your convenience:
- Personal and business tax returns
- Financial statements and balance sheets
- Business plan and financial projections
- Government-issued photo ID and proof of business registration
- Articles of Incorporation or Organization
- Bylaws and their reforms
- Association Agreements
- Association Statutes
Small Business Loan Application Deadlines
SBA preferred lenders like Union Bank can complete the application process quickly. However, small business loan application deadlines will vary depending on the type of small business loan you are applying for and the complexity of your business and supporting documents. On average, SBA loans take 45-75 days to close. The more prepared and organized you are before you start, the faster you’ll go. If you have questions about your SBA loan schedule, you can contact Union Bank’s commercial loan team at any time during the application process.
The steps of the small business loan process
Follow this step-by-step guide to small business loan applications so you know what to expect.
1) Get pre-qualified
Getting prequalified for your SBA loan will let you know if you meet the eligibility requirements (before you waste time on the whole process). It will also let you know how much you can borrow and prepare you for a faster application process.
2) Complete the SBA loan application
As mentioned above, it is very important to complete the application completely and accurately. Errors or missing information will delay the process.
3) Your request is processed
We will contact you if we need additional information or documentation to process your SBA application.
At this stage of the process, we will verify information on your application, such as income, assets, debt, and other details about your business and/or personal financial situation.
5) Closing and disbursement
Once your loan closes, the funds will be disbursed and you can start working to grow and expand your business.
Resources for small business owners in Vermont and New Hampshire
Union Bank is proud to be part of a large network of resources for small business owners in Vermont and New Hampshire. While we offer a range of financial products and services designed specifically for small businesses, we recognize that our customers may have other needs as well. That’s why we’re happy to highlight a few additional organizations that can help entrepreneurs succeed. By taking advantage of these resources in combination with Union Bank’s offerings, small business owners in the region can maximize their chances for success.
Apply for an SBA loan in Vermont or New Hampshire!
Don’t miss the opportunity to grow your small business. Use our article as a guide and start the loan application process today with Union Bank. With locations in Vermont and New Hampshire, our dedicated team is ready to provide personalized assistance and support your financial goals. Contact Union Bank’s commercial loan team to learn more about our SBA loan options. Looking for additional resources for small business owners? Check out our recent article on “Resources for NH Women-Owned Businesses.”