SBA Loans: Where To Start
To be eligible for low-interest SBA loan consideration, a small business must be independently owned and operated. It cannot be the dominant player in its field and must meet SBA and NAICS employment or sales standards. As a wholesaler, the business must employ less than 100 people; as a retail or service organization, it must have three years of annual average sales records or receipts not to exceed $6 million to $29 million, depending on the type of business; a manufacturer cannot have more than 500 employees, however some loans have been granted for firms with up to 1,500 employees; construction firms must show three years of average annual sales receipts less than $12 million to $28.5 million, again depending on the business type.
The SBA is a guarantor of loans made by other private lenders or institutions. SBA loans can ideally reach 80 percent of business funding and hold 10-year repayment terms. Before you get started, you should have the following documentation ready:
- Business profile describing the business type, number of employees, annual sales and length of time in business
- Listing of collateral available to secure your loan
- A description of ways you plan to use your funds, if granted, including the purpose, amount and loan type
- The past three years’ plus current interim financial statements including balance sheets, P&L, Cash Flow and accounts receivable broken down to 30-, 60-, 90- and greater than 90-days old categories
- Financial statements for all partners, owners, officers and stockholders with 20 percent or more vested interest showing personal assets, liabilities and tax returns for three full years
To apply for a loan, you’ll need to draft a strong presentation of the company in your written loan proposal. Keep in mind, companies rarely get a second chance to make a first impression. Your proposal should start with a cover letter or executive summary describing the business, the nature of your request, the amount requested, proposed repayment terms, how you’ll use SBA funding and how it’ll be repaid. Explain each point in detail as if reviewers knew nothing about your line of work. Outline everything from your competitive landscape to your suppliers. In your loan application, you’ll include management resumes, projections, copies of leases, any franchise agreements, licenses, references and partnership agreements.
Before approaching a lending officer, realistically assess your ability to repay, your credit history and that of all owners and primary stakeholders, the equity already existing in the business, the collateral value you’re willing to offer, sales growth, competitive strengths and weaknesses.
Once all of your paperwork is in order, you can contact your bank or a financial company. Certified and Preferred Lenders might offer a better response, having a contractual relationship with the SBA. These particular lenders have met certain criteria and offer extensive experience processing and reviewing SBA loans. For more information, visit the SBA website at www.sba.gov or call your local office.