As entrepreneurs we are always looking for ways to grow our business. Whether we have to buy inventory, equipment, real estate, or working capital is needed, the Small Business Administration (SBA) has funding programs to help us.

However, to request such financial resources, it is necessary to make an application and submit information that allows the SBA to assess the level of risk and repayment capacity, among other things. The following five (5) steps will allow you to be prepared.

1. Have your finances in order

The process for obtaining a loan with the SBA is stricter than regular commercial bank financing. Many people believe that getting a loan from the SBA is easier than from a bank. This is not normally the case because except in disasters, the SBA does not make direct loans to businesses. What the SBA does is guarantee the bank that grants the loan a percentage in case of not achieving the repayment by the beneficiary. The entrepreneur must work with a bank who provides the loan. The bank works with the SBA to minimize its risk and give preferential terms.

At a minimum, the following documents will be required:

  • Last (2) years of income tax returns. (If your business is less than two years old, you will not be able to qualify for most financing options with the SBA)
  • Financial statements of the company for the current year.
  • Personal financial statements of all people who own more than 20% of the company.

2. Prepare a business plan and financial projections

The bank and the SBA will want to know what the plan is for using the loan. In addition to the financial statements (company and personal), the entrepreneur must work with his accountant and business consultant to prepare a business plan tailored to his reality.

The plan, although it does not have to be very complex or extensive, must include the following information:

  • What does the business do? and information on the current conditions of your industry
  • What are the competitive advantages of your business?
  • What is the business going to do with the money?
  • How is the loan going to impact the business positively in the short and medium term?
  • How is the business going to repay the loan?

3. Talk to your bank and other banks

In the USA, the business banking system is full of financing options, and it is not limited only to large, well-known banks.

Large banks are generally the most difficult to work with. There are banks or financial institutions specialized in making loans to certain specific industries, for a certain type of equipment, or type of property.

The SBA has an application on its page that can help you connect with financial entities: https://www.sba.gov/funding-programs/loans/lender-match

4. Plan your finances in the short term

Applying for a loan is a process that can take months. Especially when working with the SBA. Working with the SBA involves bank staff and SBA staff, and both have their time-consuming “Underwriting” process.

The best time to ask for financing is when you don’t need it.

Maria Antonietta Diaz, CEO, GBS Group

Entrepreneurs must work with the perspective that financing will not be given. In this way your business can operate in the long term. Also, a business that does not require external financing is more attractive to the bank and the SBA.

5. Take into account the risks of applying for an SBA loan

In most cases, banks and the SBA will need personal guarantees from a partner. This includes but is not limited to encumbrance of your main home, your business (including other businesses that the entrepreneur owns), collateral with other bank accounts, portfolios, retirement funds, etc.

Debts personally guaranteed by a partner exceed any limited liability protection of its corporate structure.

Conclusion

There is a lot to consider when you are applying for an SBA loan. Always plan ahead and work to make your business financially sound. The more financially sound your business is, the easier it is to obtain financing

If your request is linked to emergency situations, the SBA has a link for this specific type of loan: https://www.sba.gov/funding-programs/disaster-assistance

Watch this video to learn more about SBA Loans. (In Spanish)