30 days to Becoming an Entrepreneur: Applying for SBA/Bank Financing – the nitty gritty details

Now that you know what your business is going to cost to get started and have considered the options for paying for it, you may have decided to go for Small Business Administration (SBA) financing. When I first started working on the process to get financing for my new business idea, I had no idea how to go about getting a SBA loan. I thought I applied to the SBA and they gave me the money – I didn’t realize that I’d still need a bank to get involved.

I should note, my experience with the SBA is with their 504 program. I am not as familiar with their 7(a)  and microloan programs. The 504 program is for purchasing/building capital projects (i.e. building a new office, purchasing land, etc). When I first got started I spent a lot of time on the SBA website. It’s packed with tons of helpful tips and resources. It was reading through their website that I realized that I couldn’t just send in an application to them – that I’d need to go through a bank – which would then submit my application them (after the bank had approved it). In fact, I’d need not one but three different financing approvals. The 504 program loans are provided by community development corporations and banks. Technically, the SBA doesn’t provide any money at all out-of-pocket. They just guaranty the loan for the community development corporation (CDC) – the bank’s loan is guaranteed by the property purchased with the loan. So, the process is first you put together all the documents they need (see below). Then you send it to the bank. The bank will review things (usually takes 1-3 weeks) and will make a decision. If they approve, the CDC will review and make a decision. If they approve as well, then it gets sent to the SBA for their approval. If they approve, then you get the loan.

So, what will you need when applying?

  • Personal financial statement (usually the bank will provide you with a blank one to complete) – this outlines your income, expenses, assets, etc
  • Copies of your tax returns for the past 2-3 years
  • If you own another business (or this loan is for a current business) you’ll need the tax returns for your business
  • Profit and loss for your current businesses, balance sheet for current businesses
  • Business plan
  • Cash flow projections for at least 3 years

You’ll also need a decent credit score. If you need a smaller loan (under $50k) then you could go through a nonprofit (who also goes through the SBA) for the loan to avoid dealing with a bank. Nonprofits also tend to be a little more flexible in working with not so hot credit. If you get denied on your first try – don’t give up! Keep trying. There are TONS of banks out there, some are very experienced in working with certain types of businesses and do hundreds of SBA loans a year, while others do just handful and are much more particular. Trying to find a bank that does a lot of SBA loans to increase your odds.

Have any of you applied for a SBA loan before? Any thoughts on the process?

Next, 30 days to Becoming an Entrepreneur: NIMBY – Hurdles to opening your doors

Photo Credit: 401k 2012

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