Obtaining a SBA or Business Loan
The process of receiving a business
or SBA backed loan is a somewhat complicated process, which has become more complicated
given today’s economic situation. The key to obtaining financing for your business
is to be prepared during each step of the loan approval process.
One of the most common questions
that comes up among our users is whether or not banks are still lending despite
the current economic climate. In short, the answer is yes. However, bank and finance
company lending standards have certainly increased over the past six months. One
of the strongest aspects for small businesses that are seeking to obtain financing
is that banks are keen to lend to people that are seeking SBA loans. This is because
SBA loans are backed by government guarantees that ensure that a lending banks receives
a substantial portion of the principal back should the loan default.
Banks that make business loans and
SBA loans consider four primary factors when determining whether or not to lend.
First, they look at the credit profile of the borrower/business owner. It is imperative
that you have a relatively clean credit record. A bank that intends to lend you
money wants to ensure that you have a strong history of maintaining your finances
properly, and that you pay your bills on time. Additionally, banks want to see that
you have experience in the field in which you are starting a business. Typically,
banks like to see two to three years of experience within your industry (or closely
related industry). The third factor is the collateral that backs the loan. A bank
wants to see that you are using their capital primarily for asset purchases (inventory,
new vehicles, equipment, etc.) with a minor amount of capital allocated towards
working capital purposes. Fourth, a bank wants to see what your capital contribution
will be in the business. Again, this is one of the primary factors in their lending
decision. If a bank intends to take a risk with you regarding your business, it
is imperative that you show them that you are equally committed to risking your
capital in the venture. Typically, banks and finance companies require that you
provide a 10% to 20% down payment or capital infusion into the business. This is
especially true if you are seeking to acquire an existing business.
The last requirement for a lending
or investment decision is your business plan. Your business plan clearly showcases
how you intend to operate your business, the expected financial results for the
business over the next three to five years, the market in which your business operates,
and potential risks that the business faces. If your company is already in existence,
you should clearly showcase your past profitability, and how you intend to grow
the business. TheFinanceResource.com provides you with FREE Business Plan Tools that you can use to assist in
The time frame for obtaining a business
loan or SBA loan varies from bank to bank. Typically, you can expect a 30 to 60
day time frame between the time you submit your application until you receive your
If a bank agrees to provide you
with financing, the loan covenants, the promissory note, and other applicable documents
will be drafted and presented to you very shortly after they inform you of their
decision. It is strongly recommended that you have both an attorney and a certified
public accountant review these documents with you so that you fully understand the
terms of the loan or financial obligation.
If you have any other questions regarding business loans or SBA loans, we suggest
you review our list of additional resources.