SBA Requirements


In this topic we are going to specifically focus on the requirements necessary in order to receive financing from the small business administration. In short, the SBA loan requirements are very short. Typically, you must be a US citizen but is operating at a for-profit business. The additional SBA requirements is that they have needed to have been rejected by a traditional financial the station when applying for a business loan. Most importantly, as it pertains to SBA requirements, you need to fall into the definition of a small business as set forth by the small business administration. In many circumstances, you most certainly fit into being a small business if you operate a small retail store, a service business, construction business, or other any other type of product or service business. In regards to that threshold, the requirements typically demand that the small retail shops have no more revenue than two $3 million per year while construction businesses can have revenues of $20 million a year. We strongly recommend that you review the small business administration website as it pertains to the specific size and revenue requirements as set forth, again, by the small business administration.

 

Before continuing to determine whether or not your business has within the guidelines, as per SBA requirements, in order to receive a business loan is secured by the small business administration - we strongly recommend that you speak with your certified public accountant so that you can make the appropriate determination as to whether or not you actually qualified for the several programs that are available. Additionally, the other as the requirement is that you have a very well-developed business plan that will clearly showcase to the small business administration as well as the lending bank the economic viability of your intended business for the economic viability of how you intend to use the funds to expand your business operations. This is a mandated requirement set forth by the small business administration as it applies to anyone that is seeking to acquire a loan that is backed by the SBA. As per the specific requirements pertaining to the business plan you need to develop a plan that has a minimum of three years of financials as well as a text portion of the plan that showcases what you intend to do with your business over the next 3 to 5 years. Most importantly, you should focus on developing a business plan, so that it meets SBA acquirements, while focusing on showcasing to the potential lender and the small business administration and operations of your company over a five-year time frame. This is extremely important, especially in today's economic and credit markets, as banks as well as the SBA are seeking to take substantially less risks as relates to loans. On a side note, this should be known to you that recent acts by Congress have injected tens of billions of dollars into banks that the specific purpose of granting SBA loans. As such, the interest in SBA requirements and available SBA programs has increased significantly among entrepreneurs that are in need of capital. This is especially true among individual entrepreneurs that have existing businesses with substantial growth potential and simply need the capital in the form of bank loan in order to acquire more inventories, make more sales, and hire new people for their staff.

 

Returning to the discussion pertaining to SBA requirements, certain pieces of legislation have decreased some of the requirements that are necessary in order to qualify for a small business administration. This is primarily due been due to the fact that the federal government has taken a keen interest in making sure that small businesses are receiving the funding that they need from financial institutions in order to spur growth in the general economy. This trend is expected to continue for a significant amount of time given the fact that the US economy, and the worldwide economy, have struggled over the past three years with the downfall of the real estate markets, credit markets, and a rapid decline in consumer spending. As such, many of the SBA requirements that pertain to citizenship, business-size, residency, and other factors relating to small business administration loans have either been waived or substantially reduced in order to provide the max amount of capital to individual businesses throughout the United States.

 

As the time of this writing, the Federal Reserve recently made a decision to inject an additional $900 billion into banks so they can more quickly provide loans to both small businesses as well as very large corporations. The Federal Reserve in conjunction with the small business administration has also pointed out that they will work aggressively with banks to make sure that certain portions of their capital are allocated towards small business loans. As such, you may be in a wonderful position in order to receive a SBA loan even if you do not meet all the SBA requirements. These matters, of course, are going to be heavily debated and discussed over the next few months as capital reaches these banks intend to provide loans for small businesses.

 

As we mentioned earlier, the most common SBA requirement is that your business does not meet the traditional mold for conventional business lending. In fact, there was a time where you absolutely need to have been rejected by a traditional financial institution for a traditional business loan prior to being able to approach the small business administration for guarantee. However, this is no longer the case in many circumstances the fact that banks are simply not lending money at all either to small businesses to large corporations. In light of this fact, the requirement that you have been rejected for loan had been eased substantially with the intent, again, to provide small business entrepreneurs with the maximum amount of capital possible in order to help the struggling economy. It is anticipated that this requirement will continue to be waived for an indefinite period of time as a true does not make sense for small business entrepreneurs to first receive a rejection letter from a bank and then had to go and get a SBA guarantee prior to receiving the funding that they need. In regards to the documentation is required as you apply for SBA loans provide the following information. The first is to comply with the requirements you need to provide you were when the institution as well as the small business administration with a business document that describes the anticipated usage of loan proceeds as well as the business profile and your anticipated annual sales in addition to the potential number of employees that you will be hiring as you expand or develop your business as well as the time frame of which you anticipate that you will eventually sell it to a third party. Second, in regards to SBA requirements, you'll need to have a detailed collateral document that shows exactly and how you intend to use these funds and which assets will act as a security for the loan. You will also be acquired to show how much money that you will be placing into the business as to the rest of your operations. As stated before, you also need to have a financial model that consists of the profit and loss statement, balance sheet, cash flow analysis, and other business metrics including a breakeven analysis as well as a business ratios page. Additionally, and as per SBA requirements, you'll need to provide personal financial statements and background checks on any individual that owns 20% or more of the business that you're operating.

 

The most important aspect when developing a business plan to that unique SBA requirements is that heavily focus on the financial viability of the intended business. This is especially important to the bank because they would be able to make sure that you will be able to make timely principal payments and interest payments as it relates to your small business administration backed loan. This cannot be stressed enough as many bankers first look at the financial model of the business before reading the text part of your business plan. If you are an existing business you also need to provide additional documentation as it relates to service other specific aspects of your capital needs. These issues include discussing Accounts Receivable, Accounts Payable, business practices, and major clients prior to giving you a large sum of money. Most importantly, especially in regards to your accounts receivables, you need to show that your customers generally do pay on time. One of the interesting about being an existing business is that you can actually use your accounts receivables as part of the collateral for the loan that you are seeking. When you are developing your business plan in accordance with SBA requirements is imperative that you should all these specific issues to the bank and the small business administration so that they can render a fair lending decision on your path.

 

This is going to conclude discussion as it pertains to SBA requirements. Of course, we'll continue to delve into the issues that will continue to surround your capital raising efforts as it pertains to small business administration loans.


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