If creating a thorough business plan is your first step to starting a small business, your next step should be securing funding. Most small business owners will want to seek out a small business loan or financing for their first few years to create a revenue stream and increase their profit margins.
Applying for a small business loan takes time and patience, but with this guide and a helpful checklist of documents you can get everything in order to secure funding.
SBA Loan Timeline
Step One: Determine Eligibility
Before you research banks and lending institutions, you’ll need to make sure you and your business are eligible for a small business loan. The following checklist
is a great way to get started on determining your eligibility for an SBA loan.
Eligibility Requirements Checklist
✓ 680+ FICO score for primary business owners (TIP: Check your score here!)
✓At least 10% down payment if funding is being used for real estate or existing business purchase
✓ As much personal and business collateral you can bring to the table. (TIP: More collateral = better chance for success!)
✓ 2 or more years of professional business experience
✓ Business is profitable*
*As a new business, profitable financial projections must be reported
If you’re a startup without the required business experience, you’ll need to apply for an SBA 7a loan. This type of small business loan involves additional eligibility requirements:
✓ Defined as a small business by SBA (less than 500 employees or under $7.5 million in yearly sales)
✓ Defined as a for-profit business in the U.S.
✓ Invested equity in the form of a down payment
✓ Include personal assets as alternative financing
✓ Demonstrate the need for funding
✓ Projection of funding use for sound business purposes
✓ No delinquent loans or government debts
Step Two: Find a Bank
Once you meet the eligibility requirements for a small business loan, it’s time to explore your options for funding. For SBA loans, you can choose either local or national lenders. Depending on the size of your loan, it’s important to ask the following questions of your potential lender to find the best loan for you:
- Do I need a down payment?
- How long are your pre-approval and funding processes?
- What is your total loan volume?
- What’s your average loan size?
- Who will be my contact throughout the process?
- How much collateral do you require for pre-approval?
- What are your average interest rates based on my profile?
These initial questions will help narrow your search for the bank you choose to apply with. Once your initial eligibility requirements are reviewed and if your goals match the bank’s factors, you will hear about pre-approval within 1-2 weeks. The SBA offers a Lender Search Tool that can help you find the right lender.
After you have been pre-approved, your next step will be accepting or reworking the bank’s funding proposal through a series of underwriting phases. Typically, this means a lot of paperwork and appraisal of collateral, so expect a longer turnaround time in this phase.
Step Three: Organize Your Paperwork
At this point, it can be easy to get discouraged by a mountain of paperwork or miles-long to do list, but just remember: you’re in the final stages now! Once you have an approved lender, you should start the process of organizing your paperwork. Your main documents will be the following:
✓Profit and Loss (P&L) Statement
✓Loan Application History
✓Resumes and/or CVs
Here is where you would also include a completed business plan, with financial projections highlighted. The important thing in this phase is to organize all completed documentation to make the process as quick and easy as possible.
Step Four: Complete SBA Forms
In addition to your personal paperwork, the SBA has specific loan forms that need to be completed:
- SBA Form 1919 Guide: Borrower Information Form: This form outlines basic information about the primary borrower.
- SBA Form 912 Guide: Statement of Personal History: This form will evaluate the character of the primary borrower.
- SBA Form 413 Guide: Personal Financial Statement: This form will evaluate financial standings of primary business owners and spouses.
- SBA Form 159 Guide: This form provides information on any business consulting you may have purchased for the loan process.
Make sure to read through the instructions thoroughly before completing. Again, the quicker the documentation is completed and processed, the sooner your funding will be available.
Once your forms are complete and documents organized, your bank will review the detailed information in order to officially accept your small business loan application. This process for approval takes around 1-2 weeks depending on the amount of supporting documentation and collateral.
If your loan is approved, you move into the final stage of closing, where the terms of the small business loan are finalized and closing costs are paid.
The small business loan application process can seem daunting, but preparation and research will help guide you along the process smoothly, and will result in funding for your new small business!
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