Do’s and Don’ts for SBA Loans

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An SBA loan can help you accomplish your goal and may result in more favorable terms, such as a longer loan life and lower equity requirements. But because it is backed by the federal government, applicants need to be ready to play by the rules so that the process goes smoothly.

Daniel Walsh, Vice President and Senior Corporate Relationship Manager with BBVA Compass, offers these do’s and don’ts when it comes to applying for an SBA loan:

Do

• Seek out an SBA preferred lender. The designation means the Small Business Administration has a comfort level with the lender and that matters, Walsh says. “It allows the lender to make a final credit decision without sending the request to the SBA for a decision. SBA preferred lenders have an earned level of confidence.”
• “Have your documentation in order,” says Walsh. “There can’t be anything missing.” You should be ready to hand your loan officer three years of business financial statements and tax returns, a personal financial statement, a statement of personal history, your business plan, and articles of incorporation, if applicable.
• Get your financial house in order. Make sure your financial statements include a profit and loss statement, projected financial statements, ownership and affiliations, business certificate/license, loan application history, business and personal income tax returns, your business lease, and résumés for all the principals.
• Proactively explain unusual events and growth projections. Did your business suffer a dip in sales one year?  Spell out why and how it happened. Does your forecast include a dramatic jump of revenue? “Explain the reasoning behind your projections and your confidence level, says Walsh. “Don’t expect your banker to be able to fill in the blanks.”

Don’t

• Rule out the SBA loan option. “Talk to a banker, check into it. A lot of times companies don’t realize they can qualify for it,” he says. Also some businesses may question whether the documentation requirements are worth the extra steps, even if they can qualify for a traditional loan. “If your business has been renting and you are thinking of buying, you could amortize that loan for 20 years with traditional financing. With an SBA loan, you could amortize it over 25 years, which helps improve month to month cash flow,” he says.
• Balk at the request for a personal guarantee. “It’s 100 percent required,” says Walsh. “It’s reassurance that you, the business owner, are willing to assume more risk to assure your business’ success.”
• Let the documentation requirements discourage you. “It’s a wonderful product that we can offer that provides much more flexibility and much less reporting requirements long term,” says Walsh. “While it may appear stringent up front, it is often well worth your while.”