The SBA loan program has a dual reputation among small business owners. On one hand, SBA loans are known as the “gold standard” in small business funding due to low rates, long terms and low payments.
On the other hand, some have heard that the application process is tedious.
Luckily, modern technology and machine learning has drastically reduced the time and effort needed to qualify for an SBA loan. Small business can now get funded in as fast as seven days after their loan application is completed.
With a strong credit score, organization and the right lender, you can take your business to the next level with proceeds from a low-cost SBA loan. We’ve outlined the business requirements and documents generally needed to qualify for an SBA backed loan below.
1. Your Personal Credit Score and How to Build It
You might be surprised to learn that your personal credit score is important when applying for an SBA loan. However, SBA lenders look at this score before any other financial metric.
Your personal credit score evaluates your creditworthiness based on credit history. Scores range from 300 to 850. The higher the number, the more financially trustworthy a person is considered to be.
To qualify for an SBA 7(a) loan, SmartBiz bank partners require a personal credit score of above 650. To qualify for an SBA 7(a) commercial real estate loan, that score must be above 675.
If you’re not hitting those numbers, there are ways to build your personal credit score including:
- Closely monitor your score
- Keep an eye on your credit usage
- Pay bills on time
- Don’t apply for or open new credit accounts
- Pay off debt instead of just moving it around.
- Don’t close unused cards
- Be patient - there’s no quick fix to raise your personal credit scores
The SmartBiz Small Business Blog has a wealth of posts on personal credit scores. Review these articles for more information and strategies to improve yours:
2. Required Financial Documents
Paperwork! It’s the bane of small business owners. Applying for an SBA loan can bring with it a flurry of required information. Each SBA loan program has specific document requirements but much of the necessary information is the same.
First, create a checklist to streamline your process and start gathering. For in-depth information, review this post: Documents You Need to Get an SBA Loan
- Personal and business income tax returns
- Balance sheet and income statement
- Personal and business bank statements
- A driver’s license photo
- Commercial leases
- Business licenses
- Articles of incorporation
- A resume demonstrating relevant management or business experience
- Financial projections
3. Know the Lender’s Requirements
If you’ve decided on a lender, make sure you meet their minimum requirements before you dive into the process. Lenders may have slightly different requests, but many are the same. A great strategy before you start the application process is to get your “loan ready score” from the SmartBiz Loans Advisor platform.
SmartBiz Loans Advisor is a free way to discover where you stand on the key metrics SBA banks consider when reviewing a borrower’s application. SmartBiz Advisor provides personalized recommendations to help you strengthen your loan application if needed. Learn more here or get started easily here.
The Small Business Administration lists those industries that are excluded like gambling, mining, religious teaching and more. For the detailed list of ineligible businesses, head to the SBA’s website for a comprehensive list.
If your business does not fall under one of the excluded categories, the next step is to meet the following common eligibility requirements for an SBA loan.
- Business owner’s personal credit score must be healthy
- The business must be U.S. based and owned by US citizen or Lawful Permanent Resident who is at least 21-years old
- No outstanding tax liens
- No bankruptcies or foreclosures in the past 3 years
- No recent charge-offs or settlements
- Current on government-related loans
Requirements vary for an SBA commercial real estate loan, a CDC/504 loan or an SBA Microloan.
4. Have a Solid Business Plan
Although not every SBA lender will require a business plan, it’s a helpful road map to help you plan for the future and can help convince the lender that you’re worth their investment. You don’t have to have a business degree to craft a solid business plan. This article from SmartBiz tells you everything you need to know:
5. Provide Collateral
Prepare a document showing collateral you’re willing to offer. Collateral is an asset like equipment, real estate or inventory, that can be seized and sold by the lender if you can’t make your payments.
Being prepared and organized is key to a smooth experience. Time is money and small business owners should look for a lender with a streamlined application and stellar customer service. Read online reviews from other business owners to help locate the right lender for your funding needs.