What is involved in the application process?
It is a more paper-intensive transaction. A good lender with a motivated borrower can close an SBA loan within the same time frame as it could do a conventional loan. In many instances, it depends on how motivated the borrower is in terms of providing information.
There is more information, and a lot of that extra paperwork is on the lender’s part. The most important things that borrowers need to be able to do is show how they plan to use the money and their ability to repay it.
They must also provide a business plan, tax returns, a bio of the principals involved, a description of the business and the legal documents that substantiate that they are a business.
What types of problems might you face when applying for an SBA loan in this economy?
Normally, when economic times are tighter, more people use the SBA program, even those who can qualify for conventional lending, because the terms are usually a little more flexible. It enables, in most instances, borrowers to put less money down, which means they have more capital available to invest in their business.
Due to the current economic environment, banks have tightened their credit requirements; they’re asking for larger down payments, stronger cash flow coverage, better business plans and more experience in the relevant business or industry. There are also fewer SBA lenders today, especially nonbank lenders.
Borrowers need to explore several options to find that particular institution for the kind of business that they have. We suggest people start with the bank that they’re used to operating with. That bank has the advantage of knowing something about the customer, maybe the history of the business if it already exists, so that will give you a leg up.
JOHN GUY is a senior vice president for small business administration and alternative lending for Fifth Third Bank. Reach him at (513) 534-7108 or [email protected].
