What is involved in the application process?
To get started, you should contact your banker. You’ll need to provide cash flow projections, financial statements for the business and all owners, and the last three years of tax returns, both personal and business. In addition, you’ll need interim financial statements less than 90 days old, accounts receivable and accounts payable aging, if applicable. You also need to provide a summary and source of use of funds. This means you have to show how the loan proceeds will be spent.
What types of problems might you face when applying for an SBA loan in this economy?
Borrowers will need to have cash to put toward their project. The required amount will depend on the purpose of the loan. For example, a lender can require up to a 30 percent borrower cash investment for a start-up business. Businesses should make sure they understand all the requirements established by the SBA and their lender.
Character is an important component for obtaining any SBA loan. Business owners should have a clean personal credit history. All 20 percent or more business owners are required to complete a personal history form that asks if they have ever been arrested, convicted or put on probation. Background checks are completed and the findings could cancel a loan request.
It is also very important for a business to show that it has strong management and a solid business plan.
President Obama is working with Congress to continue certain enhancements from the American Recovery and Reinvestment Act of 2009 that were due to expire in February 2010. These enhancements are attached to the Small Business Job Creation & Access to Capital Act of 2009, a.k.a. ‘The Jobs Bill.’ The extension of these enhancements would run through Dec. 31, 2010.
For small businesses, the original Recovery Act temporarily eliminated SBA guaranteed 7(a) and 504 loan fees and offers tax benefits. For lenders, it temporarily eliminated loan fees on Section 504 loans. The Act also increased the guarantees on 7(a) term loans to qualified small businesses from 75 percent to 90 percent. This change reduced the risk of a loss from a loan and increased the banks’ willingness to make a loan, making more capital available to small businesses.
Gregory T. Pendzich is a business relationship manager with Wells Fargo Bank. Reach him at (281) 208-6226 or [email protected].
