Must the funds be used for specific purposes?
The funds must be used for business purposes such as advertising, hiring or purchasing capital equipment or real estate. In some cases, owners can use the funds to refinance high-interest loans or satisfy an upcoming balloon payment. It gets tricky when owners want to use the funds to meet operating expenses or start-up costs, because the business must be healthy enough to satisfy the underwriting standards and banks want to see a positive trend.
What should business owners know about the application process?
There are more than 2,500 banks nationwide that participate in the SBA program and the loan must fit the institution’s risk profile and credit appetite. You may be turned down by one bank and approved by another, so persevere until you succeed.
- Character counts. Start with a banker you know because the loan officer will consider tangible and intangible criteria when evaluating an application; he or she will be familiar with your business and will know your history when it comes to fiscal responsibility and debt management.
- Visit SBA.gov. All participating banks should accept the application forms found here, which request the same kind of information as the forms used by the banks themselves; you can download the forms and study the requirements. Some local SBA offices offer free classes in business plan or resume writing.
- Gather documentation. You’ll need to submit business tax returns from the last three years, YTD and current interim financial statements and a personal financial statement.
- Funding purpose. Bring a written statement describing how you’ll use the funds. Bankers need proof to satisfy the SBA requirements and down the road owners will need to verify that the funds were used properly.
- Business resume. A written business plan is great, but bankers really want to see a resume and a short business overview in order to evaluate the owner’s qualifications within the context of the current business strategy.
Are there other tips that will help owners navigate the process?
First, tell the banker how much money you need to execute your plan rather than asking how much you can borrow. Do your homework before the meeting by running financial projections and be prepared to sell your ideas, your qualifications and the ROI. You can always modify your plan if necessary. Second, run a copy of your credit report and bring it to the meeting. Every inquiry drives your score down, and your credit history will be closely evaluated by the loan officer. Third, know the facts. Small business loans aren’t just for women-owned or minority-owned firms and they’re not available to nonprofit organizations. Finally, act now because the window of opportunity is open for small business owners, but as we’ve seen before, it can close in a hurry.
Anna Chung is the senior vice president of the SBA Lending Group at Wilshire State Bank. Reach her at [email protected] or (213) 637-9742.
