The SBA loan process involves working with a bank loan officer.
The Small Business Association, SBA, does not usually give out direct loans to small businesses, except in the case of disasters. The agency does work with banks to guarantee financing for small businesses in non-disaster situations. These government guarantees lessen the risk that a bank takes when extending a business loan, making financial institutions more willing to lend.
Purpose
The purpose of the SBA is to foster the development of small-scale enterprises. By making credit more easily available to small companies, the agency enables entrepreneurs to invest in property and equipment, build the value of their companies, create jobs and increase their earning potential. Because interest rates tend to correlate with the level of risk that an institution takes when extending a loan, SBA loan guarantees enable banks to charge lower interest rates than they otherwise would on small business loans.
Criteria
Banks lending money to small businesses with SBA loan guarantees tend to use the same criteria that they would even without these government guarantees. To secure an SBA-backed loan, you must have collateral to back up the sum you borrow, or personal assets, such as a house to pledge in case you fail to repay. If you request a loan to buy property, the property can serve as collateral, but you must also demonstrate that your business generates sufficient income to cover loan payments.
Documentation
Your SBA loan application involves preparing financial statements, such as personal and business balance sheets, income statements, cash flow projections and two years' worth of tax returns. Your balance sheets should include a list of your assets, such as money in the bank, equity in property and equipment, and accounts receivable or money that is owed to you. It should also provide details about your liabilities, such as money you owe on property or credit cards. Your loan application should also include a business plan with an overview of your company and information about how you will spend the sum you borrow.
Process
To apply for an SBA loan, speak to a loan officer at your bank and obtain a checklist for preparing your loan application. Complete SBA Form 4 which summarizes your loan request, as well as Form 4a, which lists your sources of collateral. Also prepare SBA Form 413, which includes personal financial statements for everyone who owns at least 20 percent equity in your company, and provide a resume and copies of all business licenses and lease agreements. Provide this paperwork to the bank loan officer, and make an appointment to discuss your loan application with him.
