SBA Loan Approval
When buying a business, waiting for SBA loan approval can seem like an eternity. The process can take months. Here we look at what you can do to speed up the process of getting SBA loan approval so that you can spend more time profiting and less time waiting.
SBA Loan Process
Unless you’re fortunate enough to be related to Jeff Bezos, Bill Gates or William Buffett or have tons of cash laying around, you’ll likely need to get a business loan to finance a business acquisition. One of the best ways of getting a small business loan is through the Small Business Administration (SBA). Getting SBA loan approval can be challenging; success comes for the patient and focused.
The SBA runs several small business loan programs. The SBA is not a direct lender. Rather, they guarantee lenders that the loan will be repaid in the event of the borrower’s default.
SBA loans are used by business buyers and business owners in all kinds of industries for all kind of purposes. Mostly, the SBA loans are used to acquire existing businesses, expand business and for working capital.
There are a several key criteria to keep in mind when applying for SBA loan approval. The process is involved, takes time and your chances significantly increase when you have an SBA Loan Broker guiding you in the SBA loan application process.
SBA Loan Approval In 3 Parts
There are actually three parts to getting SBA loan approval when acquiring a business opportunity. The first part is that the business has to be approved. The second, the borrower has to be approved The third part is final approval by the underwriting department.
For SBA loan approval, the business being acquired must first be approved. This occurs when the the lender does an initial review of the business’ financial records. The lender is looking for consistent, year-over-year cash flow. The business income must be sufficient to cover servicing the SBA debt as well as provide the business owner with sufficient income.
The second step to SBA loan approval involves examining the creditworthineess of the borrowre. Like most loans, the borrower has to be approved and for SBA loans, this is based on several factors. The borrower must have:
- A complete and thorough SBA loan application
- Good credit score (at least 640 and preferably 680)
- No criminal background showing felony convictions
- No recent bankruptcies or loan defaults
- Relevant experience
- Management experience & skills
- A business plan
- Income projections
- Solid collateral
- Sufficient overall revenues to pay the SBA loan debt
The final approval by the underwriting department comes after the lender takes a look under the hood for both the business and the borrower. The lender will order tax returns for the business directly from the Internal Revenue Service (IRS) to assure there is no fraudulent presentation of the business’ finances. The lender will also order a third-party valuation of the business to justify the loan amount.
At any one of these points, the loan process can fail, so the final approval is key. The process can take a while before the borrower has confirmation about getting their financing. Yet, the borrower can show agency to move the process efficiently, particularly when they are confident in their credit worthiness, experience and the business that they are acquiring.
Best Bets For Quick SBA Loan Approval
Create a Plan
Before applying for SBA loan approval, borrowers should develop a well considered business plan. Lenders want to see borrowers present business’ profile, potential, products and services, as well as its strengths and weaknesses.
The borrowers should clearly articulate the business objectives, the market base, how competition will be handles and other challenges. The applicant’s business plan should inspire confidence in the lenders sufficiently so that they conclude that their investment in the borrower will pay dividends for them.
Look at your business plan and ask yourself whether it reasonably and persuasively shows a return on investment. Would you lend to you?
Completely Prepare The SBA Application
The SBA application and the supporting documentation that you must provide for SBA loan approval requires careful and thoughtful completion. This will take time to organize all the documents to complete. The process should not be rushed. The more thoughtful and thorough the application, the greater your chances are for securing SBA loan approval.
Good Credit Is A Must
The borrower’s credit score is a decisive factor in securing SBA loan approval. The higher your score, the better chance you have of getting your small business loan approved. Lenders look for a minimum of 680 with the lowest being 640.
If you have poor credit, you may be denied, or, may have to pay a high interest rate. Should that be the case, you may want to wait to apply for an SBA loan until you can pay off debt and raise your score to a more optimal level.
Once your credit is repaired, you will be in a better position to get SBA loan approval. Lenders need to see that you will be able to repay the loan. A poor credit history will undermine your objectives and the better course may be to work on improving your financial profile so that you can secure financing in the future when you are in a better position.
A Complete Set of Business & Financial Records For The Target Business
You will need to obtain all the relevant business and financial records from the business seller to provide to your SBA lender. Usually, a borrower obtains the business records during “due diligence” in the business sale process.
Though not an exhaustive list, these records typically include:
- The business purchase contract and addendums
- Past 3-5 years of the business’ tax returns
- Past year’s Profit & Loss statements
- The business’ balance sheet
- Business license
- Insurance records
- Business disclosures
- Furniture, fixtures and equipment list
- Copy of the lease or real estate records
- Environmental impact reports, if any
Organizing these records for the lender and providing them through a secure portal is essential for SBA loan approval. When you apply for an SBA loan, you sign the application under the penalty of perjury. So, it is important to be thorough and complete and disclose everything that is necessary and relevant to the lender. You want to present your application and yourself earnestly so that you don’t leave any doubt in the lender’s assessment of your sincerity, integrity and ability to repay the debt upon SBA loan approval.
Prompt & Responsive Communication
One of the best ways to assure that you get timely SBA loan approval is to be prompt and responsive in your communications with the lender. Avoid delays in responding to their requests. The problem may get tedious and fray your nerves but you don’t help your chances or expedite the loan process by causing delays yourself.