Application Process

As with most other types of loans, lending institutions that work with the SBA will seek specific financial information when evaluating an application. The agency’s standards are a bit more flexible than others, but entrepreneurs still must have a solid profile to obtain an SBA loan.

Lenders will look for an array of documentation. Chief among them will be financial statements regarding the business and its owners, partners and officers. These will generally include; balance sheets for the last three years; cash flow projections: personal financial statements regarding assets, liabilities and previous tax returns; a breakdown of accounts receivable and payable; and any current financial information.

Applicants should also expect to produce a business profile; a specific breakdown of how the loan will be utilized; and an explanation of the collateral to be used to obtain the loan.

Lenders will also scrutinize an applicant's credit and contributing factors. Those can be broken down into five distinct areas:

Equity investment
Lenders will scour debt-to-worth ratios, expected earning and projected profits. Businesses with little to not equity man scare off lending institutions, which generally see the gap as a harbinger of default. Entrepreneurs will be expected to prove the value of invested assets. Businesses with weak equity can still obtain SBA loans, provided they have solid credit indicators elsewhere. But as the SBA makes perfectly clear, low equity, high debt and baseless projections if a recipe for loan denial.

Earnings Requirements
Cash outflow and management constitutes another major element. Small business owners will likely have to provide cash flow projections that detail the flow of capital and when expenses are paid. These projections typically cover the 12 months after the prospective loan is granted. The SBA recommends that new entrepreneurs document all the assumptions that go into creating revenue and expense estimates.

Working Capital
This is basically when a business has more assets than liabilities at a given time. It’s basically a way to examine a small business’s ability to pay current debts. Lenders will evaluated the nature and worth of assets on hand, as well as examine all liabilities due within a year.

Collateral is a requirement for all SBA loans. The agency accepts usable assets within the business and personal assets from beyond it. Any business owner with a 20 percent stake or greater must present a personal guarantee, as do other key management stakeholders. The SBA notes that assets financed with borrowed funds will ultimately collateralize the SBA loan. Lending institutions working with entrepreneurs who aim to use real estate as collateral will have to obtain third-party valuation on transactions valued at $50,000 and above. Much like equity investment, weak collateral itself will not generally disqualify a business from obtaining an SBA loan.

Resource Management
Lenders will closely examine the way capital and resources are managed. That include scrutiny of an operation’s managers and leadership. Those evaluating a loan application may also rely on ratios derived from historical figures and financial statements, including debt-to worth, the rate that debt is paid upon become due and rate income is received after being earned. Lenders will also evaluate the subjective character of a particular applicant. Education, business experience and quality of references may all be considered.

After all this consideration, the final piece for entrepreneurs is crafting a formal written loan proposal. First impressions are crucial, both on paper and in person.

There is no formula or exact science for writing a loan proposal. But the SBA does offer some suggestions when it comes time to put on together. Some of those tips include:

• Start with a cover letter or executive summary that concisely explains the business, your background, the requested loan amount and other key information.

• Provide a separate, detailed description of your business that includes information on products and services, future operations, competition and customers.

• Submit a resume for each owner and key management member.

• Explain how the loan will be repaid, including sources and time estimates. Expect to submit cash flow information, budgets and other material financial documents.

• Include financial statements and information for the previous three fiscal years as well as current statements.

• If applicable, consider including copies of items such as leases, franchise agreements, letters of reference, contracts and copies of licenses.

For more detailed information on SBA loans and the loan application process, visit or contact Coastal Commercial Group to learn how we can help you obtain an SBA Loan.

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