Looking for a business loan but don’t want to go through a bank? An alternative is the Small Business Association (SBA) loan, which allows businesses to apply and be considered for a loan regardless of their financial standing. The key is to find the right loan for your business.

Here are some of the most vital things you need to know about getting a SBA loan.

What Is The SBA?

The SBA is a U.S government agency, which provides loans and leases as well as other assistance to small businesses. In order to be eligible for a SBA loan, your business must be deemed ‘small’, which is often defined as having fewer than 500 employees or purchasing fewer than $10 million in assets. Your business may also fall within the scope of the agency’s Micro-lending program, which provides loans of up to $50,000 to small businesses and nonprofits.

If your business qualifies as ‘small’, you may be eligible for an SBA loan, which offers a variety of repayment options and grants your business an opportunity to grow. The agency also offers a variety of specialized loans for different industries, such as water and wastewater treatment facilities, steel production, and pharmaceutical and medical equipment manufacturing.

How Do I Apply For An SBA Loan?

The application for an SBA loan is very straightforward and can be done online using the organization’s website. Simply visit the website and follow the on-screen instructions. One of the first things you will need to do is create a user account and select a user name and password. Next, you will need to identify the type of business you are operating, the address of your physical location, and the telephone number you can be reached at by customers or staff. You will also need to include your Social Security number and complete the legal document called a ‘Business License’. Finally, you will need to upload various documents supporting your application, including a recent profit and loss statement, balance sheet, and, if applicable, tax returns. You are advised to use professional accountants to help you prepare your personal and business tax returns.

After you have completed the basic application, you will be asked to answer some questions about your business. The website will then verify your business information and assess your credit worthiness. Once your application has been verified, you will be presented with a list of lenders who have expressed an interest in offering you a loan. You will have the option of contacting these lenders directly via phone or email, or you can begin negotiating a loan agreement with the lenders through a commercial lending agency. Agencies that represent lenders such as Bank of America, Wells Fargo, and U.S. Bancorp are often contracted by the SBA to offer loans and work with business owners to ensure that their loans are processed in a timely manner. This is vital because the smaller your business, the greater the chance of your application being denied by a lender.

What Documents Do I Need To File?

In order to apply for an SBA loan, you will need to submit the following documents:

A current and complete Business License – This must be obtained from the city or county in which your business is located. Check with the city or county clerk’s office to see if you need to renew your license annually.
Receipt of payment for last year’s taxes – This is also vital in order to prove that you have paid your taxes and are committed to doing so in the future. If you have not yet filed your taxes, you can ask for an extension.
A copy of your business plan – Your business plan should include a detailed description of your company, a financial analysis of your projected revenues and expenses, and the steps you intend to take to achieve profitability. You are advised to consult with an expert business advisor or attorney to put together your business plan.
A proof of ownership of the intellectual property rights – For example, if you are the owner of the patent or trademark used by your business, you will need to provide proof that you own the rights to that property. Typically, this includes providing evidence of registration for the patent or trademark with either the United States Patent and Trademark Office or a country’s equivalent of a patent office. If you are the sole owner of the intellectual property rights, you may not need to provide any additional documentation. However, if you are operating a business with investors, each of them may need to sign an agreement to certify that he or she owns the intellectual property rights in the company.
Personal Financial Statements – In order to qualify for an SBA loan, you will need to provide personal financial statements. This includes a Personal Financial Statement (PFS) for yourself and one for each owner of more than 20% of the business. Your PFS should demonstrate that you have the means to repay the loan. You can find a sample PFS online at the SBA website or download a free PDF from the agency’s website. You are strongly encouraged to consult an expert accountant or attorney to help you prepare your personal and business financial statements. They can ensure that your business is financially viable and help you work through any potential tax issues. If you are self-employed, you may choose to use the business side of your tax returns to show your income and expenses. However, if you are employed, you must use your personal tax returns to show your income and expenses (unless you want to claim the business expense for mileage).
Employment and/or Training Records – You must have a reliable source for verifying your employment. This could include paying bi-weekly phone bills or rent, which enables the landlord to verify your rental agreement. Alternatively, you could ask potential employees for direct references or ask past employers for a recommendation. Remember, your SBA loan will be considered ‘neighborhood’ lending, which is intended to reach out to people in your community and give them an opportunity to succeed. Your business should not engage in any illegal activity and should not pose a threat to national security.
A signed Note From A Banker – Your loan agreement with a bank will include the terms and conditions of your financing, as well as a promissory note (Note). While it is not required that a bank formally approve your application, signing a Note from a bank is a good way to prove to the lender that you have indeed tried to negotiate an acceptable loan agreement with them. This will expedite the loan approval process and save you both time and money in the long run.
Financial Projections For Next 12 Months – Ideally, you should have prepared financial projections for next 12 months. This will be invaluable to both the lender and the lender’s consultants who will be working with you to help you achieve profitability. The consultants will use the projections to establish a realistic timeline for the repayment of the loan, and the lender will use the projections to establish the business’ credit worthiness.
Any Additional Documentation – This can include things like insurance policies, credit cards, mortgage applications, etc. You can find a complete list of the documentation required for your SBA loan approval on the agency’s website.

As you can see, the documentation required for an SBA loan is very similar to the documentation required for a business loan from a bank. The main difference is that banks will require you to have a profit and loss statement and other corporate documentation. The SBA requires you to have a business license and personal financial statements. In addition, you must provide a signed Note from a bank or other reputable third party, which serves as a formal commitment to make the loan, as well as provide the agency with proof that you have negotiated an acceptable loan agreement with the bank. Finally, the SBA requires you to submit your business plan and financial projections for next 12 months. If you are unable to provide these documents, you may be able to negotiate an alternative loan with another lender who is willing to make a smaller loan to you. However, you should still endeavor to obtain the documentation required from the SBA. This is because the agency will still consider your loan to be ‘neighborhood’ lending and may offer you better terms than a bank would due to their government status.

What Are The Repayment Terms?

The terms and conditions of your SBA loan will be determined by the government agency, which means that they will have the final say in the case of any disputes. However, you should still try to negotiate an acceptable payment plan with the agency. If your business is successful and you are able to pay back the loan in accordance with the agreed-upon terms, the SBA will consider this a ‘good deed’ and can help you secure additional loans from them in the future.

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