Home Contributors Fairfield Andi Gray: The ins and outs of applying for an SBA loan

Andi Gray: The ins and outs of applying for an SBA loan


THOUGHTS OF THE DAY: The loan is actually coming from your bank. The SBA operates in the background. There are a bunch of requirements you’ll need to meet, whether it’s for an SBA loan, or for a loan held only by your bank. Applying for an SBA loan can increase the time it takes to get approved. SBA loans definitely have a use. Make sure it’s right for your business.

You’ll actually go through your bank’s lending process with a special application required by the SBA. The bank will be the lender. The SBA will guarantee the loan. Should you default on the loan, the SBA guarantees your bank will recover a significant portion of the loan outstanding. The SBA guarantee makes it easier for your bank to get your loan request approved.

Be prepared to meet lending requirements, whether you go strictly through your bank, or you agree to add on an SBA application. You’ll need to be a U.S-based company, doing business as a for-profit, typically an S-Corp, C-Corp or LLC/LLP. And you’ll need a down payment: 10% to 20% down is typical.

A personal guarantee is required, so you’ll want good personal credit as well as good business credit. You’ll also need to prove that the business can afford to make the loan payments. And you’ll want to show a history of paying off expenses and debts on time.

The SBA and the bank will want to see that the owners have personally invested in the business. That’s the case for every business owner I know. Just make sure your balance sheet demonstrates that reality.

You and all other 20%-plus shareholders will be required to sign personal guarantees. Why a personal guarantee? Since owners of privately held businesses answer only to themselves, they decide whether or not to ensure there’s enough to take care of loan obligations. If the business gets into trouble, it’s assumed that’s a result of the owner’s management and decision-making. The bank wants the ability to “follow the money” by pursing the owner(s) personally if loans go south. That’s the long answer. The short one is, if you want to get money from a bank, be prepared to sign a personal guarantee that the loan will be paid back in full.

Since the SBA will be guaranteeing 75% to 85% of the bank loan, it will be actively involved in the loan application approval process. Expect that it can take several extra weeks to get their approval. That’s in addition to the time it will take for your local bank’s lending process. If you’re in a hurry, you may want to ask your bank what else you need to do to be creditworthy on this loan without going through the SBA. But there may be a trade-off. By avoiding the SBA lending program, you may pay a higher interest rate to your bank to cover their additional risk of going it alone with you.

The most common uses for SBA loans include purchasing equipment, buying a building, getting a credit line to back up accounts receivable and other working capital needs. There are some special programs to help exporters. Ask your local banker for advice. And check out the volume of work your bank does with the SBA. The more volume, the more experienced they’ll be at knowing how to ensure the application process works well for you.

BOOK RECOMMENDATION: “The SBA Essentials: The Small Business Owner’s Guide to Assessing, Applying For, and Acquiring an SBA 7(a) Small Business Loan” by Andrew Holland.

Andi Gray is president of Strategy Leaders Inc., StrategyLeaders.com, a business-consulting firm that teaches companies how to double revenue and triple profits in repetitive growth cycles. Have a question for AskAndi? Wondering how Strategy Leaders can help your business thrive? Call or email for a free consultation and diagnostics at 877-238-3535 or AskAndi@StrategyLeaders.com. Check out our library of business advice articles at AskAndi.com.


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