Is Your Operation Ready For An SBA Loan?

Anne Daniells
Posted on March 30, 2018
(photo: LCT file via Pexels)

(photo: LCT file via Pexels)

It takes money to make money and to grow. But securing capital for your business isn’t easy, as many operators know firsthand.

Turndowns or lack of corporate credit can make growth seem an impossible dream even when an operation is financially secure. Overcoming this is doable if you can prepare for a loan backed by the Small Business Administration (SBA).

Many financial institutions partner with the SBA to provide these loans because these organizations understand smaller businesses are the backbone of the American economy. Small businesses account for most firms, employ 48% of the American workforce, and in 2013 accounted for 1.1 million net new jobs, according to the SBA.

To encourage economic development, the SBA created its own loan specifically designed to help smaller businesses manage intelligent growth. An SBA loan is government-guaranteed, partially backed by the Small Business Administration, and has a long term and low interest rate (at writing, the current market rate is between 6.75% and 9.25%).

With few limits on how the capital can be used, SBA loans are often considered the “gold standard” for small but growing businesses. For coach and limo operators, these loans are ideal for increasing staff, launching marketing programs, and expanding fleet — anything tied to growth.

NO. 1: What are some tips for getting a low-interest SBA loan?
Often, getting an SBA loan means walking into the neighborhood bank and asking for one. This requires financial statements and sometimes professionally prepared business plans that are difficult projects to create when an owner is doing what she does best — running daily operations. Even if you think you have the documentation, the many banks and other financial institutions that offer SBA loans have widely differing processes, requirements, approval rates, and fees. It can make a daunting journey difficult to navigate.

The loans are fairly straightforward and meant to support and encourage growth. These are often less expensive options for businesses because the government backing lowers the interest rate on these loan amounts, which can range from $500 up to $5.5 million. This means lenders will need verification of steady management, scalable growth plans, and financial stability. These aren’t short-term or bridge loans; they’re for companies seeking to grow over time.

Lenders and loan programs determine their own eligibility requirements. In general, it’s based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet size requirements, be able to repay, and have a sound business purpose. There are a few characteristics, however, all applicants must have to qualify for an SBA loan. You must have registered as a for-profit business and be located in the U.S. or its territories. Personal credit also factors into SBA loans, so be as responsible with your private finances as you are with your operation, for they both are evaluated for risk.

NO. 2: What is needed to start the process?
Paperwork and more paperwork. But don’t be discouraged. Most operators have these documents — they just need to be consolidated so the overall financial risk of the business can be evaluated.

Assuming you meet the criteria for your chosen lending partner, you should then package your financial information to navigate the underwriting process. This sounds intense and expensive, but it doesn’t need to be.

Evan Singer, CEO of Smart Biz Loans (photo: Evan Singer)

Evan Singer, CEO of Smart Biz Loans (photo: Evan Singer)

To help explain the process, we reached out to Evan Singer, CEO with SmartBiz Loans, a firm that specializes in matching businesses with the best SBA lenders to meet growth needs.

“Small businesses can’t always afford a CFO,” Singer says, “but SmartBiz has created an ‘intelligent CFO’ platform designed to illustrate how banks and lenders typically evaluate businesses applying for funding.” Through this online educational tool, called SmartBiz Advisor, business owners upload their tax returns and answer a few questions about their business. Advisor then provides a “loan-ready” score between 1 and 100 that indicates the business’ likelihood for SBA loan approval by one of its bank lenders based on a variety of criteria, such as debt coverage, debt usage, credit, and business revenue trends. This clearly specifies your strengths and weaknesses and then provides guidance on how to prepare for a lender’s stringent requirements. This educational tool is free.

With the loan readiness score and insight Advisor provides, you have a more holistic view of your business health, and can start taking specific steps to improve your loan readiness as needed. Working directly with the SBA’s lenders is an option for those with strong credit and finances, but often the underwriting process for loans can be a lengthy, difficult, and disheartening process. If turned down initially, you need the reasons so you can correct them. Singer says the Advisor platform not only provides a loan-ready score, but reveals which factors are helping or hurting that score.

“With that knowledge, an owner can take next-steps to measurably improve the likelihood of securing a loan,” he says. Those steps might be to improve personal credit, pay off personal debt, or increase business revenue. “The goal is to help the small business owner learn about what goes into the loan approval process so they can get access to low-cost capital,” Singer says.

Not everyone will be loan-ready due to a variety of reasons, but SmartBiz has developed some tools and techniques to help businesses get to that point so they can grow. The initial Advisor analysis will guide what needs to be repaired or improved; businesses with a high loan readiness score that meet their preferred lender’s unique criteria can then apply for an SBA loan.

NO. 3: What if my operations are not loan-ready?
Unless you are comfortable with financial reporting and working-capital loans, the adage about surrounding yourself with people smarter than you rings true for SBA loan seekers. Because the process is layered with SBA and lender requirements, credit reporting, and differing loan rules depending on the lender, using a coach can improve your chances of success.
A company like SmartBiz uses intelligent automation and advanced machine learning to match borrowers’ needs with the appropriate lender. That knowledge can counsel any operator ready to grow in a way that works for everyone involved. Your individual profile can be better matched with loan providers who can help you grow.

NO. 4: How long does it take to become SBA loan-ready?
It varies depending on what the operation needs to do based on the initial analysis. Some issues like a credit score just slightly below the needed threshold can potentially be fixed in 30 or 60 days. However, some issues like increasing cash flow could take months. By using tools that clearly illustrate the loan approval process and positive financial changes, owner operators will feel more confident in their SBA loan applications. When you succeed in securing an SBA loan, let us know how you used the funds to expand your company. We’d love to hear from you.

LCT contributing writer Anne Daniells is a former regional manager for BostonCoach / Dav El Chauffeured Transportation Network and former owner of Torrey Pines Transportation in San Diego, Calif.

Business Lending By The Numbers
almost 36%: percentage of small businesses in the US owned by women
4%: percentage of all small business bank loans that go to women-owned businesses
31%: percentage of SBA loans that go to women-owned businesses
<$50,000: most popular loan amount request
26 hours: average amount of time small business credit applicants spend looking for credit.
43%: share of traditional business loan applicants who are not approved for their full request, but receive a portion of their requested amount.
$9 billion: total of bank-originated loans in 2014, up from $100 million in 2009.
#1: reason applicants choose online lenders — a quick decision (69% of respondents)
7(a): type of SBA loan for working capital, expansion, and equipment
504: type of SBA loan for buying land, machinery or facilities
85%    portion of SBA loans (up to $150,000) guaranteed by the SBA
Sources: U.S. Census, Small Business Association, Kabbage, NerdWallet

Related Topics: business growth, business loans, capital, How To, operation growth, small business, Small Business Administration, small-fleet operators

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