Six Tips To Make Your Small Business More Attractive to SBA Lenders

Wed, 07 Dec 2011

In the past two years, eligible businesses allowed to borrow from the U.S. Small Business Administration (SBA) This is a third party link.  Please review the third party content guidelines by clicking here. , has increased to an estimated 97% in the U.S.! People seek SBA-guaranteed loans to start or buy a business, buyout a partner, get working capital, extend a loan or get a lower down payment on an asset purchase. Whatever your reason, here are six tips to help make your small business more attractive to SBA Lenders.

 

1. Educate Your Banker

Most bankers are generalists and know a little about many industries. Be sure to educate them so they are able to articulate the history of the business, the ownership, the industry, the loan request, business operations, etc. Make the banker your advocate in this process so they can make the bank confident in loaning you the money.

 

2. Show Your Cash Flow

Banks analyze your business’s ability to repay the debt that has been requested. If the business cannot repay the debt based on past financial statements, are there projections with underlying assumptions that show your ability to repay in the near future? Are they reasonable and factual? Banks need to know that you can pay them back, so show them your plan.

 

3. Provide Financial Documentation

If you provide requested financial documents quickly, you will gain the trust of your banker. If they have to ask again and again, it’s thought that you don’t keep good financial records, which is a lender turn-off. It is also important that the business owner can be completely articulate in what the financial statements report. Having immediate and precise answers to the banker’s questions will impress and provide a high level of confidence.

 

4. Communicate Your Business Model

Another way to impress your banker is to be able to communicate your business model. Be ready to answer questions like, how do you operate, how do you collect cash and pay customers?  What’s the typical timing of the operating cycle? How do you sell, and who do you sell to? Is there something atypical or proprietary in your operations? What are your short and long-term prospects?

 

5. Know How You Will Use the Funds

Believe it or not, some businesses apply for credit and have no idea as to how they’re going to use the money. Do you need a line of credit for short term or is there a need for a longer term? How will it be used, payroll, inventory, lease payments? If the need is long term, what has to be paid immediately? Your banker may make suggestions, but if you can indentify the use of funds initially, it will alleviate the concern while the request is reviewed.

 

6. Pull Your Personal Credit

A bad personal credit score can sink any loan request. It is best to pull the personal credit score of all owners of the business and have it available for the banker’s initial review. Everyone should pull their own credit report annually to review for any inaccuracies or even fraud. If a business owner’s credit score needs help, it’s best to work through the issues before submitting a loan request to a bank. As in any job interview, a candidate has one good chance to make a positive impression. It is a similar case when applying for business credit. Attention to detail and consideration of the recommendations above can significantly improve the chances for a successful loan approval and the start of a long and mutually beneficial relationship with your banker.

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4 comment(s).

March 12, 2012 at 1:14 pm
SBA does not provide dierct loans, but rather guarantees loans availed through their partner financial institutions. You will need to satisfy the lender's requirementsfor the loan, as assessed by the bank, before you can get SBA guarantee. This would mean showing the bank your credit history, business plan, tax forms, financial assets, collateral. Note however that you need to pass through 3 criteria before you can avail of SBA loans, and these are: - stake in the business (SBA requires borrower to have invested 25-50%)- submission of a strong business plan- good personal credit ratingGood luck!Isabel Isidro
Bob Polito
March 12, 2012 at 3:17 pm
Isabel, I love your response, but all lenders are different and therefore all have their own requirements. Some lenders do not require a cash investment at all and the SBA's standard operating procedures, other than in the SBA's 504 program, does not always require a down payment. That is a risk the lender has to mitigate, but if the loan scenario is strong enough, the loan could receive approval. You are spot-on about the business plan and the need for good personal credit. Thanks for your interest in our blog!
janakkumar n. modi
November 25, 2012 at 10:39 am
During Last Month On 10/29/2012 Hurricane Sandy hit my House-Roof Totally Damaged and now it needs Total Replacement Which Cost around $10000.Now winter has started and Snow-Season is approaching very fast and So,I need my Roof urgently Replaced. Thats why I need Disaster Assistance from you. I hope that looking to my adverse situation , you will Positively reply as early as possible.Thank You in Advance.
November 26, 2012 at 10:38 am
Hi Janakkumar - We're sorry to hear about your roof. You may qualify for a disaster loan, which is directly through the SBA. Here's information on how to apply for a disaster loan: http://www.sba.gov/content/applying-disaster-loan