Here are a few recommendations to facilitate getting your SBA loan approved.
- Provide details on exactly how much financing you need and how you will use it.
Banks like specifics, so be prepared to provide a precise dollar amount and give details of how you will use the funds. For example, if you're seeking $250,000 to expand your business, explain to your lender how you will use the funds, such as you need $200,000 to purchase and install equipment and $50,000 for working capital to support marketing expenses and three months of employee salaries while you ramp up production. Banks are impressed with research, so provide a written quote for the equipment. If you're planning to consolidate debts and refinance for a longer term, provide copies of your promissory notes and state how much you think you can save with the refinance. Detailed loan amounts with copies of bids, promissory notes or proposals can help strengthen your loan package because your lender can understand the facts backing up the request.
- Provide information about company management.
When banks lend money, they like to understand who runs the company and to be familiar with their backgrounds. This is a key factor in presenting your loan for approval. Help your lender by providing a resume for each owner or key employee and describe their functions and responsibilities. If certain key positions have not yet been filled, include a thorough job description of the type of person you are seeking. This will confirm for the lender that you have analyzed your needs and have determined the requirements of the position.
- Be prepared to offer collateral.
The SBA requires collateral to fully secure your loan, to the extent that it is available. If you own a home, you will likely be asked to pledge it. The SBA may also request a lien on your business assets and may require life insurance on sole owners of a business. Most loans made by banks are secured loans, and therefore approval may be contingent on a guarantor who is willing to offer collateral.
- Detail your credit history and credit score.
Your credit score is an integral part of the loan process because it illustrates the ways in which you handle your other obligations. Your bank will eventually run its own credit report, but if you can provide information prior to them doing so, you can discuss any issues ahead of time. If you don't know your credit score, take the time to research it on the Internet, where low-cost reports are available. If you've had problems such as identity theft, bankruptcy, or divorce, you'll want to discuss it with your lender up front and provide proof that issues have been resolved or discharged.
- Provide complete copies of tax returns, financial statements and bank statements.
While it can be time consuming to gather these documents, your bank will want to know everything about you and your business if they are to become, in essence, your financial partner. One way to streamline the process is to scan your financial documents and provide them to your lender in the form of a disk or a flash drive. Your lender may even be willing to accept your documents via email.
- Explain how you'll achieve your projections.
Now is the time to brag about you and your business and to sell your lender on your vision and forecasted success. If customers have expressed a desire to do business with you, give your lender a copy of their correspondence. Prove to the lender that a market for your product or service exists and demonstrate the validity of your sales and expense figures. If your Cost of Goods Sold (COGS) has historically been 65% and you can lower them to 55%, provide details of your calculations. If the loan for which you are applying is intended for a new piece of equipment that will allow you to reduce your staff needs, describe how this will occur and show the math.
- Expect questions and be patient.
Your lender needs to connect with your story and business and will appreciate your assistance in doing so. Take the time to thoroughly explain the nature of your business, your vision and your background. Your banker will likely be presenting your loan approval to other parties, so he or she will need your help in making your case. The process may be time consuming, so it helps to be patient. Feel free to request an estimated time frame for approval and respect that the projected date may slip a bit. It's best not to call or email your lender frequently -- remember that in lending, no news is often good news.
Rachel Zippwald is a vice president and SBA Business Development Officer for California Bank & Trust. On a nationwide basis, California Bank & Trust and its parent, Zions Bank, are among the largest SBA 504 lenders in the nation.