When entrepreneurs decide to start their own business, one of the biggest problems they face is obtaining financing. Unfortunately, traditional lenders are hesitant to provide loans to those who have little doubt their business will succeed. When this occurs, aspiring entrepreneurs can look to the Small Business Administration for financial assistance. Over the years, the SBA has helped thousands of businesses get off the ground. For those who desire an SBA loan, here are four essentials that can help them close the deal and secure the financing they need.
Comprehensive Business Plan
Having a comprehensive business plan is a must for any entrepreneur who wants to apply for a SBA loan and get approved. The plan should not only outline the company’s goals but also how the entrepreneur believes the goals will be attained. The plan should include such specifics as an Executive Summary, Marketing/Sales Plan, Products and Services plan, and demographics explaining the company’s target market.
Good Credit History
Before anyone is granted an SBA loan, the lender will check their credit score before making their final decision as to whether the loan will be approved. If it is a startup business, the lender will check the business owner’s personal credit history. If an existing business is requesting funding, the lender will check the company’s credit history. Should the credit score of the loan applicant or their business be very good, they can get a loan with lower interest rates and better repayment terms.
When a lender is considering an SBA loan application, they will want to know what assets the loan applicant has to offer as collateral. Common types of collateral include a home or other real estate, equipment, inventory, or even accounts receivable if the loan is for an existing business. When entrepreneurs are able to provide a lender with sufficient collateral to cover the amount of their loan, their chances of being granted the loan improve substantially. In other words, the more confident the lender is that the loan will be paid back by the business owner on time and in full, the more likely the loan application is to be approved.
Entrepreneurs who apply for an SBA loan must also include financial projections for the lender to examine. According to experts at Lantern by SoFi, “SBA loan eligibility requirements vary depending on the lender and the type of loan program.” While this can be difficult to do for a business that will just be getting started, it is nevertheless an essential part of the loan process. After all, the lender has the right to know how the loan money will be used, when the person expects the loan to be repaid, and specifically why they need the amount of money being requested.
Since SBA loans can often be the catalyst that allows an entrepreneur to realize their dream of owning a business, knowing what lenders require to approve these loan applications is crucial. By having a business plan that is specific and reasonable, entrepreneurs can overcome the financing hurdle and become business owners.