Entrepreneurs’ Guide to Applying for an SBA Loan
How an SBA Loan could get your business to explode!
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Do you want one of the best ways to get the working capital you need for your business?
There is no question it is the SBA loan.Why are these so great?
The SBA is a great solution if you are looking for small monthly payments since this business loan goes out ten years.
How are the SBA lenders able to do this?
The Small Business Administration is a Federal Agency that partially guarantees these loans.
SBA QUICK START LOAN
FUND in 7 DAYS*
*with all paperwork submitted.
FUND in 7 DAYS*
*with all paperwork submitted.
If these SBA Loans are so great, why doesn’t everyone apply?
The biggest deterrent is the requirements. They are tough. There is a ton of paperwork. My guesstimate is that you will invest about 28 hours of time to get it all together.
On top of that, you must meet the underwriting criteria of the lender. While we offer a quick start loan, it is not uncommon for the funding to take months. Combine that with the fact that certain businesses are ineligible.
How are the rates so low?
This loan does have Personal Guarantees (PG) – that is how you receive the low-interest rate. You must have personal collateral and assets to pledge plus have “skin” in the game.
Do You Want to Refinance Your Outstanding Business Debt?
The SBA debt consolidation loans are a great option. Imagine significantly reducing your payments. Those massive, unwieldy debts that crush cash flow and make day to day operations challenging can be a thing of the past.
- High-interest credit cards
- Any daily or weekly business loans including
- Short term business loans
- High-interest business loans
- Business or merchant cash advances
Do You Need Working Capital to Energize Your Business?
If you need working capital and hate the short-term and high-interest loans, this is for you. Imagine if you can deal direct with an SBA lender and not have to go through the challenge of applying directly at a bank. We all know banks do not make it easy.
Here are six quick ways you can use the capital provided by an SBA loan. They include:
- Bulk purchase of inventory (hopefully at a discount)
- Finance high debt and save, save, save (see above)
- Replaced outdated equipment or technology
- Build your team of employees
- Day to day operations
- Kick off long-term marketing and advertising programs
- The list goes on and on
Here is some unsolicited advice. In my opinion, it is wise to look to see what the Fortune 500 companies do with their debt. Most of these companies look to replace long-term debt with shorter term debt vehicles.
Why do they do this?
There are several reasons. Primarily when they start, they tend to secure debt financing in the form of long-term bonds. This strategy is not available to the small business owner.
Since they can raise capital through the debt (bond) markets, they do not need to go to banks per se. However, the borrowing parallel is still the same.
Big corporation borrows long term and then look to replace that capital with short-term capital. Why do they do this?
For what it is worth, in my honest opinion, it does not make sound financial sense to pay for an asset over the long-term that you no longer use today.
What do I mean by this? Let’s look at it in several different ways.
You buy a piece of equipment for your business. The lifespan of the equipment is 3 – 5 years. Do you take out a 10-year loan to finance it?
Maybe, maybe not. The reason “for” are apparent. Small payments. On the flip side, you might be paying a higher dollar rate and amount. Hence this is why the Fortune 500 companies retire their long-term obligations. Often it is at a much higher rate.
However, I digress.
The reason you do not want to borrow for longer than the life of the investment is that you will be paying for it long after you get rid of it.
Does this make sense? Think about it.
Most business owners that I speak with will present me with this argument. If I have a 10-year loan versus a shorter-term loan, my payments are much lower. I agree, and indeed they are.
I would counter and suggest that a shorter-term loan tailored to meet that expense, in fact, may be less expensive over the long term.
Naturally, you need to be able to meet your cash flow requirements and to service the debt as well.
Let’s use this example. You need $200,000. Your monthly payment for a 10-year SBA loan with an interest rate of 6.75% and APR of 8.26% is $2,296 (275,520).
Let’s assume that you can get the same $200,000 at a rate of 1.35 for 24 months. Your total payments are $270,000. Of course, that monthly payment will be significantly more. However, you save over five thousand dollars, plus you are in a position to borrow again if you need more capital.
My point is that you need to understand your numbers. Just because a rate is lower with a longer term does not mean it is a better option for your business.
In fact, even with the higher monthly payment and higher rate in the loan example above, once you have repaid fifty percent of the loan you are eligible to borrow more.
Just to help you in your quest to secure the capital you need, let me put this in perspective.
Problems with long-term debt
- Cash Flow
- Impinges Growth
- Ties up Collateral and Assets
- Shifts in economy make you more vulnerable
Positives of long-term debt
- You do not have to sell equity in your business
- Low-interest rates
- Growth when the money is used to acquire a building or major piece of equipment
- Shifts in economy make you more stable
Here is a comparison chart that enables you to see some attractive loan options.
- Interest Rate of 6.25% to 7.25% (variable and based on the Prime Rate plus 2.75% to 3.75%) for working capital
- Interest Rate for Real Estate Loan is Prime + 1.5%
- Terms are ten years
- Monthly Payments
- No Prepayment Penalty
- Use of funds for growth of the business and to refinance current business loans, equipment loans, and business credit cards. You could also purchase Real Estate for the Business.
- Funding in 7 days if all paperwork is in right away. Typically, 4 to 6 weeks from start to finish.
Funding Amount $100,000 up to $350,000 for working capitalFunding Amount $350,000 up to $5M to purchase Real Estate for the Business
- 680 ++ FICO Score with good loan to debt ratio (not maxed out on debt)
- Sufficient business and personal cash flow to service all debt payments.
- No bankruptcies, judgments, or foreclosures in the last three years
- No collections or open tax liens
- Current on any government loans
- Minimum 3 years in Business
- Need all owners that are 20% or more on Application
- No Sole Props
- Secured with a Blanket Lien on the Business Assets plus Personal Guarantees
Applying for an SBA Loan:
- Complete & Sign Application
- Business Tax Returns – 3 years with interim P&L
- Personal Tax Return – 3 years (all owners over 20% ownership)
- Business Debt Information – we will email you for this information
- Profit and Loss Statement a.k.a. Income Statement
- Balance Sheet
- Collateral 10% – 20%
5 MINUTE PRE-APPROVALS
As soon as we receive ALL the above, we will have a pre-approval for you quickly. Incomplete submittals will create a delay in pre-approvals. We will then reach out to you with additional items needed. If all the paperwork is submitted, it can take seven business days to fund. Funding typically is completed within 4 to 6 weeks.
Call us at 888.456.9223 for a free consultation to find the best fit for your small business loans at the best rate and terms.
Essential Steps to Apply for an SBA Loan
Do you know the four critical steps to apply for an SBA loan offered by banks and alternative business loan lenders like Sunwise Capital through the Small Business Administration?
If not this guide will give you an overview of the process.
Here are the multiple steps you need to take to apply for the SBA’s most popular kind of SBA small business loans: the SBA 7a loan.
You will also find the details that you need if you are leaning towards securing an SBA 504 business loan for your business.
#1. Check if you are eligible to apply for a small business loan through the SBA program.
For the SBA’s financial partners to approve your small business loan application, you will, of course, need to provide ample proof that you can comply with the terms of your business loan agreement. For you to do that, you need the following:
- 680+ FICO score
- 10% – 20% down payment
- Proof that your business has been running for at least two years
- Moreover, proof that your business is profitable
Aside from these requirements, your company also needs to fit in certain categories. First off, your is your venture classified as a small business? According to the U.S. Government, this means that your company should have no more than 500 employees.
Plus, your annual sales should not exceed $7.5 M. You need to provide proof that you will be using the small business loan for general business purposes.
#2. Locate an SBA Lender
With your requirements at hand, the next thing you must do is to find the banks or lenders that offer small business loans through the SBA program.
Sunwise Capital has a direct relationship with a nationwide top 5 preferred SBA Lender. This lender specializes in SBA 7(a), and SBA 504 loans. There is no shopping. You are dealing direct.
The SBA website has an easy-to-use bank search function that you can use for this purpose. There are more than 100 small business lenders listed.
It would be wise to work with a lender like Sunwise Capital who is known to provide small business loans with the SBA. You will have a smoother and faster application process and a higher approval rate.
We are pros at working with small business owners like yourself. We see hundreds of loan applications per month.
When you go to the bank, you start dealing with the Business Account Manager. If you are lucky, this is someone who is out of school for at least a year. They never owned a business, and there is less of a chance they understand your business.
Their job is to tell you “yes,” we can get you approved. That is so you do not get aggravated and close your account and move it to a competitor’s bank.
According to a study done by Harvard University, the average business owner will visit 2.8 banks trying to get a loan.
The coup de gras, is that if you return to the original banks where you started. You guessed it; you have a new account manager.
How do I know this to be true? Over twenty years as a small business owner and entrepreneur. I can tell you personally, “Been there, done that.”
#3. Do the Paperwork
You need to put together different documents that will prove that you are qualified for the SBA small business loans that lender of choice offers.
Sunwise Capital will work with you and provide you with the necessary list of documents and help you each step of the way.
You will also need a separate set of documents if you are planning to acquire an existing business.
In most cases, you also need to present a comprehensive business plan, which will outline your financial projections for the next two years.
#4. Fill Out the SBA Forms
The forms are not like March Madness and filling out your brackets.
The SBA requires applicants to fill out forms that contain information about the business and the function they intend the funds to play.
Do you need to get copies of these forms? You can either go to the SBA directly or Sunwise Capital if you want a hassle-free experience.
Once you have the documents completed, you get to speak with your small business lender.
If you do not want that hassle, at Sunwise capital, we can get you a pre-approval in under 10 minutes. Then if it makes sense, you fill out the complicated paperwork.
Most applications for small business loans with the banks take anywhere from one to two weeks for that pre-approval and many more weeks for funding.
Upon approval, you will undergo a closing process, the length of which varies depending on the terms of your loan. It is not unusual for the banks to take up to ninety days from start to finish.NOTE: There is a huge advantage working with a top alternative lender like Sunwise Capital.
If you do not meet the requirements for the SBA loan or you need your small business loan to fund quickly, you can get approved in 24 hours with us.
We have all the information you need to get a small business loan for your business up to $2M.
SBA Loans Can Increase Your Business
Getting approvals for your small business loans are what you want to get when you ask for it. Unfortunately, it is not that easy, especially when trying to secure Small Business Administration Loans.
Virtually all businesses want or need more capital. This need for money is especially true with small businesses striving to survive alongside the big and mature competitors in its industry.
Whether your goal is a start-up, open a franchise or to grow and expand your existing business, it is worth knowing and learning about SBA Loans as a means of financing your business venture.
Raising capital is a primary business function that helps in the financial management of your company. Having knowledge on what SBA Small Business Loans offer is beneficial for survival in the dynamic world of business.
The Evolution of SBA Loans
SBA Business Loans are one way to raise capital targeted for small businesses. The Small Business Administration guarantees the SBA Loans. However, they do not lend the money directly to you.
The Small Business Administration provides a financial backstop to the lender. They guarantee a portion of the loan. They are a government agency. The SBA aims to hit two birds with one stone.
First, by supporting the needs of small businesses in need of financing.
Second, by reducing the risks of the small business lenders, such as micro-lending institutions, local banks, and community development organizations, who administer the lending.
SBA Loans are an alternative for those ineligible to get a loan directly from traditional bank lenders. The bank may pass on your loan if they perceive too much risk.
What the SBA offers is an opportunity for the bank or lender to accept and approve your loan. They are willing to do this when the SBA is guaranteeing a percentage of the loan in the event of a default.
These SBA loans are your target if you want a low-interest rate and varied lending options for your small business or non-profit organization.
If this sounds appealing, then getting that approval should be worth a try. Here are the basics.
There are eight different programs for you to secure an SBA Business Loan. These include:
- General Small Business Loan
- Microloan Program
- Real Estate Loans
- Equipment Loans
- Disaster Loans
- SBAExpress Program
- HUBZone Program
1. The General Small Business Loan or 7a is the most common loan. A start-up company or small business to support its operations can use it.It can also be utilized by an existing business for further growth, for working capital, inventory, equipment and real estate. The maximum loan guarantee is up to $5 million or 75% of the total loan amount (whichever is less), and the terms can range from 10 to 25 years.
2. The Microloan Programs originate from not-for-profit community-based organizations with experience in lending. This program is structured for small businesses and for nonprofit child care centers that need funding.The minimum business loan is for $35,000. Please bear in mind that this SBA loan is not allowed to consolidate debt or to purchase real estate.What this accomplishes is it does open the door for those that couldn’t meet the credit standards from traditional lenders. If you have bad credit or less than perfect personal credit, check with your bank or lender to see if they will consider an SBA Loan with bad credit.
3. The Real Estate Loans or the SBA loan CDC/504 provides financing for real estate. This 504 Loan is the SBA loan to choose if your business is looking for growth and expansion.
4. The Equipment Loans or the SBA loan CDC/504 provides financing for equipment as well as real estate. It is the same as above.
5. The SBA Disaster Loans is when a company, a non-profit organization, or a homeowner experiences damage to real estate, property, equipment, or inventory from a catastrophe or an unfortunate natural event. It is provided to assist in repair or replacement of the damaged item or property.
6. The SBAExpress Program is a specialized SBA loan, for amounts up to $350,000 or less, that offers express or fast processing.
7. CAPLines is an SBA loan that provides a short-term credit line with a guarantee of up to $2 Million. It specializes in several other kinds of SBA loans depending on the business cycle or purpose of the loan.
8. The HUBZone Program is an SBA loan designated for rural and urban development. There are grants, federal or state tax breaks, and other incentives that come with this SBA loan. One qualification, however, is your business’ ability to create new jobs in the community.
The general features of the SBA Loans include requiring your business to be in existence for at least two years. It must have minimum revenue of $50,000 and a 640+ credit score to be eligible for the loan. Moreover, a business that has filed for bankruptcy can be provided a loan after three years after the filing.
The SBA Loan is not the easiest way to raise the capital required by your business, but it is one option that will help you get the necessary financing when all the other alternatives may not be at arm’s length.
Sunwise Capital stands to help you secure the financing you need. You can speak to an underwriter directly to understand your small business loan options and get the help you need understanding the alternatives available to you.
Why SBA Loans are Back
In one word, “optimism.” Small businesses and the individuals that own them are the backbones of the American economy. Whether it is an SBA loans for women or a minority-owned business, the SBA stands to back these loans.
We support all American business and their owners.
The U.S. Small Business Administration or SBA gives business owners and merchants the opportunity to borrow money. This opportunity comes in the form of SBA loans.
The money lent by the SBA bank or small business lender may is for any approved business purpose. It must be used 100% in the company.
FREQUENTLY ASKED QUESTIONS
Below are the most commonly asked questions about SBA loans. It talks about how a business owner can make the most out of the SBA loan program:
Who Funds these SBA Loans?
SBA stands for Small Business Administration. It is a federal agency. Its goal is to help and empower entrepreneurs. It enables them to take their business ventures to the next level. It does this by offering different small business loans. These SBA loans are advantageous to business owners who need a little help with their finances.
Typically, the SBA loan is for growth or expansion. The issuing bank must initially approve the SBA loan. The business owner must apply for a small business loan according to the SBA loan program requirements.
SBA loans are not implemented and provided by the Small Business Administration itself. These SBA loans are offered and processed by their lending partners.
The SBA loans utilize federal finances to guarantee a certain portion of business owners’ small business loans. As a result, the banking institutions are more inclined to approve applications from small-scale entrepreneurs.
In a nutshell, the SBA minimizes the risks for small business lenders. Remember, the SBA does not lend money directly, but it makes the approval process easier and smoother by reducing potential hazards that usually prevent small business loan lenders from dealing with entrepreneurs.
What are the Pros and Cons of SBA Loans?
Its main advantage is the fact that business owners can use it to fund virtually any kind of business need. Most business owners often use the money that they get from SBA loans to increase their capital, refinance debts from other institutions, purchase better equipment and machinery, and fund acquisition of competing businesses to name but a few.
The payment terms offered by SBA loans are also better than the usual bank small business loan. Most entrepreneurs can take advantage of the SBA loans’ usually have low down payment options.
Payment terms are also longer, and interest rates are known to be much less vs. other small business loans.
What’s the downside? Completing the application process is usually longer and more tedious than the standard loan. That is because you need to file a separate set of requirements to the SBA. As a result, time spent doing paperwork is longer.
When dealing with the traditional lending institutions, the time spent waiting for your application approval is also quite a bit longer. You could easily be looking at 90 days if not more.
Are there Different Kinds of SBA Loans?
When applying for an SBA loan, consider three things – your business objectives, the size of your business, and length of time that your enterprise has been in operation.
The two most popular kinds are the SBA 7(a) loan and the SBA CDC/504 loan.
The SBA 7(A) is the more traditional small business loan.
The SBA CDC/504 loans work best for entrepreneurs who need funding for general business processes, like purchasing fixed assets, including machines or real estate.
The SBA also offers a Microloan option, which perfectly suits business owners who need no more than $50,000.
To know which kind of SBA loan best suits your needs and find the SBA loan options that offer the best terms, seek advice from local bank loan supervisors or qualified business loan lenders like Sunwise Capital.
Aside from helping you determine which SBA loan will work best for your business, they can also assist you through the application process.
Sunwise Capital can also provide you the assistance and information that you need whether you are planning to apply for an SBA loan, one of our term loans, unsecured small business loans or our merchant cash advances.