Getting an SBA Loan: What Factors Influence Approval

It’s no secret that small-business loans have a reputation for a longer timeline when it comes to the application process. Considering that, you must put your effort and time into applying for one of the best loan products on the market, like the SBA loan. Getting qualified for this particular loan will allow you to reap the amazing benefits of having more manageable fees, longer repayment terms, and lower interest rates.

But it’s important to note that getting approved for such a loan is not as easy as others. Generally, the particular requirements and qualifications depend on the type of SBA loan program you’re looking to get. To give you general details regarding getting approved, here are some factors that can influence it:

1. Credit scores

One of the factors that lenders look into is the company’s credit reports. Banks and financial institutions such as Guadalupe Bank that offer business loans use this report to verify the borrower’s credibility. There’s a high possibility that such lenders will reject your loan if you have a poor history when paying back debts. Financial experts reveal that this can lead to rejected loans and personal issues such as divorce and illness. Both lenders and financial experts also confirm that a credit score of under 700 isn’t enough to qualify for a small-business loan. If your score is below 700, check your business and personal credit scores for accuracy. Fix any errors.

2. Monthly revenue

Generally, monthly revenue of $5,000 is necessary for small businesses, specifically those operating for less than two years, to get approved for a loan. The number of loans that these businesses can borrow will also depend on their monthly revenue. But apart from that, your bank account’s average daily balance may also impact the amount of funding you can avail of.

The most likely situation is that if the small company cannot maintain the required average daily balance, the request for funding is likely to get rejected. In some cases, the small business will be offered a lower amount of loan. Check with your lender to find out the exact details regarding the monthly payback amount.

3. Business plan

Another critical factor that lenders check when approving a loan is your business plan. You can find lenders who do not require this, but some, particularly banks, will request you to submit a business plan. This allows lenders to check if the company’s pursuits and growth strategies are likely to be profitable. They want to ensure that the money will be put into good use.

Some of the critical aspects that a strong business plan has include a summary of the business and its market, the company goals, business financials (cash flow statements and balance sheets), and profitability projections. It’s also best to explain why you need the loan, as well as how you plan to use and repay it.

business plan

4. Required documents

Legal and financial documents are always necessary when getting loans for any purpose. Providers of SBA loans require different documents, depending on their application process and producers. The common financial specifics include personal and business bank statements, balance sheets, accounts receivable reports, loan history, proof of ownership, and proof of collateral.

As for the legal requirements, you’ll likely have to submit copies of registrations, business licenses, or franchise agreements. Be certain that everything indicated in these documents is accurate. If not, you’re unlikely to get approved for an SBA loan. Prepare, double-check, then organize them for presentation.

5. Down payment size

The last factor is the size of your down payment. While showing the loan provider you’re committed to running your business is a consideration, this usually comes with a price. In most cases, you will need to shell out significant personal equity or a huge down payment to show the lender you can repay the funding.

There are some instances when a financial institution will shorten your repayment period or charge you with extra fees and interest if you can’t afford to provide collateral. Nevertheless, the down payment requirements for an SBA loan are typically lower than others. Call your potential lender to confirm.

By considering these things, you can have a clearer idea of how your application will be evaluated and what you can do to ensure you’re qualified. If you’re ready to apply for an SBA loan, we highly recommend that you still consult a loan specialist or your business advisor before taking any steps.

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