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Is an SBA loan right for your business?

Many business owners look at outside financing as a way to manage and grow their business. Small Business Administration (SBA) loans are one avenue to assist business owners with growth plans, including business purchases, partner buyouts, business expansions, owner-occupied real estate purchases, construction, renovations, buildouts, refinancing business debt, start-up franchising and working capital needs.

If you think an SBA loan may be right for your business, it’s a good time to connect with your banker or a local lender.

Are you preparing to buy or expand a business? Acquire a building or renovate an existing space? Start a new business? Many of these growth opportunities require capital or business financing and an SBA loan may be a suitable option.

SBA loans can be more flexible and favorable than conventional lending and are designed to assist borrowers who cannot get financing elsewhere. The 7a loan program is the SBA’s most common loan program, although other options may be available or more suitable for your business needs.

What many business owners don’t know if that the SBA utilizes banks as partners to facilitate SBA loans. These loans are partially guaranteed by the SBA, which allows banks to provide financing for businesses on terms that may not be attainable elsewhere, but the SBA itself does not lend.

Here’s a list of the top eight items to compile so your banker or lender can quickly and efficiently assist in your reviewing business financing options, securing the best rates available and ensuring a smooth transaction.

1. Use of Funds: Your lender will need to understand and collect a detailed description of what the funds will used for. For example, a letter of intent or a contract for a purchase or a budget detailing purchase costs, equipment, working capital expenditures and more.

2. Current Financial Statements: If you own your own business(es), or are looking to purchase an existing business, we will need to review the financial statements of that business(es). Prepare to send an income statement and balance sheet, dated current within the last 90 days.

3. Business Tax Returns: If you own your own business(es), or are looking to purchase an existing business, be prepared to send the last three years of business tax returns for all businesses.

4. Business Debt Schedule: If you own your own business(es), please provide a business debt schedule detailing your current business loans, leases, lines of credit and any PPP/EIDL obligations.

5. Personal Tax Returns: Plan to provide your last three years of personal, filed tax returns.

6. Personal Financial Statement: Please prepare a personal financial statement showing your income, assets, and debts. You can ask your lender for a template if you do not have one.

7. Personal Resume: Lenders always want to understand that you have the experience needed to run your business so please provide an updated resume with your loan package.

8. Business Plan & Projections: Lenders want to understand WHY you need these funds – maybe you are building a new facility to host more clients or are buying a plumbing business from a retiring owner. Either way, we want to understand your short- and long-term plans for the business. It is best to include income projections with your business plan to help us understand how funding this loan with help your business grow and thrive financially. You can ask your lender for a template to get you started.

Before any lender approves a loan, they need to understand you have the experience to manage the business, the collateral to cover the risk and enough cash flow to repay your debt. While the list of documents described above is a good launching point for your financial package, be prepared to provide additional items to your banker or lender and answer additional questions around your financing request, as needed. Lenders will also review items such as credit score, history of business owners, financial strength and availability of a cash down-payment into the business.

If you think an SBA loan may be in your future, it is best to start taking any steps necessary to strengthen both your personal and business financial profile and connect with a local banker or lender to find out what options are available for you and to assist as you move towards your business financial goals.

Tomfrancis Tom Francis is a Senior Vice President, SBA and Commercial Lender for InBank. He has over 20 years of experience in the banking and financial services industry as an SBA and commercial banker assisting businesses with SBA 7a and SBA 504 loan products, commercial lending for equipment, lines of credit and other solutions for business acquisition lending, partner buyouts, owner occupied purchase and ground up construction financing. Reach him at [email protected].