Running a business is tough, especially when a lack of funding is holding you back. There are a number of reasons you may need to borrow money: to cover cash flow gaps, grow your business, expand your location, and more. Whatever your need may be, applying for an SBA loan can seem daunting.
What is an SBA Loan?
It’s a loan in which the government guarantees a portion (usually 50% to 90%) giving lenders a stronger confidence in making the decision to finance a customer’s business needs despite the age or size of the business.
The more you understand about the SBA loan process, the more you can prepare and set yourself and your business for success when you begin the application process. So how can you best prepare? Here are 5 SBA Loan application tips to get you started.
1. Know how much money you need.
This sounds basic but it is one of the most important SBA Loan tips. Look at your need for financing objectively so you can borrow what you need without going overboard or without borrowing enough. Also, be sure to have a prepared purpose for the funds so that you can give lenders a clear picture of where the money is going and why.
2. Know your business.
Understand what risks a lender is taking and look at your business with those in mind. The more you can show that you understand and respect the risk, the more comfortable the lender will feel about taking you on. That said, make sure you present your business accurately, even if it’s not in the strongest place.
3. Have your “5 Cs” ready.
Every SBA lender will have its own criteria in which it uses to qualify you for a loan. Most of them care about what are called the “5 Cs”.
- Capacity to repay the loan.
- Collateral used to secure the loan.
- Capital you'll need.
- Condition of your current business and health of your cash flow.
- Character as a business owner.
All lenders will want to make sure that you have the capacity to repay what you are borrowing. Before you apply for an SBA loan, have the documents you’ll need ready in order to prove that you can repay. These documents may include: a business plan, your business strategy, your tax returns, and your latest financial statements.
4. Clean up your credit.
Similar to your personal credit score, the higher your business credit score, the better terms you may be qualified for.
Lenders will look at your business credit score, your personal credit score, and your current amount of debt. Be sure your credit scores are as healthy as you can make them and that you have paid off as much existing debt as you can before beginning the application process.
5. Keep your accounting smart.
It’s important to show that your business is healthy. Many lenders want to see an accurate representation of where your business stands financially. There are two things that can help you keep your books accurate and organized:
- Reliable accounting software
- A reliable CPA
The team that underwrites your loan will need strong figures and financial ratios. Accounting software can give you an organized presentation of your financial statements so that you can give your lender a clear picture of your business. Hiring a CPA to review your business’ financial statements annually will ensure you are presenting everything accurately and may be able to point out any holes or mistakes.
At HomeStreet Bank, we understand that choosing the right financing can be overwhelming. Our lending experts invest time and thought into your business and will act as an advocate for your success. With more than 100 years of experience providing business financing, HomeStreet has an expert team that can address the all the needs of dental practice owners throughout the West Coast.