Here’s What You Need to Qualify for an SBA 7(a) Loan

If there’s one type of business funding that’s heads and tails above the rest, the SBA 7(a) loan is it.

A Small Business Administration loan is issued by approved financial institutions, partially guaranteed by the government, and can be used for a variety of reasons. Since it is paid back over a long period of time — generally between 5 and 25 years — it can give business owners working capital they need to expand their business, purchase expensive equipment, allow them to fund a new business acquisition, or even cover the refinancing of other debts.

Of course, with some of the lowest interest rates and longest loan terms available, SBA loans are some of the toughest to qualify for. The strict underwriting criteria may prevent many successful business owners from securing SBA funding due to things like low credit scores, too little business experience, or low annual revenue.

Before applying for an SBA 7(a) loan, take your own eligibility into consideration. Is now the best time to apply, or should you perhaps wait to get some aspect of your business finances under control? The following list includes the top criteria that qualifying SBA 7(a) loan applicants always has on their side.

Correct Documentation

A lot of information available will tell you that the SBA loan application is a long and arduous process — and it’s not entirely incorrect. Of course, no application without all the proper documentation is going to find success. To complete your application, you will need the following:

• Driver’s License or Other Identification
• Bank Statements
• Voided Business Check
• Balance Sheet
• Tax Returns, Both Business & Personal
• Profit & Loss Statements
• Business Debt Schedule (if applicable)
• Business Plan

The SBA has plenty of information available online to help business owners in the process of applying for a small business loan. For example, you can read about how to write a business plan for an effective application.

Fall Within Size Requirements

What constitutes a “small business” varies from industry to industry. Typically, a small business can’t exceed 500 workers (though there have been exceptions). However, the SBA determines business size in certain industries by looking at average annual receipts rather than number of employees. Read here to see if your company qualifies as a small business in your industry. 

Strong Credit History

While your personal and business credit history is not the only criterion in your SBA loan application, it’s no secret that it’s one of the most important components. Generally, you will need a score of at least 640 in order to be approved.

In fact, most business owners who qualify for an SBA loan have even higher credit scores — most have at least 680. The SBA and their partnering financial institutions are taking a risk by lending to you at all; if your credit score is on the higher side, they can trust that you will consistently make your loan payments each month over the course of potentially the next few decades.

Also keep in mind any other marks, such as a tax lien or declaration of bankruptcy, that will show up on your credit report. The SBA will want to see that you are three years out from the discharge date of bankruptcy (which typically stays on your credit history for 7-10 years).

And remember, it may not just be your creditworthiness that puts your eligibility on the line. The SBA will look into the credit histories of you and each of your business partners; essentially, any stakeholder with 20% ownership in your business will be considered a primary owner, and will need to be included in the SBA loan application.

Steady Annual Revenue

Contrary to what some believe, SBA loans are often granted to businesses that are already considered successful. In fact, many business owners choose to go after SBA loan to help cover costs during busy periods, to increase their marketing budget, or refinance other debts and save money in the long run.

Since SBA loans are paid back over the course of several (or many) years, monthly payments are typically low, making it feasible to use the capital to work towards your long-term business goals.

Several Years in Business

Another piece of information the SBA looks for is how long you’ve been in business. They want to see that you know what you are doing and have a proven track record of business success. Typically, those approved for an SBA 7(a) loan have been in business for at least two years.

Patience

It should be noted that SBA loans do not provide business owners with a quick-fix option to secure working capital overnight. They can be processed in as little as three weeks, but often take longer. If you need to secure approval and working capital within a short timeframe, consider exploring another form of financing.

And remember, while SBA loans tend to be the gold standard for small business funding, they are not your only option. Do some research on different types of financing before making this big decision.

The post Here’s What You Need to Qualify for an SBA 7(a) Loan appeared first on AllBusiness.com

The post Here’s What You Need to Qualify for an SBA 7(a) Loan appeared first on AllBusiness.com. Click for more information about Meredith Wood.

from neb biz feed 1 http://ift.tt/2ffxueV
via Nebula Biz Local Loans