QUESTION: I understand it’s easier to obtain a loan from the Small Business Administration than from a commercial bank. What do I need to do to be considered for an SBA loan?
ANSWER: The SBA does not make loans. Rather, if you qualify, it guarantees between 75% and 85% of the loan proceeds, due to default, to banks. You’ll pay an additional 3% to 3½% interest for the guarantee, added to the interest charged by your bank.
Suffice to say, you should first try to secure a direct loan from your bank. Failing that, you should ask if it takes part in SBA guaranteed loan programs.
To be considered, you’ll need to provide a business plan that outlines your company’s goals and how you intend to achieve them. SCORE provides an outline for start-up and established business that can be accessed at https://tinyurl.com/82u4zyzd
Your plan should state the amount of money you want to borrow and how it will be used to grow the business. If you’re a start-up, be sure to request enough to cover initial and ongoing expenses incurred until you break even.
Your lender must be convinced of your ability to repay the loan. Your business plan should include a 12-month cash flow analysis and a two-year profit and loss projection. These forms are also available from SCORE.
You also should have three years of business and personal income tax returns as well as a personal financial statement available from SCORE.
The SBA will require you to personally guarantee the loan. Having collateral will reassure the lender of your ability to repay the loan and qualify you for a lower interest rate.
If you can’t comply with all of the above, you still may be deemed eligible for a loan guarantee. The SBA delivers 33% of its loans to women and minority-owned businesses.
Gray Poehler is a volunteer with the Richmond Chapter of SCORE, Counselors to America’s Small Business. To ask a question or request free and confidential business counseling, go to Richmond.score.org/mentors. Learn more about SCORE’s workshops on the website or by calling (804) 350-3569.